Decomposing a Utility Function Based on Discrete Distribution Independence

Ying He (), James S. Dyer () and John C. Butler ()
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Ying He: Department of Business and Economics, University of Southern Denmark, DK-5230 Odense M, Denmark
James S. Dyer: Department of Information, Risk, and Operations Management, McCombs School of Business, University of Texas at Austin, Austin, Texas 78712
John C. Butler: Department of Finance, McCombs School of Business, The University of Texas at Austin, Austin, Texas 78712

Decision Analysis, 2014, vol. 11, issue 4, 233-249

Abstract: For two-attribute decision-making problems, the multilinear utility model cannot be applied when the risk aversion on one attribute depends on the level of the other attribute. We propose a family of general preference conditions called n th-degree discrete distribution independence that can accommodate a variety of dependence relationships between two attributes. The special case of second-degree discrete distribution independence is equivalent to the utility independence condition. We focus on third-degree discrete distribution independence that leads to a decomposition formula that contains many other preference models as special cases.

Keywords: multiattribute utility function; generalized multiplicative utility; discrete distribution independence; interdependent attributes; utility assessment (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ordeca:v:11:y:2014:i:4:p:233-249

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