Sources of Bias in Assessment Procedures for Utility Functions

Utility functions are an important component of normative decision analysis, in that they characterize the nature of people's risk-taking attitudes. In this paper we examine various factors that make it difficult to speak of the utility function for a given person. Similarly we show that it is...

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Bibliographische Detailangaben
Veröffentlicht in:Management Science. - Institute for Operations Research and the Management Sciences, 1954. - 28(1982), 8, Seite 936-954
1. Verfasser: Hershey, John C. (VerfasserIn)
Weitere Verfasser: Kunreuther, Howard C.
Format: Online-Aufsatz
Sprache:English
Veröffentlicht: 1982
Zugriff auf das übergeordnete Werk:Management Science
Schlagworte:Utility/Preference-Theory Estimation Information Processing Economics Behavioral sciences Law Health sciences Philosophy
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520 |a Utility functions are an important component of normative decision analysis, in that they characterize the nature of people's risk-taking attitudes. In this paper we examine various factors that make it difficult to speak of the utility function for a given person. Similarly we show that it is questionable to pool risk-propensity data across studies (for descriptive purposes) that differ in the elicitation methods employed. The following five sources of bias or indeterminacy are hypothesized and demonstrated. First, certainty equivalence methods generally yield greater risk-seeking than probability equivalence methods, Second, the probability and outcome levels used in reference lotteries induce systematic bias. Third, combining gain and loss domains yields different utility measures than separate examinations of the two domains. Fourth, whether a risk is assumed or transferred away exerts a significant influence on people's preferences in ways counter to expected utility theory. Finally, context or framing differences strongly affect choice in a nonnormative manner. The above five factors are first discussed as essential choices to be made by the decision scientist in constructing Von Neumann-Morgenstern utility functions. Next, each is examined separately in view of existing literature, and demonstrated via experiments. The emerging picture is that basic preferences under uncertainty exhibit serious incompatibilities with traditional expected utility theory. An important implication of this paper is to commence development of a systematic theory of utility encoding which incorporates the many information processing effects that influence people's expressed risk preferences. 
540 |a Copyright 1982 The Institute of Management Sciences 
650 4 |a Utility/Preference-Theory 
650 4 |a Estimation 
650 4 |a Information Processing 
650 4 |a Economics  |x Microeconomics  |x Economic utility  |x Utility functions 
650 4 |a Behavioral sciences  |x Leisure studies  |x Recreation  |x Games  |x Gambling  |x Lotteries 
650 4 |a Law  |x Legal strategies  |x Legal defenses  |x Assumption of risk 
650 4 |a Economics  |x Economic disciplines  |x Financial economics  |x Finance  |x Financial analysis  |x Risk management  |x Risk aversion 
650 4 |a Economics  |x Economic disciplines  |x Financial economics  |x Insurance  |x Insurance deductibles 
650 4 |a Behavioral sciences  |x Psychology  |x Cognitive psychology  |x Emotion  |x Emotional states  |x Ambivalence 
650 4 |a Economics  |x Microeconomics  |x Economic utility  |x Expected utility 
650 4 |a Health sciences  |x Health care industry  |x Health care administration  |x Health care finance  |x Health insurance 
650 4 |a Philosophy  |x Applied philosophy  |x Social philosophy  |x Social criticism  |x Critical theory  |x Metanarratives  |x Normativity 
650 4 |a Economics  |x Microeconomics  |x Economic utility 
655 4 |a research-article 
700 1 |a Kunreuther, Howard C.  |e verfasserin  |4 aut 
773 0 8 |i Enthalten in  |t Management Science  |d Institute for Operations Research and the Management Sciences, 1954  |g 28(1982), 8, Seite 936-954  |w (DE-627)320623602  |w (DE-600)2023019-9  |x 15265501  |7 nnns 
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856 4 0 |u https://www.jstor.org/stable/2631136  |3 Volltext 
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