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Risk and prices in separable utility functions
Author(s) -
EngelbrechtWiggans Richard
Publication year - 1986
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090070312
Subject(s) - separable space , risk aversion (psychology) , economics , decision maker , mathematical economics , relation (database) , price setting , expected utility hypothesis , econometrics , microeconomics , mathematics , computer science , mathematical analysis , management science , database
Many decision problems involve more than one attribute. Separable multi‐attribute utility functions are commonly used to model preferences in such situations. We consider the case in which one attribute can be identified as money. The price at which non‐monetary attributes may be substituted by money, the relation of this price to a decision‐maker's wealth, and the implications on attitudes toward risk are examined for additively and multiplicatively separable multi‐attribute utility functions. In particular, it is shown that additive separability, price independent of wealth and monetary risk‐aversion are mutually inconsistent.