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Title:Psychophysical interpretation for utility measures PDF Logo
Authors:He, Yuqing
Issue Date:2012
Citation:[Journal:] Economics: The Open-Access, Open-Assessment E-Journal [Volume:] 6 [Issue:] 2012-29 [Pages:] 1-35
Series/Report no.:Economics 2012-29
Abstract:The paper explores utility measures by combining experiments with mathematical derivations in the psychophysics paradigm. The analysis on the ultimatum game experiment reveals evidences for the utility threshold and thus supports Bernoulli's utility logarithmic law. Both experimental results and theoretical derivations show that the logarithmic law is suitable for the description of commodity choice and the power law for risk choice. The further mathematical demonstration indicates the logarithmic law for utility scaling to be a KleinRubin utility function, a utility function well defined in microeconomics. Based on this, the experimental utility measure is connected with the econometric model Linear Expenditure System, and presents an experimental procedure for testing the utility maximization hypothesis, which will resolve a long unsettled perplexity in a fundamental stone of economics since Gossen proposed it in 1854.
Subjects:psychophysics
ultimatum game
utility function
logarithmic law
power law
JEL:A12
D01
Persistent Identifier of the first edition:doi:10.5018/economics-ejournal.ja.2012-29
Creative Commons License:http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type:Article
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Journal Articles

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