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Some behavioral aspects of eliciting utility (using the MacCrimmon-Toda method for ordinal utility and the standard gamble method for cardinal utility) Wong, Eugene

Abstract

This study investigates some behavioral aspects and properties of eliciting utility. Previous investigations devoted to empirical utility measurement have stemmed from the work of experimentalists who have applied various utility models in an effort to measure utility. However, empirical studies devoted to investigation into behavioral factors which may bias the measurement are lacking and it is this gap in the utility literature that prompted our empirical study. We chose to examine the standard gamble method for deriving von Heumann-Morgenstern cardinal utility and the MacCrimmon-Toda method for deriving indifference curves. The domain of choice involved hospital days in bed with risk of additional days. The analysis consisted of identifying relationships between behavioral factors and properties of choice predictions obtained by the methods. Furthermore, the study also provided a means for comparing properties of the two methods for eliciting utility. Among other findings, the results show that not all subjects expressed agreement with the appropriateness of specific axioms of behavior which underly some methods for eliciting utility and that not all people express constant sensitivity over all stimuli levels. The two results in themselves suggest that a priori assumptions regarding "rationality" and infinite sensitivity may have to be reexamined. The preferences elicited by both methods seem to suggest that the subjects follow a linear rule to trade-off sure outcome and risk. Although correspondence between test-retest preferences predicted by the standard gamble was generally closer than that for the MacCrimmon-Toda method, the MacCrimmon-Toda method had generally better predictive ability. Our results also indicate that certain behavioral factors seem to affect preferences predicted by the methods as we hypothesized. This observation has implications for practical measurement of utility since "successful" application of methods for eliciting preferences depends upon our awareness of which behavioral factors may bias the measurement.

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