Journal Article

No. 2012-29 | July 23, 2012
Psychophysical Interpretation for Utility Measures PDF Icon

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 Klein–Rubin 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.

Data Set

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The data set for this article can be found at: http://hdl.handle.net/1902.1/17166

JEL Classification

A12 D01

Citation

Yuqing He (2012). Psychophysical Interpretation for Utility Measures. Economics: The Open-Access, Open-Assessment E-Journal, 6 (2012-29): 1—35. http://dx.doi.org/10.5018/economics-ejournal.ja.2012-29

Assessment

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Comments and Questions


Anonymous - Econometrics
July 24, 2012 - 10:25

If I had my way the subject of econometrics sould be limited to single variable functions, for which it was originally developed to meet. It is a mistake and a confusion to try to apply it here and I do not agree with the approach taken.


Yuqing He - Let us discuss a specific problem
November 12, 2012 - 01:34

See attached file


Yuqing He - Emotion Utility and Perception Utility
January 09, 2013 - 07:56

See attached file


Yuqing He - Critical Investigations to Revealed Preference Theory
January 09, 2013 - 14:48

See attached file