Eliciting Utility for (Non)Expected Utility Preferences Using Invariance Transformations

André de Palma (1, 2) , Nathalie Picard (2, 3) , Jean-Luc Prigent (3)

1 ENS Cachan - École normale supérieure - Cachan
2 X-DEP-ECO - Département d'Économie de l'École Polytechnique
3 THEMA - Théorie économique, modélisation et applications

This paper presents a methodology to determine the preferences of an individual facing risk in the framework of (non)-expected utility theory. When individual preference satisfies a given invariance property, his utility function is solution of a functional equation associated to a specific transformation. Conversely, there exist transformations characterizing any given utility function and its invariance property. More precisely, invariance with respect to two transformations uniquely determines the individual utility function. We provide examples of such transformations for CARA or CRRA utility, but also with any other utility specification and discuss the example of DARA and IRRA specifications.

Mots clés: elicitation of preferences; Utility theory; risk aversion; elicitation of preferences.

Domaines: Economies et finances

André de Palma, Nathalie Picard, Jean-Luc Prigent. Eliciting Utility for (Non)Expected Utility Preferences Using Invariance Transformations. 2010. ⟨hal-00517726⟩