We construct Wald tests for the null hypotheses that the coefficient of relative risk aversion equals 0, 1, or 2: 0 indicates a linear utility function
in terms of income; 1 indicates a logarithmic utility function
; and 2 corresponds to a value often used in the literature, which indicates a higher degree of concavity.
The overall utility function
values for each alternative can be obtained by the following equations:
(1) was formed by normalization of individual criteria of the alternatives matrix for avoiding probable situation when lacking value of individual utility function
in relation to one criterion may be compensated by increasing values of individual utility function
in relation to the other criterion.
That is, what utility function
or demand equation should be used for estimating the welfare associated with the introduction of a new good?
The condition of applying the additive utility function
is that the attributes should be additively independent.
It has also been posited that by including money in the utility function
, this allows the precautionary and store of value motives to be examined (Holman 1998).
The observation of the wage-risk trade-off reveals VSL and makes the calibration of the utility function
Since attitudes drive behavior of the "individual self" and norms (values) the behavior of the "collectivist self", it is reasonable to model market-related behavior (I) in an individualistic culture with a single dominant individual-level utility function
and (2) in a collectivistic culture with dual individual-level and group-level utility functions
The utility function
for each criterion is identified and listed in Table 2.
From an economic policy perspective, the more important choice is not which utility function
to use, but rather which definition of society is chosen.
The question is what restrictions this assumption puts on the utility function
The expected form utility function
of the two proposed which measures investors' preference between different investment alternatives is the following: