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A Utility Function for Time Streams Having Inter-Period Dependencies

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  • David E. Bell

    (Cambridge University, Cambridge, England)

Abstract

A utility function that is separable over time cannot accurately reflect the preferences of a decision maker whose attitude toward risk in a given period of a time stream depends on the particular outcome in the previous and/or following period. In this paper we use conditional utility independence to give assumptions that do allow such preferences to be quantified. For a T -period time stream the result requires the assessment of T − 1 two-period utility functions and one scaling constant. If stationarity assumptions are appropriate, only one two-period utility function and two constants are required.

Suggested Citation

  • David E. Bell, 1977. "A Utility Function for Time Streams Having Inter-Period Dependencies," Operations Research, INFORMS, vol. 25(3), pages 448-458, June.
    • Handle: RePEc:inm:oropre:v:25:y:1977:i:3:p:448-458
    DOI: 10.1287/opre.25.3.448
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    Cited by:

    1. Manel Baucells & Rakesh K. Sarin, 2010. "Predicting Utility Under Satiation and Habit Formation," Management Science, INFORMS, vol. 56(2), pages 286-301, February.
    2. repec:cup:judgdm:v:16:y:2021:i:6:p:1324-1369 is not listed on IDEAS
    3. Ali E. Abbas & Ronald A. Howard, 2005. "Attribute Dominance Utility," Decision Analysis, INFORMS, vol. 2(4), pages 185-206, December.
    4. Chai, Junyi, 2021. "A model of ambition, aspiration and happiness," European Journal of Operational Research, Elsevier, vol. 288(2), pages 692-702.
    5. Sudeep Bhatia & Graham Loomes & Daniel Read, 2021. "Establishing the laws of preferential choice behavior," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 16(6), pages 1324-1369, November.

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