Management Science Vol. 32 No. 1 1986
“Lottery Equivalents”: Reduction of the Certainty Effect Problem in Utility Assessment
Abstract
This note describes a simple procedure for assessing utility functions which avoids many difficulties of the standard techniques. The conventional methods suffer from at least three drawbacks; they (1) generate utility functions that depend on the probability levels used; (2) chain responses from one question to the next, so that any bias is propagated and even magnified; and (3) change ranges and reference points constantly, introducing range effects and other distortions. Noting the evidence linking the dependence of utility functions on the “certainty effect,” our method: (1) compares lotteries with other lotteries rather than certain amounts; (2) does not “chain” responses; and (3) consistently uses “elementary lotteries” which control for range and reference points. Experimental work supports the proposed procedure.
- DOI
- 10.1287/mnsc.32.1.56
- Volume
- 32
- Issue
- 1
- Pages
- 56-60
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref