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Notation
Let X be an attribute and Y a set of n 1, n > 0, attributes.
Compare the following:
u(X, Y )
UX (X)
(possibly rescaled)
600
15
Acres
Cost
60 200
(15, 200)
(50, 300)
(1 p)
(60, 600)
u(X, yi )
if n > 1 then
u(X, Y ) is an n-attribute utility function;
u(X, yi ) is a subutility function for X given a fixed
value-assignment yi to attributes Y ;
uX (X) is a conditional utility function for X: a (possibly)
re-scaled function u(X, yk ) for some no longer explicit
yk .
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An example
u(X, Y ) = kX uX (X) + kY uY (Y )
u has a multilinear form if for constants kX , kY , and kXY
=
=
=
=
=
Now, however, the City finds out that all alternatives result in at
least a loss of 350 acres of land, and we rescale uC such that
uC (350) = 1. The expressed indifference still holds, implying that
u(60, 350) = kC 0 + kA 1 = u(50, 600) = kC 0.2 + kA 0
From this it follows that kC = 5 kA .
Did C just turn from three times as important as A to five times
as important?
We conclude that
uA (400) uA (200)
0.5 1.0
0.5
a
=
=
=
b
uC (40) uC (30)
0.4 0.7
0.3
And thus find that u(C, A) = 0.5 uC (C) + 0.3 uA (A)
Is this valid?
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Pricing out:
Assess the marginal rate of substitution, that is, determine the
value of one objective in terms of another.
Let X and Y be two attributes with values x1 . . . xn , n 2,
and y1 . . . ym , m 2. Let eX and eY be the units of
measurement for the two attributes, respectively.
Suppose you are willing to sacrifice s units of Y for 1 unit of X.
Then for all xi , yj : u(xi , yj ) = u(xi + eX , yj s eY )
If u(X, Y ) is additive and uX (X), uY (Y ) are linear functions,
then this implies that
a uX (xi ) + b uY (yj ) = a uX (xi + eX ) + b uY (yj s eY )
As a result,
a
uY (yj s eY ) uY (yj )
=
b
uX (xi ) uX (xi + eX )
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Swing weighting:
Consider a set of n 2 attributes X1 , . . . , Xn . Swing weighting
assigns weights to attributes based on either a rank-order or a
rating on attributes and one consequence.
Take the (theoretically) worst possible consequence as
benchmark. Then apply the following procedure:
rate(benchmark) 0 ;
rank(benchmark) n + 1 ;
for i = 1 to n
do Z answer to:if you could swing one attribute from worst
to best value, which would you swing?;
Swing(Z);
rank(Z) i.
if i = 1 then rate(Z) 100
else rate(Z) answer h0, 100i.
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n rank(Xi ) + 1
reversed rank(Xi )
=
number of ranks
n+1
Attribute
to swing
(benchmark)
Cost
Acres
total:
consequence
mill. e acres
60
600
15
600
60
200
direct rating:
rank rate
2+1
0
1 100
2
30
3 130
rank-sum weighting:
w(C) =
100
= 0.77
130
w(C) =
21+1
2
=
3
3
w(A) =
30
= 0.23
130
w(A) =
22+1
1
=
3
3
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Lottery weights:
Consider two attributes X and Y (the following extends
straightforwardly to n > 2 attributes).
(x+ , y 0 )
(15, 600)
kC
(1 kC ) (60, 600)
(x , y )
(1 p)
(15, 200)
1.0
(x0 , y 0 )
(60, 200)
kA
(15, 200)
(1 kA ) (60, 600)
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D EFINITION
0.5
(xi , yk )
(xi , yl )
0.5
(xj , yl )
0.5
(xj , yk )
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This means that all subutility functions u(X, yk ) are the same, up
to translation: u(X, yk ) = u(X, yl ) + ckl for some constant ckl .
...
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L EMMA
u(X, Y ) = kX uX (X) + kY uY (Y ),
where
u(X, Y ) is normalised with u(x1 , y1 ) = 0 and u(xn , ym ) = 1;
uX (X) is a conditional utility function on X, normalised by
uX (x1 ) = 0 and uX (xn ) = 1;
uY (Y ) is a conditional utility function on Y , normalised by
uY (y1 ) = 0 and uY (ym ) = 1;
kX = u(xn , y1 ) and kY = u(x1 , ym ) are positive scaling
constants, summing to 1.
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= u(xi , yl ) + u(xj , yk )
We conclude that X and Y are additive independent.
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1.0
(15, 600)
(1 kC ) (60, 600)
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D EFINITION
1.0
(xj , yl )
(xi , yl )
(1 p)
(xk , yl )
An example
Then we have:
X is utility independent of Y :
[1.0, (x1 , y0 )] [0.6, (x0 , y0 ); 0.4, (x2 , y0 )]
[1.0, (x1 , y1 )] [0.6, (x0 , y1 ); 0.4, (x2 , y1 )]
[1.0, (x1 , y2 )] [0.6, (x0 , y2 ); 0.4, (x2 , y2 )]
u(xj , yl ) u(xn , yl )
is a linear function of u(X, yl ).
u(x1 , yl ) u(xn , yl )
This means that all subutility functions u(X, yk ) are the same, up
to (positive) scaling and translation:
u(X, yk ) = ckl u(X, yl ) + dkl for some constants ckl > 0 and dkl .
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(I)
P ROPOSITION
1
2
(II)
2
3
4
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u(X, Y ) = gl (Y ) u(X, yl ) + hl (Y )
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An Example
Suppose the City of Utrecht assesses the following utilities for
Cost and Acres lost, given A fixed at 600, and C fixed at 15 and
60, respectively:
u(X, Y ) = gl (Y ) u(X, yl ) + hl (Y ) yl
set yl to y1 ;
solve (I) for x1 to get h1 (Y ), using u(x1 , y1 ) = 0;
solve (I) for xn to get g1 (Y ), using u(xn , y1 ) = 1;
substitute these results in (I) to get the desired result.
Now,
u(C, A) = u(60, A) [1 u(C, 600)] + u(15, A) u(C, 600)
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C OROLLARY
0 + u(xn , Y ) = 1 + u(x1 , Y )
Under the above conditions, we have that
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C OROLLARY
u(xn , Y ) = 1 + b u(x1 , Y )
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u(15, 600) = 0.75 u(30, 600) = 0.35 u(50, 600) = 0.15 u(60, 600)
u(60, 200) = 0.25 u(60, 300) = 0.20 u(60, 400) = 0.15 = 0.00
if X is utility independent of
Y , but Y is utility dependent
of X:
300
60
30
X
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u(15, 600) = 0.75 u(30, 600) = 0.35 u(50, 600) = 0.15 u(60, 600)
u(60, 200) = 0.25 u(60, 300) = 0.20 u(60, 400) = 0.15 = 0.00
u(15, 600) = 0.75 u(30, 600) = 0.35 u(50, 600) = 0.15 u(60, 600)
u(60, 200) = 0.25 u(60, 300) = 0.20 u(60, 400) = 0.15 = 0.00
Given that u(C, 300) and u(C, 600) are known functions, we
can compute an f60 (ci ) and k60 (ci ) for each ci .
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T HEOREM
L EMMA
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set yl to y1 and xl to x1
solve (I) for x1 to get h1 (Y ) and for xn to get g1 (Y )
solve (II) for y1 to get k1 (X) and for ym to get f1 (X)
substitute these results in (I) and (II) (I*) and (II*)
now solve (II*) for xn and fill in this result in (I*) to get the
desired result.
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1.0
(15, 600)
(15, 200)
(60, 200)
u = 0.25
u=0
10
(1 kC ) (60, 600)
kA
(15, 200)
1.0
u=1
u = 0.25 = kX
100
0
X
u = 1
10 u = a = k
(1 kA ) (60, 600)
u = 0
kX
= U (100, 0) = U (0, 10) = kY
u = a = k
100
X
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0.5
(xi , yk )
A:
(xi , yl )
B:
0.5
AB
AB
AB
(xj , yl )
0.5
(xj , yk )
kXY = 0
kXY > 0 (X, Y are complements)
kXY < 0 (X, Y are substitutes)
where
u(x1 , y1 ) = 1, (xn , y1 ) > 1 and u(x1 , ym ) > 1;
|u(xn , ym ) u(xn , y1 ) u(x1 , ym )|
k=
> 0 is a scaling
u(xn , y1 ) u(x1 , ym )
constant.
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C OROLLARY
where
u(x1 , y1 ) = 0, u(xn , y1 ) > 0 and u(x1 , ym ) > 0;
u(xn , ym ) u(xn , y1 ) u(x1 , ym )
k=
is a scaling constant.
u(xn , y1 ) u(x1 , ym )
= u (X, y1 ) u (x1 , Y )
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An example
and
u(x0 , y0 ) 6=
u(x0 , y2 )
u(x2 , y0 )
Verifying independences
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UI implies PI
PI implies UI ?
P ROPOSITION
Counter example:
Consider the following utility function:
u(x0 , y0 ) = 1.0 u(x1 , y0 ) = 0.8 u(x2 , y0 ) = 0.3
u(x0 , y1 ) = 0.5 u(x1 , y1 ) = 0.1 u(x2 , y1 ) = 0.1
X PI Y since yi : x0 x1 x2 ;
we have no X UI Y :
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AI implies (M)UI
P ROPOSITION
ym
y1
xC
xC
xC
x1
We prove X UI Y ; Y UI X is analogous.
xn
X
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MUI implies AI ?
If X and Y are mutually utility independent then X and Y are
not necessarily additive independent.
Counter argument:
We have seen that an additional assumption is necessary to
conclude additive independence given mutual utility
independence (see Additive utility function IVa).
1.0
(15, 600)
(15, 200)
(1 kC ) (60, 600)
1.0
(60, 200)
(1 kA ) (60, 600)
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Summary
The different functional forms for u(X, Y ) are valid under the
following conditions:
additive:
iff AI
(I, II)
if X UI Y and a lottery assumption for Y
(III)
if MUI and a lottery assumption for (xi , yk ) (IV)
multi-lin.:
multiplic.:
if multi-linear and k 6= 0
(I)
(II, III)
(III)
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(xi , yj ) (xk , yl )
Note that for any two points (xi , yj ) and (xk , yl ) on the
isopreference curve, we thus have that
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ym
ym
~2Y (X)
~2Y (X)
yj
yj
~1Y (xj )
yi
yi
y1
y1
x1
~1Y (X)
~1Y (xj )
~1Y (X)
xj
xn
x1
xi
xj
xn
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An example
Jenny wants to treat her friends to some cookies and candy. Let
xi denote i cookies and yj indicate j pieces of candy.
Jenny is indifferent between (x2 , y10 ), (x6 , y6 ), and (x8 , y4 ). Also,
Jenny is indifferent between (x1 , y9 ), (x3 , y5 ), and (x7 , y3 ).
~1Y (X)
~2Y (X)
y2
x1
Y
y10
ym
yk
x8
We have for example that ~1Y (x2 ) = y10 and ~2Y (x3 ) = y5 , but also
~1Y (x4 ) = y8 and ~2Y (x4 ) = y4 .
y1x x
k
1
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xn
y1x x
k
1
xn
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Proof (sketch):
C OROLLARY
1
2
where
u(x1 , y1 ) = 0
~ X (Y ) is defined such that (~ X (Y ), Y ) (xk , y1 ) for an
arbitrary xk 6= x1 .
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u(X, Y ) = gl (Y ) u(X, yl ) + hl (Y ) yl
set yl to y1 ;
solve (I) for x1 to get hl (Y ), using u(x1 , y1 ) = 0;
let xk be the point where ~ X (Y ) intersects the line (X, y1 ),
then u(~ X (Y ), Y ) = u(xk , y1 ); use this in solving (I) for ~ X (Y )
to get gl (Y );
substitute these results in (I) to get the desired result.
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An example
Suppose the City of Utrecht assesses the following utilities for
Cost and Acres lost:
u(15, 600) = 0.75 u(60, 100) = 0.25
u(30, 600) = 0.50 u(60, 200) = 0.20
u(45, 600) = 0.20 u(60, 300) = 0.15
u(50, 600) = 0.10 u(60, 400) = 0.10
u(60, 600) = 0.00 u(60, 600) = 0.00
In addition, the City indicates the indifferences
(50, 200) (45, 300) (40, 400)
resulting in an isopreference curve ~ C (A) with u(~ C (A), A) = 0.40
and e.g. ~ C (600) = 35 (does not follow from above).
If Cost is utility independent of Acres lost, then
u(35, 600) u(60, A)
u(C, 600)
u(C, A) = u(60, A) +
u(~ C (A), 600)
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An example
u(X, Y ) = gl (Y ) u(X, yl ) + hl (Y ) yl
Now let yk be the point where ~ Y (X) intersects the line (x1 , Y ),
then u(X,~ Y (X)) = u(x1 , yk ).
1 set yl to yk ;
2 solve (I) for x1 to get hk (Y ), using u(x1 , yk ) = 0
3 solve (I) for xn to get gk (Y );
Y (X) to get u(X, yk ).
4 solve (I) for ~
5 substitute these results in (I) to get the desired result.
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C OROLLARY
u(X, Y ) =
y1
x1 xk
u(X, y1 ) u(~1X (Y ), y1 )
u(~2X (Y ), y1 ) u(~1X (Y ), y1 )
where
u(X, Y ) is normalised by u(xk , y1 ) = 0 and u(xl , y1 ) = 1;
~1X (Y ) is defined such that (~1X (Y ), Y ) (xk , y1 );
~2X (Y ) is defined such that (~2X (Y ), Y ) (xl , y1 )
xn
X
Is there another possibility with two isopreference curves?
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An example
Proof (sketch):
Utility independence implies g > 0, h such that
(I) u(X, Y ) = g(Y ) u(X, yl ) + h(Y ) yl
Let xk , xl be the intersection points for ~1X (Y ), ~2X (Y ), resp., with
(X, y1 ).
1
2
set yl to y1 ;
solve (I) for xk and ~1X (Y ) to get h(Y ) and g(Y ), using
u(~1X (Y ), Y ) = u(xk , y1 ) = 0;
solve (I) for ~2X (Y ) to get u(xk , Y ), using
u(~2X (Y ), Y ) = u(xl , y1 ) = 1;
substitute these results in (I).
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u(C, A) =
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