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Utility theory --- Economics

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A number of studies have examined the implications of preference interdependence. This paper models individual utility as depending either on the level of other people's consumption or on the difference in consumption levels. It assumes that the impact of an increase in other people's consumption on individual utility diminishes with the level of consumption, raising individual utility when that consumption is very small and lowering it when that consumption is very large. Based on that plausible assumption, the paper shows that, whether individual utility depends on the level of other people's consumption or on the difference in consumption levels, (1) welfare declines with inequality, (2) equilibrium inequality is inefficient, and (3) the optimal intervention leads to a more equal distribution. Implications for the role of development institutions are examined. This paper--a product of the Trade Team, Development Research Group--is part of a larger effort in the group to examine the impact of inequality on efficiency.

Utility theory --- Mathematical models.

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This Element offers an accessible but technically detailed review of expected utility theory (EU), which is a model of individual decision-making under uncertainty that is central for both economics and philosophy. The Element's approach falls between the history of ideas and economic methodology. At the historical level, it reviews EU by following its conceptual evolution from its original formulation in the eighteenth century through its transformations and extensions in the mid-twentieth century to its more recent supersession by post-EU theories such as prospect theory. In reconstructing the history of EU, it focuses on the methodological issues that have accompanied its evolution, such as whether the utility function and the other components of EU correspond to actual mental entities. On many of these issues, no consensus has yet been reached, and in this Element the author offers his view on them.

Utility theory. --- Uncertainty. --- Decision making.

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Economic schools --- Utility theory --- Economics - History

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Housing --- Demand (Economic theory) --- Utility theory