Measuring Utility by a Single-Response Sequential Method (1964)

Abstract

The purpose of this paper is to describe a sequential experiment that provides, at each stage in the sequence, an estimate of the utility to the subject of some amount of a commodity (e.g., money), and to present a few experimental results obtained with the method. The procedure is based upon the following well-known ‘expected utility hypothesis’. For each person there exist numerical constants, called utilities, associated with the various possible outcomes of his actions, given the external events not under his control. If, for a given subject, we could know the values of these constants and the (‘personal’) probabilities he assigns to the various external events we could, according to this model, predict his choice from among any available set of actions. He will choose an action with the highest expected utility; i.e., with the highest average of utilities of outcomes, weighted by the probabilities he assigns to the corresponding events. He will be indifferent between any two actions with equal expected utilities. Note that (by the nature of weighted averages) the comparison between expected utilities does not depend on which two particular outcomes are regarded as having zero-utility and unit-utility.