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Utility functions

Corson N. Areshenkoff

2024-08-13

utility_functions.Rmd

iowa implements multiple common utility functions, and can be relatively easily extended to include more. Currently, The following are included in the base package:

Expectance valence utility

  • Keyword: EU
  • Parameters: w (Win/loss weighting)
  • Bounds: \(w \in [0,1]\)
  • Depends: Gain and loss

\[ u(g,l) = (1-w)g + wl \]

Prospect utility

  • Keyword: PU
  • Parameters: A (Concavity), L (Loss aversion)
  • Bounds: \(A \in [0,1]\), \(L \in [0, \infty)\)
  • Depends: Net outcome

\[ u(x) = \begin{cases} x^A & x \geq 0\\ -L|x|^A & x < 0 \end{cases}\]

Alternative prospect utility

  • Keyword: PU2
  • Parameters: A (Concavity), L (Loss aversion)
  • Bounds: \(A \in [0,1]\), \(L \in [0, \infty)\)
  • Depends: Gain and loss

\[ u(g,l) = g^A - Ll^A\]