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1.155, 2.943, 3.577, 6.938, 10.816, 13.621, 16.862, 22.82, ESD.72, ESD.721

**DA 6. Multiattribute Utility Theory
**

George E. Apostolakis Massachusetts Institute of Technology

Spring 2007

DA 6. Multiattribute Utility Theory

1

DA 6. Multiattribute Utility Theory 2 . …. they may include the impact on health and safety of groups of stakeholders. the consequences are described by a vector x ≡ (x1. xN). • In general. for example. • In risk management problems.Consequences • Not all the consequences are monetary.

e. Multiattribute Utility Theory 3 . i. ….. xN) • Decision alternative Ai is preferred over alternative Ak if and only if its expected utility is greater. Ei[u] > Ek[u] ⇔ Ai f Ak DA 6.Multiattribute Utility • u(x1.

....Finding u(x1. x 1 N) 1-p ( x1* ... …. Multiattribute Utility Theory . xN) Use the certainty-equivalent approach: p * ( x* .... x N ) 4 DA 6.... x N* ) 1 ( x1 .

…. DA 6.” if we can establish “independence” among the attributes. • Can we find a function f such that u(x1.Independence Assumptions • Finding the multiattribute utility function using the preceding method is very burdensome. … . uN(xN)] where ui(xi) is the utility function of attribute xi? • The answer is “yes. Multiattribute Utility Theory 5 . xN) = f[u1(x1).

DA 6. if preferences for y levels do not depend on the level of z. z ) 0 ' 0 implies (y. z ) ∀z where y and y’ are two levels of y. i.e. Multiattribute Utility Theory 6 .Mutual Preferential Independence • Attribute Y is preferentially independent of attribute Z. z ) f (y . (y. z ) f (y' ..

but the price depends on when you leave. then Y and Z are mutually preferentially independent. Multiattribute Utility Theory 7 . then Y is preferentially independent of Z. and you prefer $300 to $500 regardless of the departure time. • If you prefer “afternoon” to “morning” departure regardless of the price of the ticket. but they are not mutually preferentially independent. afternoon) • Z: Ticket cost ($300. $500) • If you prefer “afternoon” to “morning” departure regardless of the price of the ticket. DA 6.Mutual Preferential Independence: Example • Y: Departure time (morning.

afternoon. • Y is utility independent of Z if preferences over lotteries involving different levels of Y do not depend on a fixed level of Z.5) is independent of the price of the ticket. • The CEs of lotteries on Y levels are independent of z. • For the previous example: The preference value of the lottery L(morning. 0. DA 6. Multiattribute Utility Theory 8 . except that the assessments are made with uncertainty present.5. It is a stronger assumption. 0.Utility Independence (1) • It is similar to preferential independence.

x2) = = k1 u1(x1) + k2 u2(x2) + (1.k2) u1(x1) u2(x2) with 0 ≤ ki ≤ 1 i = 1.Utility Independence (2) • A form of the utility function for attributes X1 and X2 that are utility independent. Multiattribute Utility Theory .2 i = 1.2 9 0 ≤ ui ( xi ) ≤ 1 DA 6. is u(x1.k1.

k1.k2) u1(x1) u2( 2) ' ' x x =[k1+ (1. then u(x1. the preferences over levels of X1 are independent of the level of X2. DA 6. x'2 ) = ' ' x x =k1 u1(x1) + k2 u2( 2 ) + (1. ⇒ • Lotteries on X1 are independent of the level of X2. Multiattribute Utility Theory 10 .k2) u2( 2 )] u1(x1) + k2 u2( 2 ) • This is a linear transformation of u1(x1). • For another level of X2.k1. we will get another linear transformation of u1(x1). therefore.Utility Independence (3) • Fix the level of X2 at x'2 .

x2) = g(x1) + h(x1)u2(x2) • X2 is utility independent of X1 but not vice versa.Utility Independence (4) • When X1 and X2 are utility independent of each other. they are mutually utility independent. DA 6. • u(x1. Multiattribute Utility Theory 11 .

x'2 ) 1/2 ' ( x1 . x 2 ) 1/2 ( x1 .5. Multiattribute Utility Theory 12 . DA 6. x'2 ) 1/2 ' ( x1 . x2 ) ' x1 and x1 are different levels of x1 We can get any pair of consequences with probability 0.Additive Independence • A stronger assumption than utility independence. the only difference is how the levels are combined. we must be indifferent between 1/2 ( x1 . • For two attributes.

Additive Utility Function u( x ) = ∑ k i u i ( x i ) 1 N where 0 ≤ ki ≤ 1 ∑ki = 1 1 N 0 ≤ ui ( xi ) ≤ 1 Two attributes: u(x1. x2) = k u1(x1) + (1-k) u2(x2) DA 6. Multiattribute Utility Theory 13 .

Multiattribute Utility Theory 14 . • For complex problems. it should not matter what the other attribute’s level is. • Interaction among the attributes is not allowed.Additive Independence: Implications • When we assess the utility of one attribute. it could be a useful first-cut approximation. DA 6. • For cases with no or little uncertainty. additive independence represents reasonably well people’s utilities.

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