# Specification of the parameters of this utility function [Behavioral Economics]

This is from page 274 of "Advances in Behavioural Economics" by Camerer, Rabin, Loewenstein. This chapter of the book is entitled "A theory about fairness, competition, and cooperation".

I have difficulty understanding parts of this equation. (see attachment). I would need an explanation of the equation in detail (I assume this book is designed for graduate students, as I am currently an undergrad). What do alpha and beta represent? What does monetary payoff mean exactly? Is it similar to game theory? Why is there a 0 in [xj-xi, 0]? And why is it 1/(n-1) and not n-1? This is very confusing for me, who has little mathematical background.

• $\alpha_i$ and $\beta_i$ are coefficients related to how much an individual $i$ feels bad about being less wealthy or more wealthy than other people. $\max\{x_j-x_i,0\}$ is the difference between person $j$'s wealth and person $i$'s wealth if person $j$'s wealth is higher than person $i$'s wealth; otherwise it is $0$. The division by $n-1$ to get an average is because there are $n-1$ individuals apart from person $i$ for person $i$ to compare to. – Henry Mar 20 at 13:05
• @Henry: Your comment is actually an answer, and a correct one. Why don't you make it an answer? (Sorry, just curious.) – VARulle Mar 23 at 15:50
• @VARulle because sometimes I feel like commenting. You can use for an answer if you wish – Henry Mar 23 at 16:07
• @Henry: Thx for the offer, but I don't want to adorn myself with borrowed plumes. – VARulle Mar 23 at 16:13