Stack Exchange Network

Stack Exchange network consists of 174 Q&A communities including Stack Overflow, the largest, most trusted online community for developers to learn, share their knowledge, and build their careers.

Visit Stack Exchange
Join us in building a kind, collaborative learning community via our updated Code of Conduct.

Utility, or usefulness, is the (perceived) ability of something to satisfy needs or wants.

2
votes
1answer
21 views

Lagrangian: when to discount budget constraint?

I am getting a bit confused about setting up the Lagrangian in intertemporal constrained optimization problems. The confusion is as to when is the one-period budget constraint multiplied by the ...
1
vote
1answer
20 views

What is a good way to generate realistic utility curves?

I am aiming to program a basic simulation of a simplified economy to look at the impact of various interventions. The economy will have N groups of homogeneous consumers and M producer / employer ...
0
votes
2answers
48 views

Utility and consumption tax

If I have a model with taxes on consumption denoted $\tau$ should I write the utility function as $u(c)$ or $u((1-\tau)c)$? Thanks
3
votes
3answers
47 views

modelling disutility from over consumption

In introductory economics courses the concept of marginal utility is illustrated through simple examples like how much benefit one gets from eating another slice of pizza (i.e first slice provides 100 ...
0
votes
0answers
17 views

Is delivery-capability (in economics) a probability?

A dealer with a large, but finite stock counts for 1 year a = the number of all purchase inquiries that reach him this year and b = the number of purchase inquiries that he can deliver on the ...
0
votes
3answers
98 views

Is the utility of money *actually* logarithmic?

Apologies for asking what is probably a basic question from someone that is not in the economics field. But I was playing around with the idea of determining how a group of people could split a bill ...
0
votes
0answers
4 views

How to estimate mixed logit (or random parameter) discrete choice models in R [migrated]

I have designed a discrete choice experiment to estimate WTP figures for a non-market good within a group where I think preference is heterogeneous. But I am currently struggling to estimate the model....
2
votes
0answers
14 views

Finding savings in an Overlapping Generations model

I have not seen this question asked anywhere, so I'm posing it here in case anybody else (hopefully) can help me get to the answer. In a nutshell, my question is: how do we arrive at the saving ...
0
votes
0answers
13 views

Relation between Epstein Zin and Power Utility

I found this graph in Campbell and Viceira 2001 at page 35-36 (https://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2006/Campbell_Viceira.pdf) which is used to explain the relation between Epstein-...
0
votes
0answers
25 views

survival probability and integration by parts

I am trying to integrate by parts by using an indicator function. However, I am not really sure if it is a correct way to change the bounds of integral with indicator functions. I am trying to deal ...
2
votes
0answers
32 views

The use of preference relations in choice theory and the $\succsim$ symbol

At least as from Edgeworth and Pareto we think about utility in mathematical terms. My question twofold (i) about the start of the usage of binary relations to model preferences in economics, and ...
2
votes
1answer
34 views

Construct utility function for a risk-averse agent

I am trying to construct utility function for an agent who can be risk-seeking or risk-averse. We have an agent $i$ who has an ideal point $x$ in a policy space $X = [0,1]$. There is a policy (option) ...
-1
votes
1answer
50 views

Would a very cheap renewable energy source be harmful economically?

This question is not on whether these devices work or not but so much as if they did work. What if electricity can be made so cheap that everyone could afford it ti the point there was no demand for ...
2
votes
1answer
29 views

Continuation value versus utility in asset pricing

Is there a difference between continuation value ($V_t$) and utility ($U_t$) except for a possible scaling / difference in units? My question refers to the consumption-based asset pricing literature. ...
0
votes
0answers
64 views

Utility and functions

A text I read posits that utility functions tend to be unstable, if the utility people draw out of goods depends on the consumption of the particular comparison group. Can you explain why this ...
3
votes
0answers
19 views

Production choices in Hayek's theory of information-bearing prices

As I understand the work of Hayek, he asserts that prices encapsulate the true societal worth of the item being sold by integrating the compound need for all of the ingredients and work which go into ...
4
votes
1answer
57 views

Relative risk aversion, a property of period or lifetime utility

This question is to be understood in the context of consumption based asset pricing. I'm wondering whether relative risk aversion is a property of the period utility function, which is simply a ...
1
vote
0answers
21 views

Deriving Single Good Demand Curve

came across a problem set that I had no clue how to tackle, but looks painfully simple. It's a market for electricity where households utility is represented by: U(E) = aE - 2mL2 (Household Utility) ...
1
vote
0answers
27 views

Natural borrowing/debt limit and other borrowing constraints

When confronted with the simple household consumption maximization problem under uncertainty (and with Arrow security sequential trading) $$\max_{\{c_t(s^t),a_{t+1}(s^t,s_{t+1})\}_{t=0}^{\infty}}\...
1
vote
1answer
49 views

Do we really need accurate utility functions?

Knowing that a utility function's primary purpose it to be used as a tool to rank consumption bundles, I was wondering: "do we really need to be concerned with accurate identification utility ...
0
votes
0answers
16 views

Lender Return/Contribution per loan as function of Borrower score

I have been browsing existing economic/financial economics literature looking for a model of a lender's profit (return /contribution) per loan as an explicit function of the loan amount and borrower's ...
5
votes
1answer
81 views

Utility Maximisation Subject to Income and Time Constraints

The consumption of economic goods often takes time. Consider, for example: Transport services, eg flights, rail journeys; Leisure goods, eg watching a film, visiting a park. I would like to explore ...
2
votes
1answer
38 views

Money Metric Utility Function: Budget constraints become Utility Functions?

Im currently reading up on the "money metric utility function" (also known as the minimum income function or direct compensation function). By definition it is defined as: $$m(\text{p},\text{x})\...
0
votes
1answer
43 views

Compare utility functions

I recently joined an econ class. I am so lost on how to prove their equality. As a math standpoint, these are completely different equations. Please help! ...
0
votes
1answer
29 views

Characterising utilitarianism and altruism in economics

This question is a quantitative analogy to this question on philosophy.SE. Within the framework of economic decision-theory using utility functions, how do you characterise the moral principles of ...
1
vote
1answer
98 views

Maximization with disposable income

Consider a welfare system u dear which a single cash transfer(guaranteed income ) is given to every citizen. Then for each dollar the person earns the payment is reduced to by a where 00 you get a ...
-2
votes
1answer
164 views

Question on consumer theory

The story of my question is I have multiple question. (1) when John doesn’t work in the underground economy at all , t=0, how can I find the optimal value of $l$ and consumption bundle and his ...
-4
votes
1answer
130 views

Question about budget constraint and utility maximization [closed]

I have also following budget set $$B=\{x=(x_1,x_2)\in R^2_+ \mid 2\sqrt{x_1}+x_2\le y\}$$ where y is income. Assume that there are two stories. The agent can shop in both of them. The first store ...
2
votes
2answers
118 views

Show that First order conditions are necessary and sufficient for utility maximization

I have a budget set $$B=\{x=(x_1,x_2)\in R^2_+ \mid 2\sqrt{x_1}+x_2\le y\}$$ where $y>0$ is income. Assuming the preferences are strictly monotonic and convex, I want to show that first order ...
2
votes
1answer
85 views

How to write budget constraint if the agent sell the goods that buy

Della’s utility is $U(G,R)$ G is the consumption of gasoline per week R is the the consumption of other goods Just help me to write down budget constraint. I think that $$R*1+(G-20)*10+20*1=...
2
votes
2answers
446 views

Utility maximization question setting up.

Consider a consumer whose preferences can be represented by the following utility function: $$u(x_1,x_2)=\dfrac{x_2}{(1+x_1)^2}.$$ Assume the agent's income is $y=5$. The price of one unit ...
0
votes
0answers
12 views

CRRA utility: compute optimal investment in one asset at new wealth level

Problem statement: Suppose an investor has utility function $u(w)=-\frac{w^{-2}}{2}$ and invests to maximize end of period wealth, $W_1$. Suppose there are $n$ risky assets and one risk-free asset. ...
5
votes
0answers
34 views

Homothetic preferences [duplicate]

I want to prove that if a utility function that represents $\succsim$ has constant marginal elasticity of substitution (MRS) in proportional expansions along rays, that is: $$ MRS(x,y) = MRS(\alpha x, ...
7
votes
1answer
99 views

Homothetic preferences and utility functions

I know that if you have homothetic preferences and a utility function that represents it, then this utility function must present constant Marginal Rate of Substitution (MRS). My question is whether ...
0
votes
0answers
55 views

What did Adam Smith mean by skill, dexterity and judgement?

Aspiring economist major here and I began reading Smith's "Wealth of Nations" today and, even a few pages in, do not completely understand the difference between the three due to the rather opaque ...
1
vote
1answer
56 views

Utility Function in Consumer Credit

I have been studying the area of unsecured consumer credit (consumer loans and credit cards) and credit scoring. My question is: can we have a utility function (either a lender's or borrower's utility)...
0
votes
0answers
45 views

Maximizing utility function (auction theory)

There are two bidders (two individuals). Bidder 1 wants to maximize the following function (his utility function): $$ u_{1}(V,b_{1} | b^{w}) = \begin{cases} x_{1} + x_{2} - b_{1} & \quad ...
2
votes
1answer
125 views

Intuition Behind the Definition of Prudence?

I'm having trouble seeing why an agent is said to exhibit "prudence" when u'''($\cdot$) > 0. How does having a utility function with a strictly positive third derivative make an agent act "prudently"? ...
1
vote
1answer
75 views

Derive utility function with both substitutes and complements

I know that in the 2-good world it is easy to derive the demand functions from a utility function for imperfect substitutes or complements, but what if I have N goods that include many combinations of ...
0
votes
0answers
28 views

Suppose Jon experiences anticipatory utility and is dealing in the current period (t=0) when to consume a good, what is the optimal time

Suppose Jon experiences anticipatory utility and is dealing in the current period (t=0) when to consume a good, what is the optimal time to consume as a function of $\delta$ and $a$? Recall the ...
0
votes
1answer
80 views

Determining the elasticity of Hicksian Demands

If we have Hicksian (compensated) demand functions, how can we determine the income elasticity and own price elasticity? Is the procedure the same as for Marshallian (uncompensated) demands?
1
vote
2answers
51 views

How can I motivate a dynamic model using utility and consumer preference where only one good is affected by past consumption?

I've been looking how I can motivate the model I want to estimate using a utility optimization framework. Basically, I want to write a model using two goods: x and y, in two periods: 1 and 2, where ...
0
votes
0answers
88 views

CRRA Utility Function with more than three goods

I've been searching for how to set up a CRRA utility function when there are more than three goods but couldn't find some materials to reference. The typical example from textbooks or class materials ...
0
votes
0answers
37 views

Difficult intertemporal consumption function

I'm trying to optimize an intertemporal consumption problem but am having trouble with the function: $c_1^n + dc_2^n $ s.t. $ c_1 + c_2/(1+r) =< E$ where E is the total output over the two ...
1
vote
1answer
97 views

Reservation utility

I am self-studying contract theory using Bolton and Dewatripont (2005). It is meant for grad students, which might be why I am having a difficult time understanding basic terminology. Here is the ...
0
votes
0answers
130 views

Why or when does the area under the demand curve equals the total utility for consumers (perfect competition)?

Why or when does the area under the demand curve equals the total utility for consumers (perfect competition)? From the demand side, one knows that when combining the utility function and the budget ...
1
vote
1answer
38 views

relation between the demand function and the marginal utility function

Can one say that the demand curve equals the marginal utility function? I have one course where this is stated. However, the demand curve dan be derived from combining the utility function with the ...
1
vote
1answer
88 views

Bliss point utility doubt

Why is the bliss point utility function convex even though it has concave portions to it ? According to Nicholson and Snyder (authors of Microeconomic theory - Basic principles and extensions) a ...
0
votes
0answers
20 views

Can revealed preference be opposed to maximum utility in a choice of bundles?

Is there any case where, when choosing bundles of goods, revealed preferences indicate to a different optimum/choice that maximum utility? Thanks.
0
votes
0answers
43 views

Utility maximisation problem under uncertainty, lotteries

A farmer, call him Calvin, believes that there is a probability 0.5 that the next growing season will be abnormally rainy. Calvin is an expected-utility maximiser with Bernoulli utility function $u(w)=...