Utility, or usefulness, is the (perceived) ability of something to satisfy needs or wants.
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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 ...
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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 ...
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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
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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 ...
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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 ...
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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 ...
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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
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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 ...
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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-...
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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
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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
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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) ...
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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
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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.
...
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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
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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
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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 ...
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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
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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)
$$\max_{\{c_t(s^t),a_{t+1}(s^t,s_{t+1})\}_{t=0}^{\infty}}\...
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1answer
49 views
Do we really need accurate utility functions?
Knowing that a utility function's primary purpose it to be used as a tool to rank consumption bundles, I was wondering:
"do we really need to be concerned with accurate identification utility ...
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0answers
16 views
Lender Return/Contribution per loan as function of Borrower score
I have been browsing existing economic/financial economics literature looking for a model of a lender's profit (return /contribution) per loan as an explicit function of the loan amount and borrower's ...
5
votes
1answer
81 views
Utility Maximisation Subject to Income and Time Constraints
The consumption of economic goods often takes time. Consider, for example:
Transport services, eg flights, rail journeys;
Leisure goods, eg watching a film, visiting a park.
I would like to explore ...
2
votes
1answer
38 views
Money Metric Utility Function: Budget constraints become Utility Functions?
Im currently reading up on the "money metric utility function" (also known as the minimum income function or direct compensation function).
By definition it is defined as:
$$m(\text{p},\text{x})\...
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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!
...
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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 ...
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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 ...
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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 ...
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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
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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}.$$
Assume the agent's income is $y=5$. The price of one unit ...
0
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0answers
12 views
CRRA utility: compute optimal investment in one asset at new wealth level
Problem statement:
Suppose an investor has utility function $u(w)=-\frac{w^{-2}}{2}$ and invests to maximize end of period wealth, $W_1$. Suppose there are $n$ risky assets and one risk-free asset.
...
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34 views
Homothetic preferences [duplicate]
I want to prove that if a utility function that represents $\succsim$ has constant marginal elasticity of substitution (MRS) in proportional expansions along rays, that is:
$$
MRS(x,y) = MRS(\alpha x, ...
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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 ...
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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 ...
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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)...
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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"? ...
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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 ...
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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 ...
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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?
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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 ...
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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 ...
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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
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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 ...
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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 ...
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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 ...
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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 ...
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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.
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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)=...
