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# Questions tagged [utility]

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

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39 views

### Opportunity Cost effect on benefits

My question is the following: Let's say a person has two career choices. He would be succesful in both, but in one of them he is slightly better and thus he will do better. So let's say career A will ...
63 views

### utility maximization with nested Cobb–Douglas–CES preferences

I'm trying to understand the following paper: Hsieh & Ossa: A global view of productivity growth in China (2016). The pdf can be found here: https://faculty.chicagobooth.edu/chang-tai.hsieh/...
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### Fixes of quadratic utility when probability of decreasing utility is large

In finance and specifically portfolio theory, a popular utility function is quadratic utility $$u(x)=x-\frac{\lambda}{2}(x-\mu_x)^2$$ where $x$ is wealth and $\lambda$ is the parameter of risk ...
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### Moral hazard, bubbles, and economies of scale in limited companies and organizations

http://eprints.lse.ac.uk/100058/1/Goodhart_CEPR_DP13494.pdf What would be the disadvantage of limiting the liability to the product of the proportion of the company and the debt(a person with 2% of a ...
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### Log-linearizing a non-separable utility function around the steady state

I've started reading Jordi Galí's Monetary Policy, Inflation and the Business Cycle (2nd ed., 2015). In section 2.5.2, Galí considers an example with the following non-separable period utility ...
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### Maximin utility function

If someone has the attitude that they want to maximize their worst possible outcome (so they are maximally risk-averse), what does the utility function for that look like? Can this attitude be ...
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### Are marginal utilities or utilities compared?

Consider decision making in an economic model. Suppose that there is some utility and it is a function of consumption and leisure where leisure is full-time work, part-time work, or full-time ...
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### What is the trade-off between? Consumption and Leisure or Income and Leisure?

When first presenting the utility function and its arguments, textbooks typically start by stating that utility is a function of consumption and leisure. See for example https://sites.hks.harvard.edu/...
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### Change in the marginal utility of leisure with respect to a change in consumption

I am reading a paper that derives a theoretical retirement model. There is a utility function and a budget constraint forming an optimal control problem. The solution to this problem states that \...
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### Is a combination of Political economics and Game theory possible and beneficial?

By Political economics I do not mean the "economical" advice given by some people(see the Wealth of Nations by Adam Smith) but rather the heavily mathematized subfield of Economics studying and trying ...
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### If an ordinal-scaled utility function is defined via strictly increasing transformation, how can it represent a case of indifference?

Problem: According to Wulf Gaertner’s (2009, p. 13) A Primer in Social Choice Theory, any strictly increasing transformation of an individual’s ordinal utility function is informationally equivalent. ...
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### Demand correspondence is both upper and lower hemi-continuous; is the preference continuous?

$\succsim$ is a weak order over $\mathbb R^L$. For a closed budget set $B\subset\mathbb R^L$, define demand correspondence: $$D(B)=\{x\in B|x\succsim y\forall y\in B\}$$. We know that $D$ is always ...
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### Why do we have to normalize the income of consumers when working with an Edgeworth Box in a simple trade model with Pareto optima?

I was studying microeconomics and I confess I am not the brightest person for maths and sorry if this is very dumb but I get that we CAN normalize the income and I get where it comes from and how it ...
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### indifference curve slope from utility function

in the economics book that I'm reading right now it is written that this utility function: $$u(x_1,x_2) = 2x_1 + x_2$$ yields indifference curves with a slope of $−2$. Could someone please explain me ...
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### Purpose of a monotonic transformations in utility functions

Based on my economics book, monotonic transformations for a utility function can look something like this: $f(u) = u + 17$ or even like this: $f(u) = u^3$ That being said what it purpose in the ...
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### Is there a possibility to have an inferior good (x) in a utility function where x & y have 0 cross elasticity?

A question I got on an exam that I think I messed up on: If we have cross elasticity of 0 (x & y are independent), can x be an inferior good? I answered with a yes. Am I wrong?
I am trying to reconcile the derivation of a demand equation with what I actually run in an OLS model. After solving $$max_{x_1,x_2}U(x_1,x_2)= \alpha ln(x_1) + \beta ln(x_2)$$ subject to p_1x_1+...
Let's say we have an utility function, $U(x,y) = \sqrt{x \cdot y}$. The indifference curve associated with this is convex, while the function itself is quasi concave (because it satisfies \$ f_{xx} ...