Author ORCID Identifier
Document Type
Article
Publication Date
5-6-2024
Abstract
A binary preference relation on a real vector space satisfying four (natural) axioms is shown to induce a utility function composed of a linear function to the reals and a weakly monotonic function. The key axiom is decomposition, and the utility function can be taken to be linear if and only if this axiom’s converse is also satisfied. Important consequences follow for risk-sensitive discounted Markov decision processes, decision trees, and the discounted utility model in economics. Since the four axioms imply that preferences correspond to discounting, the four axioms without the converse imply that preferences are consistent with discounting without risk neutrality.
Keywords
preference, risk neutrality, Markov decision process, discounting, utility
Language
English
Publication Title
Annals of Operations Research
Rights
© The Author(s). This is an Open Access work distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Recommended Citation
Alexander, J., Sobel, M.J. Preferences, risk neutrality and risk-sensitive MDPs. Ann Oper Res (2024). https://doi.org/10.1007/s10479-024-06020-6
Manuscript Version
Final Publisher Version