The Implications Of Separable Utility PDF Download

The research is concerned with assessment of utility functions for multi-numeraire consequences. More specifically, it is proven that given von Neumann and Morganstern's 'axioms of rational behavior' and two additional assumptions, the utility function for (x sub i, y sub i) consequences must be of the form U sub xy(x sub i, y sub i) = U sub x(x sub i) + U sub y(y sub i) + K U sub x(x sub i) U sub y(y sub i). K is a constant that must be empirically evaluated. It is shown that this form, known as a quasi-separable utility function, is more general than the separable utility function and nearly as easy to use. The implications and ramifications of such a utility function and its requisite assumptions are discussed in detail. Expressions for evaluating the expected utility of a probabilistic consequence are derived. The problems and technique of practical application of the theory are considered. A discussion of the usefulness of this work and of possible future research topics concludes the report. (Author).