Thinking and Deciding

Chapter 13
Utility measurement
The normative theory of decision making is closely related to several applied fields.
These include decision analysis 1 and cost-effectiveness analysis. This chapter and
the next discuss the problem of measuring utility for such applied purposes. This
chapter is about measurement, and the next is about a particular type of decision
analysis that emphasizes values.
Decision analysis and related methods
Decision analysis is the attempt to apply utility theory directly to decisions. Utility
theory is normative, but decision analysis treats it as a prescriptive theory (Freeling,
1984). If you use expected-utility theory in this way to decide between two uncertain
prospects, you would estimate the probability and utility of each outcome and multiply
them. This procedure will make the best decision, according to utility theory as a
normative model, if you estimate probabilities and utilities with sufficient accuracy.
These estimates require judgment. They require that a judge or subject, or you, try
to answer certain questions. You then infer your probabilities and utilities from the
answers to these questions. On p. 144, I discussed how you can estimate proabilities
by asking yourself questions about conditional probabilities.
This chapter and the next concern the kinds of questions you could use to estimate
utility of outcomes. This chapter concerns basic comparisons of the utility of two
outcomes. The next chapter concerns the decomposition of utility into independent
attributes (price, quality, and so on), each corresponding to some goal or subgoal.
With such a decomposition, you can measure the utility of each outcome on each
attribute separately and combine these attribute-utilities. This is called multiattribute
analysis. Decision analysis also includes many practical (prescriptive) techniques for
searching for options (possibilities), evidence, and goals.
1 Excellent texts on this field are: Behn and Vaupel (1982); Brown (2005); Brown, Kahr, and Peterson
(1974); Keeney and Raiffa (1976/1993); Raiffa (1968); and von Winterfeldt and Edwards (1986).
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