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In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings. In a normative context, utility refers to a goal or objective that we wish to maximize, i.e., an objective function.
Utility assessment, [1] also called utility measurement, [2] is a process by which the utility function of individuals or groups can be estimated. There are many different methods for utility assessment.
In consumer choice theory, economists originally attempted to replace cardinal utility with the apparently weaker concept of ordinal utility. Cardinal utility appears to impose the assumption that levels of absolute satisfaction exist, so magnitudes of increments to satisfaction can be compared across different situations. However, economists ...
Ordinal utility contrasts with cardinal utility theory: the latter assumes that the differences between preferences are also important. In u the difference between A and B is much smaller than between B and C, while in v the opposite is true. Hence, u and v are not cardinally equivalent. The ordinal utility concept was first introduced by ...
For the purposes of this section, income is adopted as the measurement of utility. The form of the social welfare function is intended to express a statement of objectives of a society. The utilitarian or Benthamite social welfare function measures social welfare as the total or sum of individual utilities:
With ordinal utility, a person's preferences do not have a unique marginal utility, making the concept of diminishing marginal utility irrelevant. On the other hand, diminishing marginal utility is a significant concept in cardinal utility , which is used to analyse intertemporal choice , choice under uncertainty , and social welfare in modern ...
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Category utility is a measure of "category goodness" defined in Gluck & Corter (1985) and Corter & Gluck (1992).It attempts to maximize both the probability that two objects in the same category have attribute values in common, and the probability that objects from different categories have different attribute values.