Preference as fulfilment of desires

We consider preferences as fulfillment of conditional desires, which can be either positive or negative, or both. We go beyond the standard multi-attributive additive utility theory in the sense that we separate the data given by the preference relation over an unstructured space from the property structure representing (conditional) attributes or desires. The model accounts for the psychologically motivated and empirically confirmed asymmetry between desire fulfillment and disappointment (loss aversion). The only restriction on the set of desires is, loosely speaking, a kind of mutual logical independence. We formulate a representation theorem characterising when a weak order (i.e. complete and transitive) preference is compatible with the logical structure of desires and has an additive representation over it. It is unique in the sense that each utility function representing the preferences has at most one such additive decomposition.     

Violation of the transitivity axiom may explain why, in empirical studies, a significant number of subjects violate GARP

Most papers using experimental data find that a significant number of agents are not utility function maximizers. Using three experimental datasets, we provide empirical evidence that these violations of utility function maximizing behavior are simply generated by a violation of the preference transitivity axiom. Moreover, we find that 97% of agents’ behavior is consistent with maximization of a generalized utility function called a variable intervals function (which corresponds to a numerical representation of complete-acyclic preferences).