Random utility models
From DDL Wiki
The idea of utility related to consumer behavior in the study of economics was formally introduced by von Neumann and Morgenstern in 1947. Since then, it has been used to understand decisions in many contexts from economics to product development. The additive form described here is primarily the result of work done by Fishburn.
Utility is the measure of a person's preference for a certain product. Utility is not measured directly, but rather indirectly by observing a person's behavior. A utility function is one in which alternatives with higher utility value are preferred.
In random utility model (RUM) it is generally assumed that the attributes determining the utility of an alternative are only partly observed, and utility is modeled with two terms:
The first is a measurable term based upon observable choices βx where x is the attribute itself and attachment:beta.bmp represents a weighted preference for that attribute. The second term is some associated error that is not measurable attachment:epsilon.bmp .
Each measurable term is associated with a specific attribute k (or group of related attributes). The total utility is then a summation of the alternatives j and their weights β with the error term &spislon;.
