Abstract
In Machina's approach to generalised expected utility theory, decision makers maximise a choice functional which is smooth but not linear in the probabilities. When evaluating small changes, the choice functional can be approximated by the expectation of a local utility function. This local utility function is not however invariant under large changes in risk. This paper gives a simple explicit formula which can be used to write down the local utility functions of some common decision rules.
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Bardsley, P. Local utility functions. Theor Decis 34, 109–118 (1993). https://doi.org/10.1007/BF01074897
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DOI: https://doi.org/10.1007/BF01074897