A new approach for utility analysis.

Abstract

A new utility analysis approach is presented. It is demonstrated that the new approach does not require the direct estimation of the most problematic component of current utility analysis equations, the standard deviation of Y. The parsimony of the new approach provides the potential for more directly linking decision-theoretic utility analysis with economic and accounting concepts. The development of the new approach highlights the many necessary and untested assumptions of current utility models. It also points to a need for reassessing the psychometric validity of correcting for criterion unreliability in utility analysis. Furthermore, the CREPID and 40% and 70% rules for estimating the standard deviation of Y are shown to be special cases of the new approach. Research on the efficacy of the assumptions and applicability of the new approach is advocated.

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