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Utility pertains to an abstract measure of an agent’s satisfaction given a certain world state.
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It can be seen applied in the context of Economics but also Game Theory and Machine Learning as the inverse of loss.
Utility Functions
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A Utility Function is a function that maps a vector (representing the world state)
to a real number . -
The Constant Elasticity of Substitution (CES) Utility is defined as follows:
Where
are parameters for each vector component, and is the world state vector. - When
, the utility corresponds to the case where goods are perfect substitutes. - As
goods become perfect complements.
- When