Functional ANOVA, ultramodularity and monotonicity: Applications in multiattribute utility theory

Utility function properties as monotonicity and concavity play a fundamental role in reflecting a decision-maker’s preference structure. These properties are usually characterized via partial derivatives. However, elicitation methods do not necessarily lead to twice-differentiable utility functions. Furthermore, while in a single-attribute context concavity fully reflects risk aversion, in multiattribute problems such correspondence is not one-to-one. We show that Tsetlin and Winkler’s multivariate risk attitudes imply ultramodularity of the utility function. We demonstrate that geometric properties of a multivariate utility function can be successfully studied by utilizing an integral function expansion (functional ANOVA). The necessary and sufficient conditions under which monotonicity and/or ultramodularity of single-attribute functions imply the monotonicity and/or ultramodularity of the corresponding multiattribute function under additive, preferential and mutual utility independence are then established without reliance on the utility function differentiability. We also investigate the relationship between the presence of interactions among the attributes of a multiattribute utility function and the decision-maker’s multivariate risk attitudes.