Utility Theory and reciprocal pairwise comparisons: The Eigenvector Method

The criticisms of Utility Theory focus on either its axioms or the construction of utility functions. Here we present a method which avoids the problems of uniqueness encountered in the construction of utility functions when using either the certainty equivalence method or the probability equivalence method. The method is based on the construction of ratio scale value functions from reciprocal pairwise comparisons and Saaty's Eigenvector Method. We show that under the assumption of cardinal consistency utility functions are a particular case of these ratio scales. Reciprocal pairwise comparisons allow decision makers to relax the transitivity assumption and help to derive a unique scaling of preferences.