Utility theory and decision analysis have a long tradition in microeconomics, operations research as well as in business administration. The following sections will introduce the basic concepts of both disciplines. Understanding these is important to the conceptual design ofmulti-attribute auctions and to the practical implementation of these mechanisms.

Basic Ideas of Utility Theory

The theory of utility dates back to over a century ago. “Utility” and “value” are synonyms for many researchers, therefore, the term “utility” is used throughout the text. Microeconomists were the first to analyze consumers' preferences and utilities. This research has a long, complicated and controversial history and is as old as economics itself. At the present time economists still do not agree on the real meaning of utility and the way in which it should be defined (Metha, 1998).

Existence of a Utility Function

In the nineteenth century economists saw “utility” as an indicator of a person's overall well-being or happiness. The first explicit and systematic use of the concept of utility to explain value of commodities can be found in Jevons' classical Theory of Political Economy (1871). Jevons did not, however, distinguish between preference and utility.