CHOICE OF A DOMESTIC HEATING SYSTEM BY SEMI-GENERALIZED LOTTERIES OF I TYPE

Discussed is the choice between five alternatives for domestic heating with ten-year decision horizon. Consequences are described as 8-D vectors. The main source of uncertainty is the only continuous feature – average annual NPV of year heating costs. The distributions of those costs are acquired by risk analysis, on the basis of subjective prognoses for the annual inflation and prices of energy resources. A novel choice modeling tool, called semi-generalized lottery of I type, is introduced, where the uncertainty of the attribute vector's discrete and continuous parts is measured respectively with probabilities and conditional densities. Formulae for the expected utility of semi-generalized lotteries are justified for the case of additive independent preferences over the discrete and continuous attributes. The five alternatives are ranked in a special case of probability independence of the attributes.