Expected Utility
The expected utility theory deals with the analysis of choices among risky projects with (possibly multidimensional) outcomes.
The expected utility model was first proposed by Nicholas Bernoulli in 1713 and solved by Daniel Bernoulli in 1738 as the St. Petersburg paradox. Bernoulli argued that the paradox could be resolved if decisionmakers displayed risk aversion and argued for a logarithmic cardinal utility function.
The first important use of the expected utility theory was that of John von Neumann and Oskar Morgenstern who used the assumption of expected utility maximization in their formulation of game theory.
Read more about this topic: Utility
Famous quotes containing the words expected and/or utility:
“Like sleep disturbances, some worries at separation can be expected in the second year. If you accept this, then you will avoid reacting to this anxiety as if it’s your fault. A mother who feels guilty will appear anxious to the child, as if to affirm the child’s anxiety. By contrast, a parent who understands that separation anxiety is normal is more likely to react in a way that soothes and reassures the child.”
—Cathy Rindner Tempelsman (20th century)
“Moral sensibilities are nowadays at such cross-purposes that to one man a morality is proved by its utility, while to another its utility refutes it.”
—Friedrich Nietzsche (1844–1900)