Expected utility hypothesis - Wikipedia

The expected utility hypothesis is a foundational assumption in mathematical economics concerning decision making under uncertainty. It postulates that rational agents maximize utility, meaning the subjective desirability of their actions. Rational choice theory, a cornerstone of microeconomics, builds this postulate to model aggregate social behaviour. The expected utility hypothesis states an agent chooses between risky prospects by comparing expected utility values (i.e. the weighted sum of adding the respective utility values of payoffs multiplied by their probabilities). The summarised formula for expected utility is 𝑈 ( 𝑝 ) = ∑ 𝑢 ( 𝑥 𝑘 ) 𝑝 𝑘 where 𝑝 𝑘 is the probability that outcome indexed by 𝑘 with payoff 𝑥 𝑘 is realized, and function u expresses the utility of each respective payoff.[1] Graphically the curvature of the u function captures the agent's risk attitude. Standard utility functions represent ordinal preferences. The expected utility hypothesis imp

Expected utility hypothesis - Wikipedia Jump to content From Wikipedia, the free encyclopedia Concept in economics The expected utility hypothesis is a foundational assumption in mathematical economics concerning decision making under uncertainty . It postulates that rational agents maximize utility , meaning the subjective desirability of their actions. Rational choice theory , a cornerstone of microeconomics , builds this postulate to model aggregate social behaviour. The expected utility hypothesis states an agent chooses between risky prospects by comparing expected utility values (i.e., t

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