Overview
Expected utility is a concept in decision theory that describes the anticipated outcome of a decision, taking into account the likelihood and desirability of each possible consequence. It was first introduced by Daniel Bernoulli in 1738 and has since become a cornerstone of rational choice theory. The concept is based on the idea that individuals make decisions based on the expected utility of each option, which is calculated by multiplying the probability of each outcome by its utility. Expected utility theory has been widely applied in fields such as economics, finance, and philosophy, and has been used to explain phenomena such as risk aversion and the Allais paradox. However, it has also been subject to criticism and challenges, particularly from behavioral economists who argue that it fails to account for cognitive biases and other psychological factors that influence decision-making. With a vibe score of 8, expected utility remains a highly influential and widely debated concept, with ongoing research and applications in fields such as artificial intelligence and machine learning. As of 2022, expected utility continues to shape our understanding of decision-making and rational choice, with implications for fields ranging from finance to public policy.
Key Facts
- Year
- 1738
- Origin
- Daniel Bernoulli
- Category
- Economics, Philosophy, Mathematics
- Type
- Concept