2018•The New Palgrave Dictionary of EconomicsRequires access

Expected Utility and Mathematical Expectation

David Schmeidler, Peter P. Wakker

Abstract

Expected utility theory deals with choosing among acts where the decision-maker does not know for sure which consequence will result from a chosen act. When faced with several acts, the decision-maker will choose the one with the highest ‘expected utility’, where the expected utility of an act is the sum of the products of probability and utility over all possible consequences.

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Key concepts: Expected utility hypothesis, Subjective expected utility, Decision maker, Utility theory, Von Neumann–Morgenstern utility theorem, Decision theory, Expected value, Mathematical economics