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Topic: Expected utility

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	Expected utility - Wikipedia, the free encyclopedia
		The expected utility hypothesis is the hypothesis in economics that the utility of an agent facing uncertainty is calculated by considering utility in each possible state and constructing a weighted average.
		The expected utility is thus an expectation in terms of probability theory.
		However, expected utility as a descriptive model of decisions under risk has in recent years been replaced by more sophisticated variants that take irrational deviations from the expected utility model into account, compare Prospect theory and the general article on Behavioral finance.
	en.wikipedia.org /wiki/Expected_utility (310 words)

	Subjective expected utility - Wikipedia, the free encyclopedia
		Subjective expected utility is a method in decision theory in the presence of risk originally put forward by L.
		Which decision you prefer depends on which subjective expected utility is higher.
		Experiments involving offering people lottery tickets have suggested that many individuals do not seem to have personally consistent utility functions in the face of risk; Savage's response was not that this showed a flaw in his method, but that applying his method allowed individuals to improve their decision taking.
	en.wikipedia.org /wiki/Subjective_expected_utility (277 words)

	UTILITY (Site not responding. Last check: 2007-10-13)
		The fundamental assumption in UTILITY THEORY is that the decision maker always chooses the alternative for which the expected value of the utility (EXPECTED utility) is maximum.
		A UTILITY function is the rule by which this assignment is done and depends on the preferences of the individual decision maker.
		Utility theory provides a basis for the assignment of utilities to consequences by formulating necessary and sufficient conditions to satisfy (i) and (ii).
	pespmc1.vub.ac.be /ASC/UTILITY.html (597 words)

	Modern thought
		Almost immediately, however, the concept of cardinal utility theory was revived by von Neumann and Morgenstern in their analysis of behavior under uncertainty, and its application to game theory, based on the idea of expected utility maximisation.
		Disregarding the difficulties of constructing a numerical measure of utility, Bentham based his utilitarian theory on the proposition that political organisations should be organised to achieve ‘the greatest good of the greatest number’ by maximising the sum of individual utilities.
		The use of the principle of diminishing marginal utility led to a resolution of the classical ‘paradox of value’, exemplified by the observation that, wherever water is plentiful and diamonds are not, diamonds are more valuable than water, even though water is essential to life and diamonds are purely decorative.
	quiggindictionary.blogspot.com (2806 words)

	SFB 504 glossary: Utility, expected utility (Site not responding. Last check: 2007-10-13)
		The concept of utility enters economic analysis typically via the concept of a utility function which itself is just a mathematical representation of an individual´s preferences over alternative bundels of consumption goods (or, more generally, over goods, services, and leisure).
		A general treatment of the existence of an utility function is due to Debreu (1964).
		Expected utility (von Neumann-Morgenstern utility): An axiomatic extension of the ordinal concept of utility to uncertain payoffs.
	www.sfb504.uni-mannheim.de /glossary/utility.htm (140 words)

	Intuitions about declining marginal utility
		The measure of declining marginal utility was the utility difference between the utilities of the highest and lowest pairs of quantities of goods, e.g., the utility difference between 50 and 60 years life expectancy minus the utility difference between 75 and 85 years.
		Utility of this interval was larger when it was in the bottom third than in the middle third, and this was true for both goods (mean difference 4.3, t = 3.51, p =.0010) and ratings (mean 6.69, t = 4.08, p =.0002; the two kinds of judgment did not differ).
		Utility of this interval was larger when it was in the bottom third than in the middle third, and this was true for both goods (mean difference 5.5, t = 4.76, p =.0000) and ratings (mean 7.37, t = 10.13, p =.0000).
	www.sas.upenn.edu /~baron/jg.htm (7131 words)

	[No title]
		The idea is this: the economist's standard interpretation of risk aversion as concave utility (which I discussed last September 17) fails to explain why people are averse to small risks-- on the order, say, of losing $100-- because utility functions are locally almost linear.
		Expected utility theory's presumption that attitudes towards moderate-scale and large-scale risks derive from the same utility-of-wealth function relates to a widely discussed implication of the theory: that people have approximately the same risk attitude towards an aggregation of independent, identical gambles as towards each of the independent gambles.
		When Samuelson showed that his colleague's pair of choices was not consistent with expected utility theory, Samuelson thought that the mistake his colleague made was in accepting the aggregated bet, not in turning down the individual bet.
	www.rasmusen.org /w/04.02.27a.htm (1653 words)

	[No title]
		Much has been written on the topic of the expected utility model and risky decisions, but much of the literature is too abstract for direct use in consumer education and public policy discussions (Arrow 1971) or, in the case of the standard geometrical exposition (Green 1978, p.
		In general, the expected utility EU is equal to the sum of the terms pi times U(Wi), where pi is the probability of State of the World i, and Wi is the individual's wealth if that state of the world occurs.
		The expected utility of Action 1 is 50, shown by EU on the utility axis in Figure 1.
	www.hec.ohio-state.edu /people/shanna/741/optimal_insurance_deductibles.doc (3875 words)

	[UAI] Maximizing expected utility
		This is mainly a response to Chris's message where he criticizes the expected utility criterion on the basis that it ignores variances.
		Which means that expected > utility theory would prescribe to go for option A, regardless of the > values of c_1 and c_2.
		And this is what I mean by saying that > expected utility theory does not take into account the variances of > the outcomes, because it seems to me that the rational grounds are > closely connected to these variances.
	www.mail-archive.com /uai@cs.orst.edu/msg02559.html (1067 words)

	Alternative Expected Utility
		The first argument, pursued by Jacob Marschak (1951) and Leonard J. Savage (1954: p.28-30, 101-3) is that expected utility theory is meant to be a normative proposition, i.e.
		A comprehensive and detailed survey of the literature on alternative expected utility theory is Fishburn (1988); a simpler one is Machina (1987).
		These new expected utility theories, as explained, were designed to incorporate the "fanning out" hypothesis and thereby incorporate common consequence and common ratio effects.
	cepa.newschool.edu /het/essays/uncert/alternative.htm (2573 words)

	[No title]
		Birnbaum (1987) noted that the deviations from scale convergence that occur for utility are similar in pattern to the deviations that occur by forcing the assumption of additivity (or parallel averaging) in psychophysical integration and evaluative judgment.
		It was expected that these lotteries would be minimally affected by point of view; in combination with other lotteries that would be affected by point of view, these trials were used to demonstrate that the rank order of lotteries changed as a function of point of view.
		The function converting utility of a gamble to a monetary judgment was estimated as a power function and multiplied by a constant (c) to put the response in dollars; two configural weights were estimated for the two points of view; therefore, there were 11 parameters to estimate, not counting the monotonic transformations made by MONANOVA.
	psych.fullerton.edu /mbirnbaum/papers/Birnbaum-Sutton22.doc (8538 words)

	Uncertainty, Expected Utility, and Who wants to be a Millionaire?
		An expected gain of $14,500 dictates that this is a more than fair game, but the decision of whether to guess here ultimately depends upon the expected utility associated with this guess.
		The decision of whether to guess, however, depends on whether the expected utility of guessing is greater or less than the (certain) utility associated with ending the game and walking away with $64,000.
		The expected utility of guessing at the $125,000 question (after using the 50:50) depends on the expected value of that guess.
	www.louisville.edu /~bmhawo01/econpage/301/handouts/uncertainty/millionaire.html (902 words)

	Expected Utility Theory
		Comonotonicity axioms and rank-dependent expected utility theory for arbitrary consequences.
		Expected utility theory: Is it normative or simply “practical”.
		Retrospective on the utility theory of von Neumann and Morgenstern.
	expected-utility-theory.behaviouralfinance.net (883 words)

	Option Price
		As gray whales increase utility increases but at a decreasing rate (the utility curve is bowed away from the horizontal axis.
		Expected utility in [4] is the probability weighted right-hand sides of [2] and [3].
		Expected utility in [5] is the probability weighted left-hand sides of [2] and [3].
	core.ecu.edu /econ/whiteheadj/5000/ch07/theory.htm (951 words)

	expected utility
		The expected value of an action equals the sum of the products of the probabilities and values for each possible outcome.
		In order to calculate the expected value of an action we must first distinguish all of its possible outcomes and assign probabilities and values to each.
		So the expected value of purchasing the lottery ticket is $19,230.
	www.bcc.ctc.edu /ArtsHum/materials/phil/Payne/Winter2004/100/expectedutilityw04.htm (723 words)

	PokerTips.org - Poker Strategy - Expected Utility
		The utility (happiness) gained from that second BMW and house isn't quite equal to the loss you would experience if you were suddenly made penniless.
		This is because of Expected Utility: if you have 1000 in chips early in a tournament, it is most likely a bad idea to take an all-in on a 50-50.
		This is because the utility of having that first 1000 is much diminished because of the blinds.
	www.pokertips.org /strategy/expected-utility.php (1404 words)

	[No title]
		Explicitly, expected utility is less than utility of the expected value of the "gamble" Risk Lover: Prefers more risk to less.
		Explicitly, expected utility is more than utility of the expected value of the "gamble" 3.
		Decrease in relative expected return (Decrease demand b) expect a large capital loss next month on the sale of your house.
	academics.vmi.edu /econ_kg/MandB/chap5pracprobsols.doc (590 words)

	Utility Theory and Game Theory
		Thus, if the players are both maximizing their individual expected utilities, each will go to the beach.
		In this example, Betty gets higher utility than John because of their relative preferences, and John gets less utility than he would have if Betty wanted to be with him.
		Only the mixed strategy equilibrium results in equal expected utilities for the two players, so if both value equality or symmetry, this might be the focal point.
	www.stanford.edu /class/symbsys150/autonomous-decisions-5-1.html (1498 words)

	Expected utility
		The simplest version of expected utility formulates X as a set of finite-support probability distributions, also called lotteries, on a set C of consequences.
		This is essentially the approach taken in the axiomatization of von Neumann and Morgenstern (1944), whose utility representation is (1) in conjunction with the linearity property
		Theories of expected utility that derive subjective probabilities of uncertain events along with utilities from axioms are grouped under the heading of decision under uncertainty.
	www.csi.uottawa.ca /ordal/papers/fishburn/node5.html (1087 words)

	Expected-Utility Model
		specifying his or her personal utility for each candidate winning the election, and assuming that the probability of a three-way tie is negligible, the expected-gain equations for a plurality election that selects a single winner can be written in the form
		is the expected utility associated with abstaining, and
		Hoffman suggests that voters consider every possible group of alternatives that might be elected and assign a utility value to each group (this may be accomplished more easily by assigning utilities to each alternative and summing the utilities for each group member to determine the group utility).
	lorrie.cranor.org /pubs/diss/node12.html (862 words)

	EconPort - Handbook - Decision-Making Under Uncertainty - Von Neumann-Morganstern Expected Utility
		As it stands, expected utility theory is widely used in theoretical and practical analysis - see the section on Applications of Expected Utility Theory for a detailed discussion.
		By convention, we use the term Bernoulli Utility Function to refer to a decision-maker's utility over wealth - since of course it was Bernoulli who originally proposed the idea that people's internal, subjective value for an amount of money was not necessarily equal to the physical value of that money.
		The term von Neumann-Morgenstern Utility Function, or Expected Utility Function is used to refer to a decision-maker's utility over lotteries, or gambles.
	www.econport.org:8080 /econport/request?page=man_ru_basics3 (962 words)

	The Expected Utility Hypothesis - Introduction
		The expected utility hypothesis stems from Daniel Bernoulli's (1738) solution to the famous St. Petersburg Paradox posed in 1713 by his cousin Nicholas Bernoulli (it is common to note that Gabriel Cramer, another Swiss mathematician, also provided effectively the same solution ten years before Bernoulli).
		Yet while the expected payoff is infinite, one would not suppose, at least intuitively, that real-world people would be willing to pay an infinite amount of money to play this!
		Channelled by Gossen (1854), Bernoulli's idea of diminishing marginal utility of wealth became a centerpiece in the Marginalist Revolution of 1871-4 in the work of Jevons (1871), Menger (1871) and Walras (1874).
	cepa.newschool.edu /het/essays/uncert/bernoulhyp.htm (457 words)

	EXPECTED UTILITY AND VARIANCE (Site not responding. Last check: 2007-10-13)
		Most algorithms presented in this paper extend readily to expected utility by simple inclusion of the utility functions [10].
		Calculation of lower and upper variances is more complex than expected utility because variances are non-linear functionals of the distributions.
		We must reduce calculation of variances to an iterative calculation of expected utilities [37, Theorem G2,] in order to solve this problem (the method is presented in [10]).
	www.cs.cmu.edu /~fgcozman/Research/QuasiBayesian/UAI97/node14.html (92 words)

	Subjective Expected Utility - Intro
		Given the degree of looseness of the concept, one should expect its formalization to be somewhat more difficult.
		Savage's subjective expected utility theory has been regarded by some observers as "the most brilliant axiomatic theory of utility ever developed" (Fishburn, 1970: p.191) and "the crowning glory of choice theory" (Kreps, 1988: p.120).
		Savage's brilliant performance was followed up by F.J. Anscombe and R.J. Aumann's (1963) simpler axiomatization which incorporated both objective and subjective probabilities into a single theory, but lost a degree of generality in the process.
	cepa.newschool.edu /het/essays/uncert/subjective.htm (1896 words)

	Expected Utility Networks - Mura, Shoham (ResearchIndex) (Site not responding. Last check: 2007-10-13)
		Abstract: We introduce a new class of graphical representations, expected utility networks (EUNs), and discuss some of its properties and potential applications to artificial intelligence and economic theory.
		EUNs are undirected graphs with two types of arc, representing probability and utility dependencies respectively.
		The representation of utilities is based on a novel notion of conditional utility...
	citeseer.ist.psu.edu /393858.html (291 words)

	Extensions of Expected Utility Theory and Some Limitations of Pairwise Comparisons (ResearchIndex)
		Abstract: We contrast three decision rules that extend Expected Utility to contexts where a convex set of probabilities is used to depict uncertainty: #-Maximin, Maximality, and E-admissibility.
		The rules extend Expected Utility theory as they require that an option is inadmissible if there is another that carries greater expected utility for each probability in a (closed) convex set.
		If the convex set is a singleton, then each rule agrees with maximizing expected utility.
	citeseer.ist.psu.edu /648796.html (444 words)

	Citebase - Expected Qualitative Utility Maximization (Site not responding. Last check: 2007-10-13)
		A model for decision making that generalizes Expected Utility Maximization is presented.
		Expected Qualitative Utility Maximization is characterized by an original weakening of von Neumann-Morgenstern's postulates.
		Subjective probabilities are numbers, not matrices as in the Subjective Expected Lexicographic Utility approach.
	citebase.eprints.org /cgi-bin/citations?id=oai:arXiv.org:cs/0202023 (513 words)

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