Expected utility is a foundational concept in decision theory that quantifies the desirability of uncertain outcomes by considering both their probabilities and their respective utilities. It serves as a guide for rational decision-making under uncertainty, helping individuals or entities choose options that maximize their overall satisfaction or benefit.

Expected Utility

Expected utility

foundational concept

Decision theory is a framework for making logical choices in the face of uncertainty, integrating principles from statistics, economics, and psychology to evaluate and optimize decisions. It encompasses both normative theories, which prescribe how decisions should be made, and descriptive theories, which describe how decisions are actually made by individuals and organizations.

decision theory

uncertain outcomes

probabilities

respective utilities

Rational decision-making is a systematic process of defining problems, evaluating alternatives, and choosing optimal solutions based on logical reasoning and factual data. It assumes that individuals have access to all necessary information, can weigh the costs and benefits objectively, and aim to maximize utility or outcomes.

rational decision-making

Uncertainty refers to the lack of certainty or predictability in outcomes, often arising from incomplete information, complex systems, or inherent randomness. It plays a critical role in decision-making, risk assessment, and scientific modeling, necessitating strategies to manage and mitigate its effects.

Your Courses

Relevant Degrees

Your Lessons