Utility Theory is a foundational concept in economics and decision theory that models how individuals make choices based on their preferences, aiming to maximize their satisfaction or utility. It assumes that people can rank their preferences and make decisions that provide them with the greatest expected utility, even under conditions of uncertainty.

Utility Theory

foundational concept

Economics is the study of how individuals, businesses, and governments make choices on allocating resources to satisfy their wants and needs, and how these choices interact to shape markets and economies. It encompasses both microeconomic and macroeconomic perspectives, analyzing everything from individual consumer behavior to global economic trends.

economics

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

Choices based on preferences

Maximize satisfaction

Maximize utility

Rank preferences

Decisions that provide utility

greatest expected utility

conditions of uncertainty

Decision-Making Under Uncertainty in Expected Value Analysis

Understanding Bankroll Basics

Prospect Theory and Value Function

Fundamentals of Expected Value

Relevant Degrees

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