Expected Utility Theory
Updated 2026-08-05
INTRODUCTION
English translation pending.
CORE DEFINITION
Expected Utility Theory, derived from the von Neumann-Morgenstern axioms, holds that a rational agent under uncertainty chooses the action with the highest expected utility, with outcomes weighted by their probability, rather than the highest expected money. Utility is usually concave, so marginal value declines, which explains risk aversion such as preferring a certain million to a half chance of two and a half million. The key condition is that probabilities and utilities are correctly assessed.
SCAFFOLDING EFFECT
Reduce cognitive load
- Subjective yardstick: rank options by utility to the decision maker, not by money amount. - Risk shaping: read concave utility as risk aversion and convex utility as risk seeking. - Preference repair: when choices look inconsistent, check whether money was mistaken for utility.
Anchor fast decisions
Built on the von Neumann-Morgenstern rational axioms, the theory states that under uncertainty an agent should pick the action whose utility, weighted across outcomes by probability, is greatest. Because marginal utility typically declines with wealth, a certain smaller gain can outweigh a larger risky one, making risk aversion rational rather than irrational.
MINIMUM ACTION
In progress 0/1Practice this model in one real situation:
account_treeGenealogyexpand_more
menu_bookReferencesexpand_more
Source support: Explicit
- zh.wikipedia.orghttps://zh.wikipedia.org/wiki/%E9%A2%84%E6%9C%9F%E6%95%88%E7%94%A8%E5%81%87%E8%AF%B4verified
PRIVATE NOTES · Only visible to you
SAVED Q&A
ENTRY Q&A · Private saving available
Ask with a clear boundary
thinkingmodels answers from published entry context only.
Your question is sent to thinkingmodels. The answer uses public entry context only.
RELATED MODELS