Search results
Results From The WOW.Com Content Network
When faced with several alternatives, the person will choose the alternative with the highest utility. The utility function is not visible; however, by observing the choices made by the person, we can "reverse-engineer" his utility function. This is the goal of revealed preference theory. [citation needed] In practice, however, people are not ...
In decision theory, the von Neumann–Morgenstern (VNM) utility theorem demonstrates that rational choice under uncertainty involves making decisions that take the form of maximizing the expected value of some cardinal utility function. This function is known as the von Neumann–Morgenstern utility function.
In decision theory, a multi-attribute utility function is used to represent the preferences of an agent over bundles of goods either under conditions of certainty about the results of any potential choice, or under conditions of uncertainty.
This field of psychology was built on work by Ernst H. Weber, but around the time of World War I, psychologists grew discouraged of it. [10] [11] In the late 19th century, Carl Menger and his followers from the Austrian school of economics undertook the first successful departure from measurable utility, in the clever form of a theory of ranked ...
In decision theory, subjective expected utility is the attractiveness of an economic opportunity as perceived by a decision-maker in the presence of risk.Characterizing the behavior of decision-makers as using subjective expected utility was promoted and axiomatized by L. J. Savage in 1954 [1] [2] following previous work by Ramsey and von Neumann. [3]
Generalized expected utility is a decision-making metric based on any of a variety of theories that attempt to resolve some discrepancies between expected utility theory and empirical observations, concerning choice under risky (probabilistic) or uncertain circumstances.
The theory of subjective expected utility combines two concepts: first, a personal utility function, and second, a personal probability distribution (usually based on Bayesian probability theory). This theoretical model has been known for its clear and elegant structure and is considered by some researchers to be "the most brilliant axiomatic ...
The main modification to prospect theory is that, as in rank-dependent expected utility theory, cumulative probabilities are transformed, rather than the probabilities themselves. This leads to the aforementioned overweighting of extreme events which occur with small probability, rather than to an overweighting of all small probability events.