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Utility maximization is an important concept in consumer theory as it shows how consumers decide to allocate their income. Because consumers are modelled as being rational , they seek to extract the most benefit for themselves.
The utility functions may represent their chance of recovery – () is the probability of agent to recover by getting doses of the medication. The utilitarian rule then allocates the medication in a way that maximizes the expected number of survivors.
In order to compare the different decision outcomes, one commonly assigns a utility value to each of them. If there is uncertainty as to what the outcome will be but one has knowledge about the distribution of the uncertainty, then under the von Neumann–Morgenstern axioms the optimal decision maximizes the expected utility (a probability ...
The expected utility hypothesis is a foundational assumption in mathematical economics concerning decision making under uncertainty. It postulates that rational agents maximize utility, meaning the subjective desirability of their actions. Rational choice theory, a cornerstone of microeconomics, builds this postulate to model aggregate social ...
The welfare maximization problem is an optimization problem studied in economics and computer science.Its goal is to partition a set of items among agents with different utility functions, such that the welfare – defined as the sum of the agents' utilities – is as high as possible.
Whereas act utilitarianism requires us to choose our actions by calculating which action will maximize utility and rule utilitarianism requires us to implement rules that will, on the whole, maximize utility, motive utilitarianism "has the utility calculus being used to select motives and dispositions according to their general felicific ...
The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves.It analyzes how consumers maximize the desirability of their consumption (as measured by their preferences subject to limitations on their expenditures), by maximizing utility subject to a consumer budget constraint. [1]
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.