# Difference between revisions of "Expected utility"

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− | '''Expected utility''' is the [[expected value]] in terms of the [[utility]] produced by an action. | + | '''Expected utility''' is the [[expected value]] in terms of the [[utility]] produced by an action. It is the sum of the utility of each of its possible consequences, individually weighted by their respective probability of occurrence. |

Von Neumann and Morgenstern proved the [http://web.archive.org/web/20070221104329/http://www.econ.hku.hk/~wsuen/uncertainty/eu.pdf expected utility theorem], which says that when a rational agent chooses between different "gambles" (probability distributions over outcomes), the utility of such a gamble can always be seen as the expected utility of the gamble's outcome. | Von Neumann and Morgenstern proved the [http://web.archive.org/web/20070221104329/http://www.econ.hku.hk/~wsuen/uncertainty/eu.pdf expected utility theorem], which says that when a rational agent chooses between different "gambles" (probability distributions over outcomes), the utility of such a gamble can always be seen as the expected utility of the gamble's outcome. |

## Revision as of 03:06, 10 September 2012

**Expected utility** is the expected value in terms of the utility produced by an action. It is the sum of the utility of each of its possible consequences, individually weighted by their respective probability of occurrence.

Von Neumann and Morgenstern proved the expected utility theorem, which says that when a rational agent chooses between different "gambles" (probability distributions over outcomes), the utility of such a gamble can always be seen as the expected utility of the gamble's outcome.

Humans, of course, are a different story.

## Blog posts

- Extreme risks: when not to use expected utility
- Expected utility without the independence axiom
- Money pumping: the axiomatic approach
- In conclusion: in the land beyond money pumps lie extreme events
- VNM expected utility theory: uses, abuses, and interpretation