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Expected utility
 

 

The expected value of utility from entering a risky prospect.

Expected utility

The expected utility theorem states that if a consumer satisfies a set of axioms describing rationalitythey should act in risky situations as if they maximize expected utility.

Expected utlity

so the consumer prefers a sure pay-off to a risky prospect of the same expected value. See also Allais Paradox.

 

 

Reference: Oxford Press Dictonary of Economics, 5th edt.