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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]
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 ...
A single-attribute utility function maps the amount of money a person has (or gains), to a number representing the subjective satisfaction he derives from it. The motivation to define a utility function comes from the St. Petersburg paradox: the observation that people are not willing to pay much for a lottery, even if its expected monetary gain is infinite.
In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings. In a normative context, utility refers to a goal or objective that we wish to maximize, i.e., an objective function.
The term E-utility for "experience utility" has been coined [2] to refer to the types of "hedonistic" utility like that of Bentham's greatest happiness principle. Since morality affects decisions, a VNM-rational agent's morals will affect the definition of its own utility function (see above).
Also, they can be influenced by the effects of ill health on consumptive activities and non health-related utility. [3] Time trade-off results are often used to calculate quality-adjusted life years (QALYs), allowing healthcare decision makers to combine mortality and morbidity into a single interval scale.
Hyperbolic discounting is mathematically described as = + where g(D) is the discount factor that multiplies the value of the reward, D is the delay in the reward, and k is a parameter governing the degree of discounting (for example, the interest rate).
Discounted utility calculations made for events at various points in the future as well as at the present take the form = (), where u(x t) is the utility of some choice x at time t and T is the time of the most distant future