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The summarised formula for expected utility is () = where is the probability that outcome indexed by with payoff is realized, and function u expresses the utility of each respective payoff. [1] Graphically the curvature of the u function captures the agent's risk attitude.
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
This is the expected utility hypothesis. As stated, the hypothesis may appear to be a bold claim. The aim of the expected utility theorem is to provide "modest conditions" (i.e. axioms) describing when the expected utility hypothesis holds, which can be evaluated directly and intuitively:
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.
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.
The felicific calculus could in principle, at least, determine the moral status of any considered act. The algorithm is also known as the utility calculus, the hedonistic calculus and the hedonic calculus. To be included in this calculation are several variables (or vectors), which Bentham called "circumstances". These are:
Isoelastic utility for different values of . When > the curve approaches the horizontal axis asymptotically from below with no lower bound.. In economics, the isoelastic function for utility, also known as the isoelastic utility function, or power utility function, is used to express utility in terms of consumption or some other economic variable that a decision-maker is concerned with.
The traditional rate formula is intended to produce a utility's revenue requirement: R = O + (V − D)r. The elements of the traditional rate formula are defined as: R is the utility's total revenue requirement or rate level. This is the total amount of money a regulator allows a utility to collect from customers.