Expected Utility Hypothesis

The Expected Utility Hypothesis is a principle in decision-making that suggests people choose options based on the potential outcomes' usefulness or value, rather than just the monetary amount. It assumes individuals consider both the chance of each outcome and how much they value that outcome, aiming to maximize their overall satisfaction or utility. This approach explains why people might sometimes prefer a smaller, safer reward over a larger, riskier one, reflecting personal preferences and attitudes toward risk. Overall, it provides a way to understand choices under uncertainty by focusing on expected benefits weighted by their desirability.