expected utility theory

Expected utility theory is a way to understand how people make decisions when faced with uncertain outcomes. Instead of just choosing based on the chance of winning or losing, individuals consider the value or satisfaction they expect to get from each possible result, called utility. They then weigh these utilities by their probabilities and select the option with the highest overall expected utility. This approach explains why people might sometimes choose safer options or take risks, depending on how they value different outcomes and their likelihood. It’s a key concept in economics and decision-making, capturing rational choice under uncertainty.