The Friedman-Savage Utility Function

The Friedman-Savage utility function describes how people evaluate risky choices, recognizing that they may be risk-seeking in some situations and risk-averse in others. Unlike traditional models that assume consistent risk behavior, this approach suggests individuals have a "U-shaped" attitude towards wealth: they are willing to take big risks when they have very little money to potentially improve their situation, but become more cautious as they accumulate wealth. This model helps explain real-world decisions like gambling or investing, where people's willingness to take risks varies depending on their current wealth level.