Von Neumann–Morgenstern utility theorem

The von Neumann-Morgenstern utility theorem is a foundational concept in economics and decision theory that helps explain how individuals make choices under uncertainty. It states that if people can rank their preferences for different outcomes consistently, they can assign a utility value to each outcome. This value reflects the satisfaction or happiness they expect from various possibilities. Using these utility values, individuals can make rational decisions by choosing options that maximize their expected utility, even when facing risks or uncertain outcomes, thus providing a mathematical foundation for understanding rational behavior in uncertain situations.