On Utility. I. The Validity of the Expected Utility Hypothesis. II. On Bernoullian Utility for Goods and Money.
PRINCETON UNIV N J
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A model of behavior in circumstances of uncertainty is now represented by a preference order between certain distributions which determines a best distribution among any that are attainable on any occasion, and hence an act which is possible and which has that distribution as outcome. But since certainty appears as a special instance of uncertainty, the preference order between objects X which gives a model for behavior with certainty, induces a corresponding order between special distributions which must be contained in this preference order between other distributions. The expected utility hypothesis for uncertain choice is the hypothesis that every object Xr has a certain utility UXr determining the expected utility for an act which gives outcome X with a probability distribution and that preference between distributions corresponds to relative magnitude of expected utility, so choice is determined by the maximum of possible expected utility. Author