# axioms of expected utility theory

The probability of receiving xi is pi. This real valued function is the utility function. Subjective Expected Utility Theory Notes Notice that we now have two things to recover: Utility and preferences Axioms beyond the scope of this course: has been done twice - ârst by Savage1 and later (using a trick to make the process a lot simpler) by Anscombe and Aumann2 The right-hand side is given by comparisons of the expected values of the vector-valued utility function \(\varvec{\upsilon }_{k}\). Risk neutral individuals have linear utility functions, risk averse individuals have concave utility functions (u”<0) and risk loving individuals have convex utility functions (u”>0). Independence Ifx Ëy and0

> This theory was developed by Daniel Bernoulli (1738) and expanded by John von Neumann and Oskar Morgenstern (1947). /Filter /FlateDecode Expected utility theory is a special instance of the theory of choice under objective and subjective uncertainty. Continuity Ifx Ëy andy Ëz, thentherearenumbers0