Expected utility Guide, Meaning , Facts, Information and Description
The expected utility hypothesis is the hypothesis in economics that the utility of an agent facing uncertainty is calculated by considering utility in each possible state and constructing a weighted average. The weights are the agent's estimate of the probability of each state. The expected utility is thus an expectation in terms of probability theory.Arrow (1963) attributes to Daniel Bernoulli (1738) the earliest known written statement of this hypothesis.