Modifications and Generalizations of Expected Utility Theory

Anatol Rapoport

Chapter 5 in Decision Theory and Decision Behaviour, 1998, pp 105-135 from Palgrave Macmillan

Abstract: Abstract As has been mentioned, the beginnings of the formal (that is, mathematically rigorous) theory of probability are usually traced to the correspondence between P. Fermat and B. Pascal concerning certain problems arising in gambling. One of them was how to divide the stakes of an unfinished game of chance. The solution involved the concept of expected gain or ‘moral expectation’, as it was once called — the weighted average of the possible gains (positive or negative), where the weights are the probabilities of realizing these gains. The value of a gamble (or a lottery) defined in this way could then be associated with its expected gain in this sense. Thereby a rational decision in the context of gambling or purchasing tickets in a lottery could be defined as one that prescribes taking the gamble or purchasing the ticket if and only if the corresponding expected gain exceeds the stake or the price of the ticket.

Keywords: Utility Function; Utility Theory; Single Actor; Expect Utility Theory; Expected Gain (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-37776-9_6

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DOI: 10.1057/9780230377769_6

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