Expected utility is:
A) the profit from a given decision.
B) a probability weighted average of possible profits.
C) an evenly weighted average of possibility profits.
D) a probability weighted average of possible utility levels.
E) the expected profits plus a number that depends on risk.

Question

Quizplus · Accepted Answer

Expected utility is a probability weighted average of possible utility levels. It takes into account both the probabilities of different outcomes and the subjective values or utilities assigned to those outcomes by the decision maker. This concept is often used in decision theory and economics to help individuals or organizations make rational choices in situations involving risk or uncertainty.

Expected Utility Is