The hypothesis that states that, when people are faced with risk, they assess the possible payoffs in terms of utility and then choose the gamble that yields the payoff with the highest expected utility is known as the expected utility hypothesis.

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This is an accurate description of the expected utility hypothesis, which suggests that individuals make decisions based on their evaluation of the possible outcomes and the utility (or value) they place on those outcomes. The option with the highest expected utility is typically preferred.

The Hypothesis That States That, When People Are Faced with Risk