Book Chapter10.1007/978-94-010-9276-0_2
Rational Behavior, Uncertain Prospects, and Measurable Utility (1950)
485
TL;DR: In this paper, it is shown that if the economists' theory of assets is completed by a fourth postulate on rational choice, then utility can be defined as a quantity whose mathematical expectation is maximized by the rational man.
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Abstract: After introducing some basic concepts and three postulates on rational choice, it is proposed to show that if the economists’ theory of assets is completed by a fourth postulate on rational choice, then utility can be defined as a quantity whose mathematical expectation is maximized by the rational man. In this sense, utility is ‘measurable’ and ‘manageable’. These results are inspired by von Neumann’s and Morgenstern’s discussion of utility in Theory of Games and Economic Behavior; an attempt is made to sketch some relations between their approach and the present one, It is shown in conclusion that while gambling is compatible with the four postulates, the ‘love of danger’ is not: and a property of the maximum mathematical expectation of utility is conjectured.
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Citations
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References
•Book
Theory of Games and Economic Behavior
John von Neumann,Oskar Morgenstern +1 more
- 01 Jan 1944
TL;DR: Theory of games and economic behavior as mentioned in this paper is the classic work upon which modern-day game theory is based, and it has been widely used to analyze a host of real-world phenomena from arms races to optimal policy choices of presidential candidates, from vaccination policy to major league baseball salary negotiations.
Theory of Games and Economic Behavior
TL;DR: In this article, the authors show that the maximization of individual wealth is not an ordinary problem in variational calculus, because the individual does not control, and may even be ignorant of, some of the variables.
10.4K
•Book
Economics of welfare
Arthur Cecil Pigou
- 01 Jan 1999
TL;DR: The Collard Principles and Methods of Industrial Peace, 1905, 260pp Economic Science in Relation to Practice, 1908, 32pp VOLUME 2 Wealth and Welfare, 1912, 524pp VolUME 3 The Economics of Welfare [1920] 1932 4th ed., 868pp, VOLUME 4 Unemployment, 1914, 258pp The Political Economy of War, [1921] 2nd ed., 1940, 176pp as discussed by the authors.
4.7K
The Utility Analysis of Choices Involving Risk
TL;DR: In this paper, the authors suggest that an important class of reactions of individuals to risk can be rationalized by a rather simple extension of orthodox utility analysis, i.e., individuals frequently must, or can, choose among alternatives that differ, among other things, in the degree of risk to which the individual will be subject.
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