Choice under uncertainty and the economics of information - Choice under uncertainty - The Von Neumann-Morgenstern Expected Utility model
4 important questions on Choice under uncertainty and the economics of information - Choice under uncertainty - The Von Neumann-Morgenstern Expected Utility model
The central premise of the formal economic theory of choice between uncertain alternatives, advanced by von Neumann and Morgenstern, is that people choose the alternative with the highest expected utility; this is:
The key insight of the Von Neumann-Morgenstern theory is that the expected values of the outcomes of a set of alternatives need not have the same ranking as the expected utilities of the alternatives. This is because utility is assumed to e a concave function of total wealth, and said to exhibit diminishing marginal utility, which is:
A perrons who is risk averse would always refuse a fair gamble. This is a gamble:
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A person is said to be risk neutral, if:
The question on the page originate from the summary of the following study material:
- A unique study and practice tool
- Never study anything twice again
- Get the grades you hope for
- 100% sure, 100% understanding
