subjective expected utility theory

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A theory of decision making according to which a decision maker chooses an alternative or strategy (2) that maximizes subjective expected utility. It was introduced by the US decision theorist Leonard J(immie) Savage (1917–71) in his book The Foundations of Statistics (1954), and in the same year it was named and first studied empirically by the US psychologist Ward (Denis) Edwards (1927–2005). See also Allais paradox, behavioural decision theory, common ratio effect, Ellsberg paradox, modified Ellsberg paradox, St Petersburg paradox. Compare expected utility theory, prospect theory, utility theory.

Subjects: Psychology.

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