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utility maximization


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The method of modelling choice by assuming that an individual's preferences can be represented by a utility function which they seek to maximize. Where choices have to be made under conditions of risk the objective becomes that of maximizing expected utility. Utility maximization can be used to model individual consumers, organizations, and (by replacing the utility function by a social welfare function) governments. Utility maximization has widespread applicability throughout economics and has been the basis of the formalization of the theory of choice.

Subjects: Economics.


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