Expected Utility Theory

Expected utility theory says the best decision is the one that maximizes expected value across possible outcomes.

Why keep a theory humans violate?

It’s the ideal-rational-decider baseline. Useful as a yardstick even though humans don’t actually decide this way.

$E=\sum (p\times u)$

where:

• $p$ is the probability of an outcome
• $u$ is its utility

Descriptive failure

Humans are affected by framing, loss aversion, heuristics, and emotions, which is what Kahneman’s work documented.

Related

• Image Theory
• Recognition-primed Decision Making