Open AccessCommunications to the Editor—A Note on Utility and Attitudes to Risk
Author(s) -
Karl Borch
Publication year - 1963
Publication title -
management science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.954
H-Index - 255
eISSN - 1526-5501
pISSN - 0025-1909
DOI - 10.1287/mnsc.9.4.697
Subject(s) - expected utility hypothesis , subjective expected utility , prospect theory , variance (accounting) , function (biology) , bellman equation , value (mathematics) , expected value , mathematical economics , economics , von neumann–morgenstern utility theorem , utility theory , decision theory , actuarial science , computer science , econometrics , microeconomics , mathematics , statistics , accounting , evolutionary biology , biology
Most theories of economic decision-making under uncertainty recognize that the value assigned to an uncertain prospect may differ from its "actuarial value," or that the utility of an expectation may differ from the expectation of the utility. One way of formalizing this idea is to assume that the utility of a prospect is given by a function f(E, V), where E - the mathematical expectation of the gain, V - the variance of the gain. Various considerations about existence and possible shape of such function f(E, V) are presented.