Expected Utility

What is 'Expected Utility'

Expected utility is an economic term summarizing the utility that an entity or aggregate economy is expected to reach under any number of circumstances. The expected utility is calculated by taking the weighted average of all possible outcomes under certain circumstances, with the weights being assigned by the likelihood, or probability, that any particular event will occur.

BREAKING DOWN 'Expected Utility'

The expected utility of an entity is derived from the expected utility hypothesis. This hypothesis states that under uncertainty, the weighted average of all possible levels of utility will best represent the utility at any given point in time.

RELATED TERMS
  1. Utilities Sector

    A category of stocks for utilities such as gas and power. The ...
  2. Utility

    1. An economic term referring to the total satisfaction received ...
  3. Electric Utilities Industry ETF

    An exchange-traded fund that invests in companies which generate ...
  4. Dow Jones Utility Average - DJUA

    The Dow Jones Utility Average is a price-weighted average of ...
  5. Capacity Utilization Rate

    A metric used to measure the rate at which potential output levels ...
  6. Weighted Average

    An average in which each quantity to be averaged is assigned ...
Related Articles
  1. ETFs & Mutual Funds

    Utility Funds: A Bright Choice In Bear And Bull Markets

    Gas, electric and water companies' non-cyclical nature can power strong gains in any portfolio.
  2. Markets

    Are Safe Haven Utility Stocks, ETFs Too Expensive?

    With so many investors seeking safety are utility stocks and ETFs a crowded trade?
  3. Markets

    The Debt Report: The Utilities Sector

    Discover how blue chip U.S. utilities companies are using debt, and why it was important for the industry to deleverage after the financial crisis.
  4. Markets

    Economics Basics: Utility

    Investopedia explains the concept of utility, an abstract concept where the units that assign an amount of utility are arbitrary and are only used for representing relative value.
  5. ETFs & Mutual Funds

    5 Popular Utilities ETFs in 2016 (XLU, NEE)

    Discover how the five most popular utilities ETFs for 2016 can add growth and income to your portfolio. Four of these utilities ETFs outperformed the S&P 500.
  6. Retirement

    Getting Shocked By Utility Stocks

    Utility stocks are traditionally thought of as safe investments, no matter what happens at Wall Street. A recent analysis shows that this isn't really the case.
  7. ETFs & Mutual Funds

    The Top 5 Utility Mutual Funds for 2016

    Understand how utilities equities play a role in asset allocation, and discover the best utilities mutual funds to consider for 2016.
  8. Investing

    Utilities Aren’t Just For Yield (Opinion)

    Investopedia columnist Michael Gayed explains a surprising correlation: When utilities are leading, stock market volatility is higher on average afterwards.
  9. Markets

    Explaining Marginal Utility

    Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service.
  10. ETFs & Mutual Funds

    Top 4 Utilities Mutual Funds

    Discover which mutual funds in the utilities industry are top rated, and learn how investors can include utilities as part of an asset allocation strategy.
RELATED FAQS
  1. What are the main benchmarks that track the performance of the utilities sector?

    Learn about the main benchmarks that track the performance of the utilities sector, such as the Dow Jones Industrial Average ... Read Answer >>
  2. What is the average annual return in the utilities sector?

    Explore facts about the popular utilities sector and discover what the average annual return for the sector has been over ... Read Answer >>
  3. What are the main factors that drive share prices in the utilities sector?

    Learn why the share prices of companies in the utility sector have sensitivity to interest rates and to changes in the amount ... Read Answer >>
  4. What is a utility stock?

    Investing in difficult economic conditions requires knowledge of different stock classes. Utility stocks are one vehicle ... Read Answer >>
  5. What is the long-term outlook of the utilities sector?

    Discover the long-term outlook for the utilities sector, along with the various aspects that make utility stocks appealing ... Read Answer >>
  6. How does the risk of investing in the utilities sector compare to the broader market?

    Learn about the risks of investing in the utilities sector compared to the broader market. Utilities are less exposed to ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center