Expected Utility

AAA

DEFINITION of 'Expected Utility'

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.

INVESTOPEDIA EXPLAINS '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. Economics

    A social science that studies how individuals, governments, firms ...
  2. Marginal Utility

    The additional satisfaction a consumer gains from consuming one ...
  3. Utility

    1. An economic term referring to the total satisfaction received ...
  4. Total Utility

    The aggregate level of satisfaction or fulfillment that a consumer ...
  5. Weighted Average

    An average in which each quantity to be averaged is assigned ...
  6. Marginal Rate of Technical Substitution

    The rate at which one factor has to be decreased in order to ...
Related Articles
  1. Economics Basics
    Economics

    Economics Basics

  2. How Influential Economists Changed Our ...
    Fundamental Analysis

    How Influential Economists Changed Our ...

  3. Find The Right Fit With Probability ...
    Fundamental Analysis

    Find The Right Fit With Probability ...

  4. The Economics Of Labor Mobility
    Economics

    The Economics Of Labor Mobility

comments powered by Disqus
Hot Definitions
  1. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  2. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  3. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  6. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
Trading Center