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.
Expected utility theory is used as a tool for analyzing situations where individuals must make a decision without knowing which outcomes may result from that decision, i.e., decision making under uncertainty. These individuals will choose the act that will result in the highest expected utility, being this the sum of the products of probability and utilityover all possible outcomes. The decision made will also depend on the agent’s risk aversion and the utility of other agents.
This theory also notes that the utility of a money does not necessarily equate to the total value of money. This theory helps explains why people may take out insurance policies to cover themselves for a variety of risks. The expected value from paying for insurance would be to lose out monetarily. But, the possibility of largescale losses could lead to a serious decline in utility because of diminishing marginal utility of wealth.
History of the Expected Utility Concept
The concept of expected utility was first posited by Daniel Bernoulli, who used it as a tool to solve the St. Petersburg Paradox.
The St. Petersburg Paradox can be illustrated as a game of chance in which a coin is tossed at in each play of the game. For instance, if the stakes starts at $2 and double every time heads appears, and the first time tails appears, the game ends and the player wins whatever is in the pot. Under such game rules, the player wins $2 if tails appears on the first toss, $4 if heads appears on the first toss and tails on the second, $8 if heads appears on the first two tosses and tails on the third, and so on. Mathematically, the player wins 2^{k} dollars, where k equals number of tosses (k must be a whole number and greater than zero). Assuming the game can continue as long as the coin toss results in heads and in particular that the casino has unlimited resources, this sum grows without bound and so the expected win for repeated play is an infinite amount of money.
Bernoulli e solved the St. Petersburg Paradox by making the distinction between expected value and expected utility, as the latter uses weighted utility multiplied by probabilities, instead of using weighted outcomes.

Total Utility
Total utility is the aggregate level of satisfaction or fulfillment ... 
Capacity Utilization Rate
The capacity utilization rate is a metric used to measure the ... 
Dow Jones Utility Average  DJUA
The Dow Jones Utility Average (DJUA) is a priceweighted average ... 
SEC Form U7D
A certificate that summarizes the leasing arrangements of any ... 
Subjective Probability
Subjective probability is a type of probability derived from ... 
SEC Form U3A31
SEC Form U3A31 is an obsolete form previously required to be ...

Insights
Trust In Utilities
Even in times of economic turmoil, utilities can be a good investment. 
Investing
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. 
Investing
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. 
Investing
ETF Flows: Utilities ETFs Stand Tall in 2016
Find out which utilities exchangetraded funds (ETFs) have benefited the most from the huge surge in fund inflows in the early part of 2016. 
Investing
How Utilities ETFs Deal With Rising Rates
Utilities stocks and ETFs may be vulnerable to rising interest rates, but there are other factors to consider. 
Investing
Utilities ETFs to Date 2016 Performance Review (UPW, FXU)
Discover the best and worst performing exchangetraded funds (ETFs) within the domestic and international utilities sector yeartodate. 
Investing
XLU: Utilities Select Sector SPDR ETF
Learn about the Utilities Select Sector SPDR ETF and the benchmark index it tracks, and understand what type of investors may be interested in the fund. 
Trading
The Charts Suggest Utilities Are Poised to Move Lower
Many investors are turning to utilities in light of recent volatility. 
Trading
3 Charts Suggest Traders Are Flocking to Safety of Utilities
The rise in utility stocks over the past several weeks suggests that traders are turning to the safety of reliable sectors such as utilities for growth.

What is a utility stock?
Investing in difficult economic conditions requires knowledge of different stock classes. Utility stocks are one vehicle ... Read Answer >> 
What is the downside of investing in the utility sector?
Learn about the pros and cons of investing in the utility sector, and determine whether the steady dividend income possibility ... Read Answer >> 
What are the different ways that utility is measured in economics?
Learn about the two methods used to measure the concept of utility and how utility influences other economic models of consumer ... Read Answer >> 
Why do utility stocks pay high dividends?
Learn why utility stocks pay high dividends and how governmentproduced monopoly protects privileged utility companies from ... Read Answer >> 
What is the utility function and how is it calculated?
Economists measure utility in revealed preferences by observing consumer choices and ordering consumption baskets from least ... Read Answer >> 
What pricetoearnings ratio is average in the utilities sector?
Explore the utilities sector, and discover how it compares to other market sectors when evaluated using the popular pricetoearnings ... Read Answer >>