Utilityteoriaan

Utilityteoriaan, commonly referred to as utility theory, is a framework for modeling how individuals rank alternatives according to the satisfaction or value they provide. In its classical form, preferences are represented by a numerical utility function, and when outcomes are certain, choosing the best alternative corresponds to maximizing utility. When outcomes are uncertain, choices are analyzed through expected utility, weighting each possible outcome by its probability.

Two broad strands are important within utility theory: ordinal and cardinal approaches. In the cardinal framework developed by von Neumann and Morgenstern, the utility function is structured so that the expected utility of lotteries aligns with observed preferences and satisfies a set of axioms—completeness, transitivity, continuity, and the independence of irrelevant alternatives. These axioms lead to the principle of expected utility maximization and provide a formal basis for modeling risk preferences. Risk aversion, risk seeking, and neutrality are reflected in the curvature of the utility function.

Criticisms and extensions have broadened the field. Prospect theory, for example, modifies the standard axioms to account for loss aversion and probability weighting, explaining behavior that deviates from traditional expected utility predictions. Empirical anomalies such as the Allais paradox highlight these departures. Despite criticisms, utility theory remains foundational in economics, finance, welfare analysis, and decision making under uncertainty, informing models of consumer choice, portfolio optimization, and artificial intelligence planning.