Expected utility theory
Expected utility theory is a way to help people make decisions. It works by looking at the different choices a person has and figuring out which one is the best based on the things they care about.
Imagine you have a toy box with 10 toys inside. You really like your dolls, but your older brother likes cars. You both want to play with something but you can't decide what to choose. You decide to play rock-paper-scissors to decide.
Expected utility theory thinks about what you might "give up" to play rock-paper-scissors. In this case, you might give up the chance to play with a doll, so you assign a value to that chance. Expected utility looks at your two options: play rock-paper-scissors and choose a toy based on the result or let your brother choose the toy. It also looks at the odds of each of those options.
If you win, you get to choose first and there is a 50-50 chance you will choose a doll. If you lose, you will let your brother choose. Since he likes cars, there is also a 50-50 chance that he will choose a car. So, there is a 25% chance you will get a doll if you choose to play rock-paper-scissors.
On the other hand, if you skip rock-paper-scissors and let your brother choose, he will definitely pick a car. So, there is 0% chance you will get a doll.
Expected utility theory takes into account the chances of each outcome and the value you place on each outcome. In this case, you really want to play with a doll, so you assign it a higher value than playing with a car. Therefore, expected utility theory says that you should choose to play rock-paper-scissors, even if it's not a sure thing.
This theory can be applied to more complicated decisions as well, like choosing what to study in college, what job to take, or even what car to buy. By thinking about the chances of different outcomes and the value you place on each one, expected utility theory can help you make the best decision for you.
Imagine you have a toy box with 10 toys inside. You really like your dolls, but your older brother likes cars. You both want to play with something but you can't decide what to choose. You decide to play rock-paper-scissors to decide.
Expected utility theory thinks about what you might "give up" to play rock-paper-scissors. In this case, you might give up the chance to play with a doll, so you assign a value to that chance. Expected utility looks at your two options: play rock-paper-scissors and choose a toy based on the result or let your brother choose the toy. It also looks at the odds of each of those options.
If you win, you get to choose first and there is a 50-50 chance you will choose a doll. If you lose, you will let your brother choose. Since he likes cars, there is also a 50-50 chance that he will choose a car. So, there is a 25% chance you will get a doll if you choose to play rock-paper-scissors.
On the other hand, if you skip rock-paper-scissors and let your brother choose, he will definitely pick a car. So, there is 0% chance you will get a doll.
Expected utility theory takes into account the chances of each outcome and the value you place on each outcome. In this case, you really want to play with a doll, so you assign it a higher value than playing with a car. Therefore, expected utility theory says that you should choose to play rock-paper-scissors, even if it's not a sure thing.
This theory can be applied to more complicated decisions as well, like choosing what to study in college, what job to take, or even what car to buy. By thinking about the chances of different outcomes and the value you place on each one, expected utility theory can help you make the best decision for you.
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