The theory of expected Utility by J. Von Neumann and O. Morgenstern

UWED | TASHKENT

Professor: F.A.Mahmudov ,Phd of Political Sciences.
Student: Zafar Saidov ; IR faculty; 3-2a-18 group


Contents:
Introduction

1. 
   Von Neumann–Morgenstern utility function;
   
2. 
   Discussing an expected utility and weighted entropy framework;
   
3. 
   Possibilities of expected utility theory in the description of the consumer choice;
   
4. 
   Utility and Risk Aversion, Second Order Prior Selection and Posterior Density Stability;
   
5. 
   An Elementary Proof That Well-Behaved Utility Functions Exist;
   
6. 
   Probability and numerical utilities;
   
7. 
   Principles of measurement;
   

Conclusions
References


Introduction
The subject of Expected Utility Hypothesis is very interesting due to its many
different dimensions, its interdisciplinary character and the fact that it is still a
topical subject in the field of modern economy. The beginning of the Expected
Utility Hypothesis dates back to the eighteenth century and since then it has
evolved from a mainly mathematical and to some extent philosophical notion to
an important concept researched by modern economists and psychologists. Many different theories have arisen, taken advantage of, or developed thanks to it. To mention a few of them: mathematical branches such as probability theory or game theory; more connected with economics such as decision theory and, last but not least, behavioural economics being an interdisciplinary study of both economics and psychology. The Expected Utility Hypothesis can be considered as a metaphorical bridge between mathematics and economics. Its creation was an offspring of real life problems and considerations and it has been raising questions since then. The best example of topicality of the subject is Prospect Theory, created in 1979 (Kahneman and Tversky, 1979), and developed in 1992 by Daniel Kahneman and Amos Tversky
and later Cumulative Prospect Theory (CPT) developed by Kahneman, for which
he was given a Noble prize in economics in 2002.