Cross references: EXPECTED UTILITY HYPOTHESIS, METHODOLOGICAL INDIVIDUALISM, SAVAGE’S SUBJEC- TIVE EXPECTED UTILITY MODEL, UNCERTAINTY, UTILITARIANISM AND ECONOMIC THEORY, UTILITY (original) (raw)
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Journal of Economic Perspectives, 2016
Expected utility theory dominated the economic analysis of individual decision-making under risk from the early 1950s to the 1990. Among the early supporters of the expected utility hypothesis in the von Neumann–Morgenstern version were Milton Friedman and Leonard Jimmie Savage, both based at the University of Chicago, and Jacob Marschak, a leading member of the Cowles Commission for Research in Economics. Paul Samuelson of MIT was initially a severe critic of expected utility theory. Between mid-April and early May 1950, Samuelson composed three papers in which he attacked von Neumann and Morgenstern's axiomatic system. By 1952, however, Samuelson had somewhat unexpectedly become a resolute supporter of the expected utility hypothesis. Why did Samuelson change his mind? Based on the correspondence between Samuelson, Savage, Marschak, and Friedman, this article reconstructs the joint intellectual journey that led Samuelson to accept expected utility theory and Savage to revise h...
2000
Coupe les arbres, si tu veux, casse aussi les pierres mais prends garde, prends garde à la lumière livide de l'utilité" (André Breton, Paul Eluard, L'Immaculée Conception) 0. Introduction: after Jevons, who needs Bentham ? It is generally agreed that the developments that Jeremy Bentham devoted to the positive aspects of the "principle of utility" exerted some influence over the rise of modern analysis of individual behaviour (see, for example, Stark 1946; Schumpeter 1954 or, more recently, Black 1988). Such an opinion would be confirmed by Jevons' acknowledgement of his being indebted to the Benthamite calculus of pleasure and pain (1871:27 1). Meanwhile, Jevons' decision to root his own contribution in Bentham's work rather than in more recent accounts of utilitarianism-such as John Stuart Mill's-is far from being some kind of ritual tribute, paid to the founder of the doctrine: Bentham was invoked in order both to testify the break with British political economy of the second half of the nineteenth century, and to give this break the legitimacy of an ancient tradition.
Expected Utility, Jeffrey's Decision Theory, and the Paradoxes
Synthese, 2021
In Richard Bradley's book, Decision Theory with a Human Face (2017), we have selected two themes for discussion. The first is the Bolker-Jeffrey (BJ) theory of decision, which the book uses throughout as a tool to reorganize the whole field of decision theory, and in particular to evaluate the extent to which expected utility (EU) theories may be normatively too demanding. The second theme is the redefinition strategy that can be used to defend EU theories against the Allais and Ellsberg paradoxes, a strategy that the book by and large endorses, and even develops in an original way concerning the Ellsberg paradox. We argue that the BJ theory is too specific to fulfil Bradley's foundational project and that the redefinition strategy fails in both the Allais and Ellsberg cases. Although we share Bradley's conclusion that EU theories do not state universal rationality requirements, we reach it not by a comparison with BJ theory, but by a comparison with the non-EU theories that the paradoxes have heuristically suggested.
Retrospectives: Edgeworth's Hedonimeter and the Quest to Measure Utility
Journal of Economic Perspectives, 2007
In this article, I discuss some earlier debates about the foundations of utility and its measurement, focusing on the contributions of Francis Y. Edgeworth (1845–1926), a famous British economist who was a leader in the development of a more mathematically structured economics in the late 1800s, and Irving Fisher (1867–1947), one of the first quantitative U.S. economists, best-known today for
Jevons's Debt to Bentham: Mathematical Economy, Morals and Psychology
The Manchester School, 2002
The aim of this paper is to show that Jevons's utilitarianism is to be related to his attempt to build a mathematical theory of economics: the`felici¢c calculus' provides the instrument for transforming sensations into quantities. The ¢rst section shows that Jevons referred to Bentham's calculus but made it much simpler to enable the mathematical instrument to be introduced. The second section is devoted to his rejection of Mill's attempt to make utilitarianism a morally reasonable philosophy by introducing qualities of feelings. But I endeavour to show that avoiding Mill's interpretation did not mean that Jevons gave up on moral matters.
2000
Expected utility theory does not directly deal with the utility of chance. It has been suggested in the literature ) that this can be remedied by an approach which explicitly models the emotional consequences which give rise to the utility of chance. We refer to this as the elaborated outcomes approach. It is argued that the elaborated outcomes approach destroys the possibility of deriving a representation theorem based on the usual axioms of expected utility theory. This is shown with the help of an example due to Markowitz. It turns out that the space of conceivable lotteries over elaborated outcomes is too narrow to permit the application of the axioms. Moreover it is shown that a representation theorem does not hold for the example.
Risk , uncertainty and the expected utility theory
2019
The present contribution examines the emergence of expected utility theory by John von Neumann and Oskar Morgenstern, the subjective the expected utility theory by Savage, and the problem of choice under risk and uncertainty, focusing in particular on the seminal work “The Utility Analysis of Choices involving Risk" (1948) by Milton Friedman and Leonard Savage to show how the evolution of the theory of choice has determined a separation of economics from psychology.