Utility Theory
Utility assessment assigns the worst outcome a utility of 0, and the best outcome, a utility of 1
A standard gamble is used to determine utility values
When you are indifferent, the utility values are equal
Expected utility of alternative 2 =Expected utility of alternative 1
Utility of other outcome =(p)(utility of best outcome, which is 1)
+ (1 –p)(utility of the worst outcome, which is 0)
Utility of other outcome =(p)(1) + (1 –p)(0) = p