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