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Von Neumann–Morgenstern Utility Theorem
In decision theory, the von Neumann–Morgenstern (VNM) utility theorem demonstrates that rational choice under uncertainty involves making decisions that take the form of maximizing the expected value of some cardinal utility function. The theorem forms the foundation of expected utility theory. In 1947, John von Neumann and Oskar Morgenstern proved that any individual whose preferences satisfied four axioms has a utility function, where such an individual's preferences can be represented on an interval scale and the individual will always prefer actions that maximize expected utility. Neumann, John von and Morgenstern, Oskar, ''Theory of Games and Economic Behavior''. Princeton, NJ. Princeton University Press, 1953. That is, they proved that an agent is (VNM-)rational ''if and only if'' there exists a real-valued function ''u'' defined by possible outcomes such that every preference of the agent is characterized by maximizing the expected value of ''u'', which can then be define ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Decision Theory
Decision theory or the theory of rational choice is a branch of probability theory, probability, economics, and analytic philosophy that uses expected utility and probabilities, probability to model how individuals would behave Rationality, rationally under uncertainty. It differs from the Cognitive science, cognitive and Behavioural sciences, behavioral sciences in that it is mainly Prescriptive economics, prescriptive and concerned with identifying optimal decision, optimal decisions for a rational agent, rather than Descriptive economics, describing how people actually make decisions. Despite this, the field is important to the study of real human behavior by Social science, social scientists, as it lays the foundations to Mathematical model, mathematically model and analyze individuals in fields such as sociology, economics, criminology, cognitive science, moral philosophy and political science. History The roots of decision theory lie in probability theory, developed by Blai ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Probability
Probability is a branch of mathematics and statistics concerning events and numerical descriptions of how likely they are to occur. The probability of an event is a number between 0 and 1; the larger the probability, the more likely an event is to occur."Kendall's Advanced Theory of Statistics, Volume 1: Distribution Theory", Alan Stuart and Keith Ord, 6th ed., (2009), .William Feller, ''An Introduction to Probability Theory and Its Applications'', vol. 1, 3rd ed., (1968), Wiley, . This number is often expressed as a percentage (%), ranging from 0% to 100%. A simple example is the tossing of a fair (unbiased) coin. Since the coin is fair, the two outcomes ("heads" and "tails") are both equally probable; the probability of "heads" equals the probability of "tails"; and since no other outcomes are possible, the probability of either "heads" or "tails" is 1/2 (which could also be written as 0.5 or 50%). These concepts have been given an axiomatic mathematical formaliza ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Generalized Expected Utility
Generalized expected utility is a decision theory, decision-making metric based on any of a variety of theories that attempt to resolve some discrepancies between expected utility theory and empirical observations, concerning choice under risk (statistics), risky (probabilistic) or uncertain circumstances. Given its motivations and approach, generalized expected utility theory may properly be regarded as a subfield of behavioral economics, but it is more frequently located within mainstream economic theory. The expected utility model developed by John von Neumann and Oskar Morgenstern dominated decision theory from its formulation in 1944 until the late 1970s, not only as a prescriptive, but also as a descriptive model, despite powerful criticism from Maurice Allais and Daniel Ellsberg who showed that, in certain choice problems, decisions were usually inconsistent with the axioms of expected utility theory. These problems are usually referred to as the Allais paradox and Ellsberg pa ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Daniel Bernoulli
Daniel Bernoulli ( ; ; – 27 March 1782) was a Swiss people, Swiss-France, French mathematician and physicist and was one of the many prominent mathematicians in the Bernoulli family from Basel. He is particularly remembered for his applications of mathematics to mechanics, especially fluid mechanics, and for his pioneering work in probability and statistics. His name is commemorated in the Bernoulli's principle, a particular example of the conservation of energy, which describes the mathematics of the mechanism underlying the operation of two important technologies of the 20th century: the carburetor and the aeroplane wing. Early life Daniel Bernoulli was born in Groningen (city), Groningen, in the Netherlands, into a Bernoulli family, family of distinguished mathematicians.Murray Rothbard, Rothbard, MurrayDaniel Bernoulli and the Founding of Mathematical Economics, ''Mises Institute'' (excerpted from ''An Austrian Perspective on the History of Economic Thought'') The Bernou ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Risk Aversion
In economics and finance, risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even if the average outcome of the latter is equal to or higher in monetary value than the more certain outcome. Risk aversion explains the inclination to agree to a situation with a lower average payoff that is more predictable rather than another situation with a less predictable payoff that is higher on average. For example, a risk-averse investor might choose to put their money into a bank account with a low but guaranteed interest rate, rather than into a stock that may have high expected returns, but also involves a chance of losing value. Example A person is given the choice between two scenarios: one with a guaranteed payoff, and one with a risky payoff with same average value. In the former scenario, the person receives $50. In the uncertain scenario, a coin is flipped to decide whether the person receives $100 or nothing. ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Value Theory
Value theory, also called ''axiology'', studies the nature, sources, and types of Value (ethics and social sciences), values. It is a branch of philosophy and an interdisciplinary field closely associated with social sciences such as economics, sociology, anthropology, and psychology. Value is the worth of something, usually understood as covering both positive and negative degrees corresponding to the terms ''good'' and ''bad''. Values influence many human endeavors related to emotion, decision-making, and Action (philosophy), action. Value theorists distinguish various types of values, like the contrast between Instrumental and intrinsic value, intrinsic and instrumental value. An entity has Intrinsic value (ethics), intrinsic value if it is good in itself, independent of external factors. An entity has instrumental value if it is useful as a means leading to other good things. Other classifications focus on the type of benefit, including economic, moral, political, aesthetic, ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Gamble
Gambling (also known as betting or gaming) is the wagering of something of value ("the stakes") on a random event with the intent of winning something else of value, where instances of strategy are discounted. Gambling thus requires three elements to be present: consideration (an amount wagered), risk (chance), and a prize. The outcome of the wager is often immediate, such as a single roll of dice, a spin of a roulette wheel, or a horse crossing the finish line, but longer time frames are also common, allowing wagers on the outcome of a future sports contest or even an entire sports season. The term "gaming" in this context typically refers to instances in which the activity has been specifically permitted by law. The two words are not mutually exclusive; ''i.e.'', a "gaming" company offers (legal) "gambling" activities to the public and may be regulated by one of many gaming control boards, for example, the Nevada Gaming Control Board. However, this distinction is not universa ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Archimedean Property
In abstract algebra and mathematical analysis, analysis, the Archimedean property, named after the ancient Greek mathematician Archimedes of Syracuse, Italy, Syracuse, is a property held by some algebraic structures, such as ordered or normed group (algebra), groups, and field (mathematics), fields. The property, as typically construed, states that given two positive numbers x and y, there is an integer n such that nx > y. It also means that the set of natural numbers is not bounded above. Roughly speaking, it is the property of having no ''infinitely large'' or ''infinitely small'' elements. It was Otto Stolz who gave the axiom of Archimedes its name because it appears as Axiom V of Archimedes’ ''On the Sphere and Cylinder''. The notion arose from the theory of magnitude (mathematics), magnitudes of ancient Greece; it still plays an important role in modern mathematics such as David Hilbert's Hilbert's axioms, axioms for geometry, and the theories of linearly ordered group, ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Total Preorder
In mathematics, especially order theory, a weak ordering is a mathematical formalization of the intuitive notion of a ranking of a set, some of whose members may be tied with each other. Weak orders are a generalization of totally ordered sets (rankings without ties) and are in turn generalized by (strictly) partially ordered sets and preorders.. There are several common ways of formalizing weak orderings, that are different from each other but cryptomorphic (interconvertable with no loss of information): they may be axiomatized as strict weak orderings (strictly partially ordered sets in which incomparability is a transitive relation), as total preorders (transitive binary relations in which at least one of the two possible relations exists between every pair of elements), or as ordered partitions ( partitions of the elements into disjoint subsets, together with a total order on the subsets). In many cases another representation called a preferential arrangement based on a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Transitive Relation
In mathematics, a binary relation on a set (mathematics), set is transitive if, for all elements , , in , whenever relates to and to , then also relates to . Every partial order and every equivalence relation is transitive. For example, less than and equality (mathematics), equality among real numbers are both transitive: If and then ; and if and then . Definition A homogeneous relation on the set is a ''transitive relation'' if, :for all , if and , then . Or in terms of first-order logic: :\forall a,b,c \in X: (aRb \wedge bRc) \Rightarrow aRc, where is the infix notation for . Examples As a non-mathematical example, the relation "is an ancestor of" is transitive. For example, if Amy is an ancestor of Becky, and Becky is an ancestor of Carrie, then Amy is also an ancestor of Carrie. On the other hand, "is the birth mother of" is not a transitive relation, because if Alice is the birth mother of Brenda, and Brenda is the birth mother of Claire, then it does ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Reflexive Relation
In mathematics, a binary relation R on a set X is reflexive if it relates every element of X to itself. An example of a reflexive relation is the relation " is equal to" on the set of real numbers, since every real number is equal to itself. A reflexive relation is said to have the reflexive property or is said to possess reflexivity. Along with symmetry and transitivity, reflexivity is one of three properties defining equivalence relations. Etymology The word ''reflexive'' is originally derived from the Medieval Latin ''reflexivus'' ('recoiling' reflex.html" ;"title="f. ''reflex">f. ''reflex'' or 'directed upon itself') (c. 1250 AD) from the classical Latin ''reflexus-'' ('turn away', 'reflection') + ''-īvus'' (suffix). The word entered Early Modern English in the 1580s. The sense of the word meaning 'directed upon itself', as now used in mathematics, surviving mostly by its use in philosophy and grammar (cf. ''Reflexive verb'' and ''Reflexive pronoun''). The first e ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Infinitesimal
In mathematics, an infinitesimal number is a non-zero quantity that is closer to 0 than any non-zero real number is. The word ''infinitesimal'' comes from a 17th-century Modern Latin coinage ''infinitesimus'', which originally referred to the "infinity- th" item in a sequence. Infinitesimals do not exist in the standard real number system, but they do exist in other number systems, such as the surreal number system and the hyperreal number system, which can be thought of as the real numbers augmented with both infinitesimal and infinite quantities; the augmentations are the reciprocals of one another. Infinitesimal numbers were introduced in the development of calculus, in which the derivative was first conceived as a ratio of two infinitesimal quantities. This definition was not rigorously formalized. As calculus developed further, infinitesimals were replaced by limits, which can be calculated using the standard real numbers. In the 3rd century BC Archimedes used what ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
