| 11. | Consequently, a choice based on " maximizing " the expected utility is also impossible.
|
| 12. | All individuals are assumed to try to maximize the expected utility of their actions.
|
| 13. | Theories of bounded rationality relax one or more assumptions of standard expected utility theory.
|
| 14. | Like any mathematical model, expected utility theory is an abstraction and simplification of reality.
|
| 15. | The expected utility maximizing individual makes decisions rationally based on the axioms of the theory.
|
| 16. | David Schmeidler also developed the Choquet expected utility model.
|
| 17. | Then under exponential utility, expected utility is given by:
|
| 18. | This defies conventional rationality behind subjective expected utility theory.
|
| 19. | Ellsberg actually proposed two separate thought experiments, the proposed choices which contradict subjective expected utility.
|
| 20. | This is called the " expected utility theorem ".
|
