Expected Utility Theory (EUT)

Expected Utility Theory (EUT) is a theoretical basis of decision-making, which suggests that an individual makes choices based on an assessment of the potential utility or satisfaction that will be gained from a particular option. It suggests that if faced with a decision, the individual will rationally analyze available options and rank them in terms of their expected utility (the expected value of their expected outcomes). This expected utility then influences the likelihood that the individual will select a particular course of action. EUT forms the foundation of modern economic analysis and is used to explain how people make decisions, weighing outcomes to optimize their financial, social, and personal well-being.