Expected subjective utility: Is the Neumann-Morgenstern utility the same as the Neoclassical's?
Using axioms no stronger than those for the Neumann-Morgenstern expected utility hypothesis, with the recognition of finite sensibility, it is shown that the utility function derived by the N-M method is a neoclassical subjective utility function, contrary to the belief otherwise by prominent economists. This result is relevant for issues of utility measurability, social choice, etc. since it is subjective utility that is relevant for social choice. The relevance of individual risk aversion to the form of social welfare functions and the rationality of “pure” risk aversion are also discussed.
KeywordsUtility Function Social Welfare Economic Theory Risk Aversion Individual Risk
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