Expected Utility as a Paradigm for Decision Making in Agriculture
The assumption that a decision maker maximizes expected utility has been, and still is, a frequently employed model specification. This is true in economics and in agricultural economics. Decision models, where maximization of expected utility is the goal of the decision maker, have developed significantly during the forty or so years they have been in use. There now exists a substantial set of definitions, theorems, and empirical procedures available to those applying this paradigm. The goal of this chapter is to briefly describe the development of this expected utility (EU) decision model and to describe in some detail its current state.
KeywordsUtility Function Risk Aversion Expect Utility Random Parameter Risk Preference
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