Expected Utility of Uncertain Ventures
Abstract This article develops a simple model of economic decisions under uncertainty and applies it to several hypothetical decision problems. The main applications are to betting, since this context can be explained without much economics background and the analysis of betting has some practical implications for economic analysis, as well as posing some interesting intellectual problems. Statisticians have long used gambling situations as checks on the reasonableness of tentative conclusions and as sources of hints for further useful developments. This article conveys some of the flavor of economic applications to statisticians and possibly stimulates additional interchanges with economists. For economists, present model's principal addition to discussions in the current literature is that the decision maker is permitted to start with a random prospect rather than with fixed initial wealth and his current prospect may or may not be independent of the random ventures he contemplates.