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behavioral economics
An approach to economic analysis that incorporates psychological insights into individual behaviour to explain economic decisions. Behavioural economics is motivated by the observation of anomalies ...
bounded rationality
The argument that there is a finite limit to the amount of information the human brain can hold and process. Teamwork and computers can vastly increase the amount of information that can be ...
cardinal utility
A utility function that can be subjected to a positive affine transformation without altering the implied preference order. A positive affine transformation applied to the initial utility function U ...
Cobb–Douglas function
A functional form, named after its originators, that is widely used in both theoretical economics and applied economics as both a production function and a utility function. Denote aggregate output ...
compensated demand
Demand for a good expressed as a function of prices and utility. Compensated demand functions are obtained by the minimization of expenditure subject to the achievement of a given level of utility. ...
consumer behaviour
The way in which consumers choose how to use their incomes. In economic theory it is usually assumed that every consumer is aware of their wants and how to satisfy them and that consumers attempt to ...
decision theory
A normative (1) approach to decision making based on expected utility theory, some versions also incorporating Bayesian inference. It starts from the assumption that, for any pair of alternatives, ...
emv algorithm
For a decision tree with all payoffs and the probabilities of all chance outcomes known, determine the emv for the chance nodes (or vertices) starting from the payoffs. At each decision node the ...
gambling
In Ireland has uncertain origins, though by the 17th century it was considered a common vice. Regular lotteries were held at least from the 1680s. Following the revolution of 1688 ...
indifference curve
A graphical representation of the set of commodity bundles that are ranked as equally good by a consumer. If commodity bundles x and y are on the same indifference curve then the consumer is ...
interpersonal comparisons
Comparing the welfare of one individual with that of another. The welfare level of an individual is measured by a utility function. Utility can be ordinal so that it is no more than a numbering of ...
intertemporal substitution
The replacement of the consumption of a good or service at one point in time by consumption at a different time. This can be quantified using the elasticity of intertemporal substitution when the ...
risk-averse
Describing a risk preference in which an investor's attraction to a potential investment rises with higher average returns and falls with greater standard deviations of returns. Compare risk-neutral; ...
risk-loving
An individual is risk-loving if they prefer a risky prospect with an expected pay-off of M to a certain pay-off of M. This will be true whenever the marginal utility of wealth is increasing, so the ...
risk-neutral
Describing a risk preference in which the investor makes decisions on the average return on an investment and is not interested in the standard deviation of returns. Compare risk-averse; risk-seeking.
social welfare
The well-being of society or the community at large. In economic terms, social welfare is an aggregation of the welfare or utility of the individual members of the society. See also utility; and ...
utility
1 The quality of being of practical use. See also utilitarian.2 A company that performs a public service (such as delivering water or energy to a region), subject to government regulation.
utility function Reference library
Dictionary of the Social Sciences
A mathematical representation of consumer preferences for goods and services. Although there are no logical restrictions on the form of
utility maximization
The method of modelling choice by assuming that an individual's preferences can be represented by a utility function which they seek to maximize. Where choices have to be made under conditions of ...
welfare
A concept that has frequently taken the place of utility in political thought, with the idea that the aim of social betterment should be to maximize the welfare of the population. Problems of ...
