Which of the following statements about expected utility is true?
A) It does not affect decisions made with expected values.
B) Used in decision making, it is an objective value, not subjective.
C) Used in decision making, it can bring huge risk to a small startup with limited resources.
D) In calculating utility, it assumes the decision will be made thousands of times, making the probabilities more likely on average.

Question

Quizplus · Accepted Answer

Expected utility is a concept from economics and decision theory that accounts for the varying attitudes individuals or entities have towards risk. When applied to a small startup with limited resources, the use of expected utility in decision making can indeed introduce significant risk. This is because startups often cannot afford to make decisions that have a high risk of negative outcomes, even if the expected utility suggests a potentially high reward. Startups typically have less room for error and less capacity to absorb losses compared to larger, more established companies.

Which of the Following Statements About Expected Utility Is True