Utility
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Utility | |
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| Type | Analytical concept |
| Field | Decision theory; Economics; Philosophy |
| Core idea | Formal measure used to represent preferences over outcomes |
| Assumptions | Preferences can be compared and represented numerically; relative desirability can be modeled |
| Status | Established concept |
| Related | Decision theory; Rationality; Preference; Expected utility |
Utility is an analytical concept used to represent the relative desirability of outcomes, options, or states of affairs. In decision theory and economics, utility functions provide a formal way to model preferences and to compare choices under conditions of certainty or uncertainty.
Utility is not a psychological measure of pleasure or happiness. It is a formal device used to encode preference relations in a way that supports systematic analysis.
Core idea
At its core, utility assigns values to outcomes such that higher values correspond to outcomes an agent prefers more. These values are used to compare options and to guide rational choice within formal models.
Utility values are meaningful primarily in terms of ordering and comparison, not as absolute quantities.
Utility and preference
Utility is closely tied to the notion of preference. A utility function represents an agent’s preferences if higher-utility outcomes are preferred to lower-utility ones.
Different utility functions may represent the same preference ordering, reflecting the fact that utility is not uniquely determined by behavior.
Cardinal and ordinal utility
A common distinction separates ordinal utility from cardinal utility. Ordinal utility represents only the ranking of preferences, while cardinal utility allows for meaningful comparison of differences in utility.
Many decision-theoretic results rely on cardinal utility, though its interpretation is purely formal.
Expected utility
In contexts involving uncertainty, utility is combined with probability to form expected utility. According to expected utility theory, rational agents should choose the option with the highest expected utility.
Expected utility provides a unifying criterion for rational choice under risk, given specified beliefs and preferences.
Utility and rationality
Utility plays a central role in models of rationality, particularly practical rationality. Consistency conditions on preferences are often expressed as conditions on the existence of a utility representation.
Violations of these conditions may indicate incoherent preferences or limitations of the model.
Utility and ethics
Utility is sometimes used in ethical analysis, particularly in utilitarian frameworks. In such contexts, utility is interpreted as a measure of welfare or value.
This ethical use of utility is conceptually distinct from its role in formal decision theory, though the same mathematical tools are often employed.
Measurement and interpretation
Utility is not directly observable. It is inferred from choices, stated preferences, or assumed decision rules. This indirectness raises questions about interpretation and empirical adequacy.
Debates continue over whether utility captures all relevant aspects of value and motivation.
Limits and critiques
Critiques of utility-based models argue that not all preferences are stable, comparable, or quantifiable. Some values may resist numerical representation or trade-off.
These critiques motivate alternative models of choice that relax or reject utility maximization.
Status
Utility is a central and enduring concept in decision theory and economics. Its primary role is to provide a formal representation of preference that enables systematic analysis of choice, while making assumptions explicit and open to scrutiny.