Is it always correct to choose that action with the highest expected utility?

Suppose I have a choice between action A, which grants -100 utilons with 99.9% chance and +1000000 utilons with 0.1% chance, or action B which grants +1 utilon with 100% chance. A has an expected utility of +900.1 utilons, while B has an expected utility of +1 utilon. This decision will be available to me only once, and all future decision will involve utility changes on the order of a few utilons.

Intuitively, it seems like action A is too risky. I'll almost certainly end up with ... (read more)

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Depending on your preferred framework, this is in some sense backwards: utility is, by definition, that thing which it is always correct to choose the action with the highest expected value of (say, in the framework of the von Neumann-Morgenstern theorem).

-1IlyaShpitser6yPeople who play with money don't like high variance, and sometimes trade off some of the mean to reduce variance.
3Oscar_Cunningham6yUm, A actually has a utility of -89.9. That explains why it seems less appealing!

Open thread, January 25- February 1

by NancyLebovitz 1 min read25th Jan 2014318 comments

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