Edwards - The theory of decision-making
The theory of riskless choice
Armchair theory
assumption: decision-maker is a rational economic man
Utility theory
Can utilities be added?
NO
competing goods
YES
completing goods
Non-independent utilities
indifference curves
application in welfare economics
Pareto's principle
Compensation principle
non-realistic
The theory of risky choice
maximize expected utility instead of expected value
double-inflected utility curve for money
Probability weighting function
subjective vs real probability
typical vs ideal estimates of probabilities