@article{Hertzler:232270,
      recid = {232270},
      author = {Hertzler, G.L.},
      title = {Expected Utility Theory: Rest in Peace?},
      address = {1995},
      number = {1785-2016-141935},
      series = {Discussion Papers},
      pages = {33},
      year = {1995},
      abstract = {From all reports, expected utility theory is dead. The  reports are greatly exaggerated. This study makes two  modifications which revive expected utility theory. Rather  than directly modelling risk preferences by a von  Neumann-Morgenstern utility function of wealth, risk  preferences and the expected utility of wealth are derived  from consumption and investment decisions over time. Rather  than using future wealth as the reference point for  evaluation risk preferences, current wealth is used  instead. The revived theory is both normative and  descriptive. It specifies how rational people ought to make  decisions under risk and explains the major empirical  findings about how people actually make decisions. For  example the Allais Paradox and its variations, preference  reversals and framing effects all result from rational  decisions by uniformly risk-averse people. Moreover,  apparently risk-seeking behaviour can result from  risk-averse people with low rates of time preference taking  risks to save for the future. The revived theory also shows  why eliciting certainty equivalents cannot measure peoples'  risk preferences but leads to new procedures for measuring  both time and risk preferences. (JEL D81, D91).},
      url = {http://ageconsearch.umn.edu/record/232270},
      doi = {https://doi.org/10.22004/ag.econ.232270},
}