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Expected utility theory is a fundamental concept in financial economics that provides a framework for understanding how individuals make choices under uncertainty. It assumes that when faced with risky decisions, individuals do not merely consider the potential outcomes, but also weigh these outcomes according to the utility or satisfaction they derive from them. The core idea is that people act to maximize their expected utility rather than expected monetary value, reflecting the fact that risk preferences and attitudes toward wealth can influence decision-making. The theory is grounded in several key assumptions. First, it presumes that individuals have a well-defined set of preferences over possible outcomes, and these preferences are complete and transitive. Completeness means that an individual ______ __________ _________ ___ ________ __________ ______.
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