Finance

Expected Utility Calculator

Make risk-adjusted decisions by calculating expected utility instead of expected value.

Utility Function

Outcome 1 ($)

Probability 1 (%)

Outcome 2 ($)

Probability 2 (%)

Certain Alternative ($)

Guaranteed amount offered instead of the gamble

Formula:
EU = Σ P(i) × U(outcome_i)
Certainty Equivalent = U⁻¹(EU)
Risk Premium = EV − Certainty Equivalent

Expected Utility Theory

People don't maximize expected monetary value — they maximize expected utility. A risk-averse person prefers a sure $50K over a 50/50 chance of $0 or $100K, even though the EV is the same.