Definition
A mathematical representation that assigns a numerical value to an individual’s preferences over a set of choices, used to model decision-making.
Why It Matters
The utility function is the ‘math of desire.’ By translating subjective preferences into numerical values, it allows economists and AI researchers to model behavior and predict how rational agents will act under various constraints.
Core Concepts
- Ordinal Utility: Ranking preferences without measuring the exact difference between them.
- Cardinal Utility: Assigning specific numerical values to measure the intensity of preference.
- Maximization: The assumption that rational agents act to maximize their expected utility.