Neumann-Morgenstern utility
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Von Neumann-Morgenstern Utility is a method used to measure choice in situations of uncertainty. To determine utility according to this method, the decision maker must rank their preferences according to the outcomes of various decision options. According to the theory, if someone prefers A to B and B to C they can’t really care whether they get B outright or they get the chance to gamble for A and C.
Von Neumann-Morgenstern Utility was developed by John von Neumann and Oskar Morgenstern in their Theory of Games and Economic Behavior in 1944. It is important because it was developed shortly after the Hicks-Allen “ordinal revolution” of. the 1930s and it revived the idea of cardinal utility in economic theory. Economics has not resolved whether (and in what cases) utility is cardinal or ordinal.
