The following text discusses decision theory.
Expected utility theory holds that rational agents maximize weighted averages of outcome utilities by probabilities. This framework has proven remarkably fruitful in economics and philosophy. Yet behavioral research documents systematic violations: certainty effects, reference-dependence, and probability weighting. Prospect theory and other descriptive models better predict actual choice behavior, raising questions about expected utility's status—is it a normative ideal, a useful approximation, or fundamentally flawed?
What is the primary purpose of the text?
To provide formulas for calculating expected utility
To explain expected utility theory and challenges from behavioral findings
To argue that all decisions should be made randomly
To compare gambling laws across different countries
Correct Answer: B
Choice B is the best answer. The text explains expected utility theory and presents behavioral challenges (violations, prospect theory) and questions about its status.
- Evidence: The text explains the theory: "Expected utility theory holds that rational agents maximize weighted averages." It presents challenges: "behavioral research documents systematic violations." It questions status: "is it a normative ideal, a useful approximation, or fundamentally flawed?"
- Reasoning: The passage introduces a formal theory and shows how real behavior deviates from it, raising questions about its role.
- Conclusion: The purpose is to explain theory and challenges.
💡 Strategy: Summarize: Maximize utility (Theory). But people don't... (Challenges). Now what? (Status).
Choice A is incorrect because formulas aren't provided. Choice C is incorrect because randomness isn't advocated. Choice D is incorrect because laws aren't compared.