Single Person Background
The game players in this book are frequently going to encounter situations where it is necessary to select one alternative out of several when some of the alternatives lead to payoffs that are random. We will invariably advocate selecting the alternative for which the expected value of the payoff is largest. The skeptical reader might protest this apparently cavalier preference for expected values in favor of other statistics such as the median. He might even wonder whether any statistic can satisfactorily summarize a payoff that is in truth random. If the alternatives were $1,000 for certain or a 50/50 chance at $3,000, for example, a reasonable person might argue that selecting the certain gain is the right thing to do, even though 0.5($0) + 0.5($3,000) > $1,000, and might offer this example as evidence that life is not so simple that one can consistently make decisions by comparing expected values.
KeywordsDecision Maker Utility Function Game Player Economic Fluctuation Rational Decision Maker
- von Neumann, J., & Morgenstern, O. (1944). Theory of games and economic behaviour, Princeton University Press.Google Scholar