Generalized Expected Utility Theory

The book explores the evolution of economic analysis regarding choice under uncertainty, highlighting the limitations of the expected utility (EU) model and the criticisms it faced from psychologists. It discusses how individual decision-making often contradicted EU predictions and how simpler models like mean-variance analysis became prevalent in finance. The narrative shifts to the 1980s, when new generalizations of the EU model emerged, effectively addressing previous inconsistencies while maintaining essential principles like transitivity and dominance.