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Retrospectives: How Economists Came to Accept Expected Utility Theory: The Case of Samuelson and Savage

Listed author(s):
  • Ivan Moscati

Expected utility theory dominated the economic analysis of individual decision-making under risk from the early 1950s to the 1990. Among the early supporters of the expected utility hypothesis in the von Neumann–Morgenstern version were Milton Friedman and Leonard Jimmie Savage, both based at the University of Chicago, and Jacob Marschak, a leading member of the Cowles Commission for Research in Economics. Paul Samuelson of MIT was initially a severe critic of expected utility theory. Between mid-April and early May 1950, Samuelson composed three papers in which he attacked von Neumann and Morgenstern's axiomatic system. By 1952, however, Samuelson had somewhat unexpectedly become a resolute supporter of the expected utility hypothesis. Why did Samuelson change his mind? Based on the correspondence between Samuelson, Savage, Marschak, and Friedman, this article reconstructs the joint intellectual journey that led Samuelson to accept expected utility theory and Savage to revise his motivations for supporting it.

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File URL: https://www.aeaweb.org/articles?id=10.1257/jep.30.2.219
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 30 (2016)
Issue (Month): 2 (Spring)
Pages: 219-236

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Handle: RePEc:aea:jecper:v:30:y:2016:i:2:p:219-36
Note: DOI: 10.1257/jep.30.2.219
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  1. Paul A. Samuelson, 1942. "Fiscal Policy and Income Determination," The Quarterly Journal of Economics, Oxford University Press, vol. 56(4), pages 575-605.
  2. Paul A. Samuelson, 1966. "A Summing Up," The Quarterly Journal of Economics, Oxford University Press, vol. 80(4), pages 568-583.
  3. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279-279.
  4. Sophie Jallais & Pierre-Charles Pradier, 2005. "The Allais Paradox and its Immediate Consequences for Expected Utility Theory," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00311396, HAL.
  5. Philippe Mongin, 2014. "Le paradoxe d'Allais. Comment lui rendre sa signification perdue ?," Revue économique, Presses de Sciences-Po, vol. 65(5), pages 743-779.
  6. Bertrand R. Munier, 1991. "Nobel Laureate: The Many Other Allais Paradoxes," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 179-199, Spring.
  7. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
  8. "Samuelson, Paul A.", 1950. "Probability And The Attempts To Measure Utility (English & Japanese)," Economic Review, Hitotsubashi University, vol. 1(3), pages 167-173, July.
  9. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  10. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
  11. Milton Friedman & L. J. Savage, 1952. "The Expected-Utility Hypothesis and the Measurability of Utility," Journal of Political Economy, University of Chicago Press, vol. 60, pages 463-463.
  12. Gerhard Tintner, 1942. "A Contribution to the Non-Static Theory of Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 56(2), pages 274-306.
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