Utility definition economics

Concept in economics and decision theory

This article is about the economic concept. For other uses, see Utility (disambiguation).

In economics, utility is a measure of a certain person's satisfaction from a certain state of the world.

Over time, the term has been used with at least two meanings.

Types of utility in economics

The relationship between these two kinds of utility functions has been a source of controversy among both economists and ethicists, with most maintaining that the two are distinct but generally related.

Utility function

Consider a set of alternatives among which a person has a preference ordering.

A utility function represents that ordering if it is possible to assign a real number to each alternative in such a manner that alternative a is assigned a number greater than alternative b if and only if the individual prefers alternative a to alternative b.

In this situation, someone who selects the most preferred alternative must also choose one that maximi