Classical utility theory defines value by final wealth with diminishing marginal returns

Evidence

The standard utility function, derived from the expected utility model, has two essential characteristics. First, it is defined by wealth, or final asset position. Thus, a person with wealth W accepts an even chance to win 1,000 or lose 500 if the difference between the utility of W+1,000 and the utility of W (the upside) exceeds the difference between the utility of W and the utility of W−500 (the downside). Second, the utility function is concave; that is, the subjective value of an additional dollar diminishes with the total amount of money one has. — John T. Jost and Jim Sidanius, Political Psychology, 2412

Categorization

• DEFINE: Explains asset integration and concavity, the two pillars of the expected utility model.
• XREF: connects to: Discounted cash flow valuation spread from bonds to all goods via neoclassical utility theory. — Ève Chiapello, Financialisation of Valuation, 30; Quadratic utility absurdly implies investors would pay to lose wealth. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 589; Mean-variance portfolio theory requires the restrictive quadratic utility assumption. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 588