Subjective-Expected-Utility Principle (SEU)

The subjective-expected-utility principle (SEU) is suitable for decisions under risk, i.e. for decision situations in which probabilities are not explicitly available. In these cases, one assumes subjectively perceived utility values for each of one’s own decision options, which one considers to be applicable from one’s own strategic and tactical position. The decision is made for the option that is assigned the highest subjective utility value. The utility values are arrived at by comparing the utility expectations multiplied by the perceived probabilities of occurrence. The unit of measurement for the subjectively perceived utility is the “util”.

The SEU principle can be useful when there is really no objective information available that is relevant to the decision. In such cases, it is useful to make assumptions about the subjective utility assessment of third parties.

There are also ways to credibly signal your own behavior and thereby give negotiating partners some certainty about how you will decide by applying to a self-commitment according to Thomas C. Schelling. This possibility is, of course, also open to your negotiating partners. A strong mutual self-commitment can lead to confidence.


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