History of Utility Theory

This chapter reviews the history of utility theory from the marginal revolution of the 1870s to current behavioral economics. It covers the early utility theories based on the idea of diminishing marginal utility (1870–1900); the ordinal revolution, during which the notion of preference became the key concept of utility analysis (1900–1950); the progressive definition of the notion of cardinal utility (1900–1940); the rise and stabilization of expected utility theory (1945–1955); the emergence of the experimental approach to utility analysis (1950–1980); and the survival and transformation of utility theory within behavioral economics (1980–present).