# utility function

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## Utility function

A mathematical expression that assigns a value to all possible choices. In portfolio theory, the utility function expresses the preferences of economic entities with respect to perceived risk and expected return.

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

## Utility Function

The expression of desire in mathematical terms. Utility function is important in investing; it may show the usefulness of investing in some securities as opposed to different ones. For instance, a stock with low risk and a high return has a higher utility function than a stock with high risk and a low return. See also: Marginal Utility.

Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

## utility function

a function denoting the quantities of goods and services that an individual consumes, of the form:

where U_{t} = total utility and x_{1} ,x_{2} . products consumed.

In order to achieve CONSUMER EQUILIBRIUM, the individual will select a combination of products, in line with his preferences, that maximizes his TOTAL UTILITY from his given income. See

CARDINAL UTILITY, ORDINAL UTILITY, MARGINAL UTILITY **utility maximization ** see CONSUMER EQUILIBRIUM.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005