Utility

Utility is a numerical representation of how an individual ranks outcomes by preference or satisfaction. In economic models, it helps describe choices without requiring satisfaction to be directly measurable.

Preference relation: A relation that describes how an individual ranks possible alternatives. Utility represents these rankings by assigning numbers to outcomes.
Utility function: A function that assigns numerical values to alternatives to represent an individual's preferences. It is the mathematical form used to encode utility over outcomes.
Willingness to pay: The maximum amount of money an individual would exchange for an outcome or change. It can serve as a monetary proxy for value, but is not utility itself.
Consumer choice: The selection of goods and services from the options a consumer can afford. Utility models explain consumer choices subject to prices and income.
Completeness (economics): A preference axiom requiring an individual to compare any two alternatives. A utility representation requires preferences to provide rankings across the outcomes being modeled.
Utility maximization: A model in which an individual selects the feasible option with the greatest utility. It converts a utility representation into a rule for predicting choices.
Hedonic psychology: The study of pleasure, pain, and their psychological determinants. Psychological pleasure is one possible interpretation of utility, not its general definition.
Indifference curve: A curve connecting bundles that give a consumer the same utility level. It depicts combinations treated as equally preferred by a utility representation.
Transitivity (economics): A preference axiom requiring consistent rankings across chains of pairwise comparisons. Transitive preferences can be represented by a utility function under standard conditions.
Ordinal utility: A representation in which only the ranking of utility values matters. For ordinary preference comparisons, utility numbers need preserve order, not measured satisfaction.

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