Retrospectives: How Economists Came to Accept Expected Utility Theory: The Case of Samuelson and Savage

Expected utility theory dominated the economic analysis of individual decision-making under risk from the early 1950s to the 1990. Among the early supporters of the expected utility hypothesis in the von Neumann–Morgenstern version were Milton Friedman and Leonard Jimmie Savage, both based at the University of Chicago, and Jacob Marschak, a leading member of the Cowles Commission for Research in Economics. Paul Samuelson of MIT was initially a severe critic of expected utility theory. Between mid-April and early May 1950, Samuelson composed three papers in which he attacked von Neumann and Morgenstern's axiomatic system. By 1952, however, Samuelson had somewhat unexpectedly become a resolute supporter of the expected utility hypothesis. Why did Samuelson change his mind? Based on the correspondence between Samuelson, Savage, Marschak, and Friedman, this article reconstructs the joint intellectual journey that led Samuelson to accept expected utility theory and Savage to revise his motivations for supporting it.