Ramsey and expected utility theory

This paper is a contribution to the Cambridge Companion to Frank Ramsey, edited by Pedro Duarte and Cheryl Misak, CUP (forthcoming). The paper traces Ramsey’s role in the development of the subjective version of expected utility theory, which remains largely the predominant theory of economic decision-making under uncertainty to this day. The paper focuses primarily on the aspects of problem formulation suggested by Ramsey, who is unanimously regarded as the founder of the subjective approach alongside—though independently of—Bruno de Finetti. It also reconstructs the stages of its gradual acceptance beginning in the 1950s, particularly the recognition by Jacob Marschak and Leonard Savage that Ramsey’s pragmatic approach contained both the philosophical foundations and the formal structure of a theory of rationality in economics. Finally, the paper briefly considers whether the vision of strict rationality usually attributed to Ramsey should be viewed merely as a first step toward a wider analysis of the reasonableness of decisions, although Ramsey was unable to actually develop it before his untimely death, as noted by John Maynard Keynes.