I just re-read Bernoulli’s 1738 paper “Exposition of a New Theory on the Measurement of Risk” which is the foundational paper of Expected Utility Theory.

It’s Amazing

It’s so wildly different than EUT that its hard to believe this was its beginning.

Let’s see if you agree.

The paper isn't about utility. It’s about expected value.

Bernoulli used the utility concept to get the reader to abandon the traditional view of expected value(arithmetic average), and then used it to derive the equation for valuing risk.

The final equation doesn’t use utility

He starts out the paper identifying that tradition evaluation of risk come from expected values, which are calculated with the arithmetic average.

Notice the rule here in italics is about expected values.

Then points out that this average ignores anything about the specific financial circumstances of the participant. It’s not a risk aversion point, but that a poor person values money differently than a rich person.

Therefore the rule for determining expected values must not be correct. An item is valued by its usefulness (utility) therefore the expected value must also reflect the usefulness it yields.

This was originally Latin, so not sure of the translation, but I love the word yields.