A measure of risk and a decision-making model based on expected utility and entropy

In this paper we extend the classical decision model under risk to a more general case, in which the state of nature corresponding to each risky action may have its own distribution. More specifically, we propose an expected utility-entropy (EU-E) measure of risk and a decision-making model based on expected utility and entropy. The EU-E measure of risk reflects an individual's intuitive attitude toward risk. The decision model incorporates the expected utility decision criterion as a special case. Using this decision model, a class of decision problems, which cannot be dealt with the expected utility or mean-variance criterion reasonably, can be solved. Besides, some famous decision paradoxes can be interpreted. This decision model can either serve as a descriptive or a normative decision model involving risk.