Fold back analysis computes expected utility by:

• A. by adding the utilities of all outcomes
• B. by multiplying the utility of each outcome by its probability and summing
• C. by selecting the most probable outcome
• D. ignoring probabilities

Answer: (B)

Fold back analysis uses the expected utility approach: it combines how desirable an outcome is (its utility) with how likely that outcome is (its probability). For each possible outcome you multiply its utility by its probability, then sum those products across all outcomes. The resulting expected utility represents the overall value of the option, and you choose the option with the highest expected utility. This is why the correct method is to multiply the utility of each outcome by its probability and sum.

For clarity, if an action has two possible outcomes, with utilities U1 and U2 and probabilities p and (1−p), the expected utility is p×U1 + (1−p)×U2. This framework accounts for both desirability and likelihood.

Other approaches miss one piece: adding utilities would ignore how likely each outcome is; selecting the most probable outcome would ignore how valuable or costly the outcomes are; ignoring probabilities would treat all outcomes as equally likely.