Final answer:
The three possible states of the world in economics are optimistic, neutral, and pessimistic. Utility distributions represent the satisfaction or preference levels of agents in each state, influencing decision-making. Decision-makers aim to maximize overall utility by choosing options that provide higher satisfaction or preference levels for the majority of agents.
Step-by-step explanation:
In economics, the three possible states of the world are usually referred to as optimistic, neutral, and pessimistic. Each state is associated with different utility distributions among the five agents. Utility distributions represent the satisfaction or preference levels of the agents in each state.
For example, in the optimistic state, all agents may have high utility distributions, indicating that they are satisfied or prefer the outcomes. In the neutral state, utility distributions may vary among agents, with some being satisfied and others not. In the pessimistic state, most or all agents may have low utility distributions, indicating dissatisfaction or preference for different outcomes.
These utility distributions have implications for decision-making. Decision-makers would consider the utility distributions when choosing between different options or strategies. They would aim to maximize overall utility by selecting options that provide the highest satisfaction or preference levels for the majority of agents.