We present a theory of expected utility with state-dependent linear utility function for monetary returns, that includes results on “first order stochastic dominance”, “mean- preserving spread”, “increasing-concave linear utility profiles” and “risk aversion”. As an application of the expected utility theory developed here, we analyze the contract that a monopolist would offer in an insurance market that allowed for partial coverage of loss. We also define a utility function for monetary returns that in a certain sense reconciles state- dependent constant average utility of money with “loss aversion” and the “Friedman-Savage” hypothesis. As an immediate consequence of such a utility function, we obtain a profile of state-dependent linear utility functions for monetary returns, where states of nature correspond to mutually disjoint intervals in which monetary gains and losses may occur. Keywords: money, utility function, state-dependent, linear, first order stochastic dominance, mean-preserving spread, risk aversion, loss aversion, Friedman-Savage hypothesis 1. Introduction: A common argument against linear utility function for monetary returns is, that an agent with such a utility function would have no incentive to insure himself against possible “loss”. However, this argument seems to collapse if the linear utility function for monetary returns is state dependent and the “probability of the gain or loss” is spelt out as the “probability of the state of nature (son) in which there is the gain or loss” with the constant marginal utility of monetary returns in the “worse” state being more than the constant marginal utility of money in the “better” state. The seminal contribution of Kahneman and Tversky (1979) noted the experimentally verified observation that agents tend to have a marginal utility of loss that is no less- if not higher- than the marginal utility of gain, so that a typical utility function for monetary returns u: ℝ ℝ may be of the form u(x) = u+max{x,0} + u-min{x,0} with u-  u+ > 0. This phenomenon is known as “loss aversion”. Thus, any utility function of this form can be represented by a pair of real numbers (u-, u+) where u-  u+ > 0. Allowance is made for the possibility of u- = u+. It is generally assumed that under normal circumstances u- - u+ is a non-decreasing function of initial wealth, thereby implying that wealthier individuals are more “risk averse” than those individuals who are less wealthy. The work of Friedman and Savage (1948), spells out clearly that beginning with an initial segment where the utility function for gains and losses is concave, the utility function alternates between convexity and concavity thereafter. This property of utility functions for gains and losses is known as the “Friedman-Savage” hypothesis. In Lahiri (2022), a utility function for gains and losses (expressed in terms of gains and losses) has been suggested that is compatible with “loss aversion” as well as the “Friedman-Savage” hypothesis. However, the utility function in Lahiri (2022) does not display constant average utility in any sub- interval of its domain, and this is a problem for reasons that we now turn to. The dominant interpretation of probability in expected utility theory, is the one due to Ramsey and de Finetti. Brief discussions along with intuitive motivation of such probabilities are available in Lahiri (2023b, 2023c). The Ramsey-de Finetti subjective probability of an “event” or “state of nature” (say E) that is assessed by an agent is the price (say p) that the agent would we willing to pay for a simple bet that returns one unit of money if state of nature ‘E’ occurs and nothing otherwise, so that the expected monetary value of the simple bet to the agent is zero. Thus, if the average utility of money in state of nature E is a constant, say  > 0, then for one unit of money in state of nature E, the agent will be willing to forego p units of utility and for  units of money in state of nature E the agent will be willing to forego p units of utility, the latter being the utility the agent willingly forgoes for  simple bets of the type we have just discussed.  simple bets, each of which returns one unit of money if E occurs and nothing otherwise, is identical to a bet that returns  unit of money if E occurs and nothing otherwise. Thus, Ramsey-de Finetti subjective probability fits comfortably with “expected utility theory” based on constant average state dependent utility. On the other hand, if the average utility in state of nature E is “non-constant”, then there exists  such that the average utility of  units of money is not equal to the average utility of p units of money. For a bet that returns  units of money in state of nature E and nothing otherwise, the agent will be “willingly foregoing” the utility of p  units of money and not ‘p’ times the utility of  units of money, the latter being the expected utility of the bet to the agent. Hence, on the face of it, there seems to be a mismatch between Ramsey-de Finetti subjective probability and expected utility theory based on such an interpretation, if state- dependent average utility of money is “non-constant”. A comprehensive exposition of the early stages of the analysis of decision making under uncertainty with state dependent p