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| Pythagoras and the Fisherman 1662 Salvator Rosa A representation of how mathematics and the art of decision making work together. |
Utility Theory helps us understand how people rank their prospects and then act on those prospects. That could be buy a new car or that could be to improve revenue of your company by 2%. Because the environment has many possibilities where one's individual and business goals factor into decision making, we must consider not only the rank of such goals but also their probabilities.
In any situation, business or personal, you should consider the most important goals that an individual/organization seeks to accomplish and then rank them by importance. By doing so, one might also consider including the probabilities based on the data drawn from the market/environment/study to understand those prospects better. (Good data can keep filling in the blanks and in turn defining the probabilities while bad data derails you. You can get good at determining/differentiating between good and bad data.)
As one gains new data, knowledge, and insight, they will be able to adjust and define their/organizational goals as well as understand the probability of achieving each possible goal. When we can break down that analysis into actual probability trees for decision making, we can better understand these prospects and the strategic paths in which they lead (With luck we can see the data find new branches of knowledge. You just have to know what to look for. Typically that is the blank spots or the data doesn't fit into existing theoretical structures. )
While we may use many different analysis and ways to achieve our goals, we are always stuck with deciding which goals are most important for personal/business achievement. Whether your are an individual or a business you can look at your internal and external resources and match that with the your purpose to achieve greater organizational outcomes. Often that requires a conscious rank order of goals and selecting the most probable of those choices to achieve certain objectives. (i.e missions statements have purpose in aligning people to goals and the probability that people will find direction in a way that influences their micro choices leading to organizational-economic change.)
(If you managing an organization of any type think of how things like a national constitution, business mission statement, or stated strategic goals/initiatives can give people a sense of direction for their own decision making. When people buy into a vision and have clear principles to work off of, they will naturally seek to align themselves if they find personal benefit. Probabilities change not only on the external but also the internal environment. The environment changes because of people and people change because of the environment and thus one has to consider that "human factor" into their decision making to fully assess both probabilistic lines. i.e. science allows for this innovation line but one must wonder whether the market will accept and buy that product. Knowing the two will determine an investment decision in research/product development that leads to the highest probably outcome. )
(I utilize this concept in my economic cluster theory because people must be able to see the prospects of goal achievement within the cluster goals themselves. They may also determine how best they can advance their collective and individual goals within and outside the cluster.).
Utility Definitions:
Utility in Economics Explained: Types and Measurement
Utility in Economics Explained: Types and Measurement
I like this study. Boundedly rational expected utility theory
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