Utility theory
DESCRIPTION
Theory or theories concerned with understanding, explaining and predicting an individual’s choices and decisions in relation to the individual’s preferences, values, and judgments of preferability, worth, or value.
Theory or theories concerned with understanding, explaining and predicting an individual’s choices and decisions in relation to the individual’s preferences, values, and judgments of preferability, worth, or value.
KEY INSIGHTS
Utility theory emphasizes the numerical or quantitative representation of an individual’s preferences, values, and judgments to provide insights into choice and decision making. The theory provides a basis for the development and evaluation of numerical models of an individual’s preferences, preference–indifference relationships, decision alternatives, and associated assumptions. In particular, the theory enables risk analyses to be performed where such analyses involve the subjective views of individuals about the benefits or personal utility associated with taking certain risks.
Utility theory emphasizes the numerical or quantitative representation of an individual’s preferences, values, and judgments to provide insights into choice and decision making. The theory provides a basis for the development and evaluation of numerical models of an individual’s preferences, preference–indifference relationships, decision alternatives, and associated assumptions. In particular, the theory enables risk analyses to be performed where such analyses involve the subjective views of individuals about the benefits or personal utility associated with taking certain risks.
KEYWORDS Choice, decision making, preference, values, judgment, utility
IMPLICATIONS
Strategic marketers seeking to develop numerical models of decision making and choice involving risk may benefit from an understanding of the concepts associated with utility theory. In addition, while there are many variants of utility theory, a working knowledge of the rigorous and commonly accepted modeling methods can enable marketers to more clearly specify and articulate preferences, values, and judgments leading to choices and decisions.
Strategic marketers seeking to develop numerical models of decision making and choice involving risk may benefit from an understanding of the concepts associated with utility theory. In addition, while there are many variants of utility theory, a working knowledge of the rigorous and commonly accepted modeling methods can enable marketers to more clearly specify and articulate preferences, values, and judgments leading to choices and decisions.
APPLICATION AREAS AND FURTHER READINGS
Marketing Modeling
Inman, J. Jeffrey, Dyer, James S., and Jia, Jianmin (1997). ‘A Generalized Utility Model of Disappointment and Regret Effects on Post-Choice Valuation,’ Marketing Science, 16(2), 97–111.
Inman, J. Jeffrey, Dyer, James S., and Jia, Jianmin (1997). ‘A Generalized Utility Model of Disappointment and Regret Effects on Post-Choice Valuation,’ Marketing Science, 16(2), 97–111.
Eliashberg, Jehoshua, LaTour, Stephen A., Rangaswamy, Arvind, and Stern, Louis W. (1986). ‘Assessing the Predictive Accuracy of Two Utility-Based Theories in a Marketing Channel Negotiation Context,’ Journal of Marketing Research, 23(2), May, 101–110.
Turban, Efraim, and Metersky, Morton L. (1971). ‘Utility Theory Applied to Multivariable System Effectiveness Evaluation,’ Management Science, 17(12), August, Application Series, B817–B828.
BIBLIOGRAPHY
Fishburn, Peter C. (1968). ‘Utility Theory,’ Management Science, 14(5), Theory Series, January, 335–378.
Fishburn, Peter C. (1968). ‘Utility Theory,’ Management Science, 14(5), Theory Series, January, 335–378.