...Utility Scales Stan Heister Argosy University Solution-Oriented Decisions Models | B7783 Adolfo Gorriaran May 15, 2014 Utility Scales Introduction Interestingly, when a person is young the number and types of jobs in which they are willing to accept seems to be quite expansive but as we age, that number narrows due to experience, education and learned preferences. Since the author has spent in excess of twenty five years in the professional workforce, the types of positions that are attractive has tapered to a fraction of the potential positions for consideration even ten years ago. Below is a list of five positions that would be acceptable. 1. University Professor 2. Product Manager 3. Chief Learning Officer 4. University Administrator 5. Restaurant/Pub Owner Operator Objectives Contributing to the Decision The objectives or criteria that would contribute to the decision of accepting any of the five positions listed above include: Autonomy, Intrinsic Reward Potential, Personal Contribution to the Success of the Business, Leadership Role, Income Potential, Benefits, Power, Status, Impact to Society, Company Reputation and Culture etc. For the sake of brievety in creating the scale, four of these attributes will be used including: Income Potential, Leadership and Impact to Society, Intrinsic Reward Potential. Utility Scale Utility, in decision making is a subjective measure of a person’s desires versus an objective number or measure –...
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...Utility means satisfaction which consumers derive from commodities and services by purchasing different units of money. “Ineconomics, utility is a measure of satisfaction;it refers to the total satisfaction received by a consumer from consuming a good or service. Utility is often affected by consumption of various goods and services, possession of wealth and spending of leisure time.s CONSUMER BEHAVIOUR • It is the study of how people buy, what they buy, when they buy and why they buy. • It attempts to understand the buyer decision processes/buyer decision making process, both individually and in groups. • It also tries to assess influences on the consumer from groups such as family, friends, reference groups, and society in general. • The theory of consumer behavior in managerial economics depends on a) Budget • constrained by income and the price of the goods, • The budget constraint specifies the combination of goods the consumer can afford to buy. b) Preferences • Economists use the concept of utility to describe preferences. • There are some assumptions of consumer behavior theory like :- a) rational behavior b) clear cut preferences • Consumer behaviour can be explained using two main approaches: 1. Marginal Utility Theory (The Cardinalist Approach); and 2. Indifference curve Analysis (The Ordinalist Approach) 1. MARGINAL UTILITY THEORY (THE CARDINALIST APPROACH) • developed by Alfred Marshall who introduced an imaginary unit called the...
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...Contents Utility before 1920’s 2 Utility measurements 2 CARDINALIST AND ORDINALIST UTILITY APPROACH OF CONSUMER BEHAVIOUR 3 CARDINALIST UTILITY APPROACH 3 Marginal utility 4 Assumptions of Cardinal Utility Analysis: 5 Cardinal Measurement of Utility 5 Rationality 6 Diminishing marginal utility 6 ORDINALIST UTILITY APPROACH 7 Rational behavior of the consumer 8 Ordinal Utility 8 Diminishing marginal rate of substitution 8 Consistency selection 8 Transitivity/Consumer’s preference is not self-contradictory 8 Goods consumed are substitutable 9 ECONOMIES AND DISECONOMIES OF SCALE 16 ECONOMIES OF SCALE 16 Definition: 16 Internal economies of scale 16 External economies of scale 18 DISECONOMIES OF SCALE 20 Internal diseconomies of scale 20 External diseconomies of scale 21 CONCLUSION 22 INTRODUCTION Utility before 1920’s: One reason why utility theory was not of great significance is explained by the “ Paradox Value” by economist/philosopher Adam Smith in 1800’s. Also known as Diamond-Water Paradox, it addressed why absolute necessities such as water are valued (priced) so cheaply, while frivolities like diamonds are highly valued and command outrageous prices. Many economists then thought utility was not the cause of price and therefore concentrated on cost of production as the explanation of price.It was until economist Jevons (1871), established how the paradox value could be resolved by associating price with degree of utility, that is marginal...
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...Cardinal and Ordinal Utility Introduction: Utility refers to the satisfaction that a consumer obtains from the purchase and use of commodities and services. According to economics there are two theories that are able to measure the satisfaction of individuals. These are the cardinal utility theory and the ordinal utility theory. There are a number of differences between the two in the methodologies that they use to measure consumption satisfaction Cardinal Utility Cardinal utility states that the satisfaction the consumer derives by consuming goods and services can be measured with numbers. Cardinal utility is measured in terms of utils (the units on a scale of utility or satisfaction). Goods and services that are able to derive a higher level of satisfaction to the customer will be assigned higher utils and goods that result in a lower level of satisfaction will be assigned lower utils. Cardinal utility is a quantitative method that is used to measure consumption satisfaction. Ordinal Utility Ordinal utility states that the satisfaction the consumer derives from the consumption of goods and services cannot be measured in numbers. Ordinal utility uses a ranking system in which a ranking is provided to the satisfaction that is derived from consumption. Goods and services that offer the customer a higher level of satisfaction will be assigned higher ranks and the opposite for goods and services that offer a lower level of satisfaction. Ordinal utility is a qualitative method that...
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...Financial Economics 272-18 Mean-Variance Analysis versus Full-Scale Optimization Out of Sample First Version: November 11, 2005 This Draft: December 13, 2005 Timothy Adler Windham Capital Management, LLC 5 Revere Street Cambridge, MA 02138 617 234-9459 tadler@windhamcapital.com Abstract For three decades, mean-variance analysis has served as the standard procedure for constructing portfolios. Recently, investors have experimented with a new optimization procedure, called full-scale optimization, to address certain limitations of mean-variance optimization. Specifically, mean-variance optimization assumes that returns are normally distributed or that investor preferences are well approximated by mean and variance. Full-scale optimization relies on sophisticated search algorithms to identify the optimal portfolio given any set of return distributions and based on any description of investor preferences. Full-scale optimization yields the truly optimal portfolio in sample, whereas the mean-variance solution is an approximation to the insample truth. Both approaches to portfolio formation, however, suffer from estimation error. Mean-variance analysis requires investors to estimate the means and variances of all assets and the covariances of all asset pairs. To the extent the out-of-sample experience of these parameters departs from the in-sample parameter values, the mean-variance approximation will be even less accurate. Full-scale optimization requires investors to estimate the entire...
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...Humanities Research Council of Canada is gratefully acknowledged. August 20, 2001 Abstract This chapter provides a survey of utilitarian theories of justice. We review and discuss axiomatizations of utilitarian and generalized-utilitarian social-evaluation functionals in a welfarist framework. Section 2 introduces, along with some basic definitions, socialevaluation functionals. Furthermore, we discuss several information-invariance assumptions. In Section 3, the welfarism axioms unrestricted domain, binary independence of irrelevant alternatives and Pareto indifference are introduced and used characterize welfarist social evaluation. These axioms imply that there exists a single ordering of utility vectors that can be used to rank all alternatives for any profile of individual utility functions. We call such an ordering a social-evaluation ordering, and we introduce several examples of classes of such orderings. In addition, we formulate some further basic axioms. Section 4 provides characterizations of generalized-utilitarian social-evaluation orderings, both in a static and in an intertemporal framework. Section 5 deals with the special case of utilitarianism. We review some known axiomatizations and, in addition, prove a new characterization result that...
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...The Nature of Risk Preferences: Evidence from Insurance Choices Levon Barseghyany Francesca Molinari Cornell University Cornell University Ted O’ Donoghue Joshua C. Teitelbaum Cornell University Georgetown University July 21, 2010 Abstract We use data on households’ deductible choices in auto and home insurance to estimate a structural model of risky choice that incorporates "standard" risk aversion (concave utility over …nal wealth), loss aversion, and nonlinear probability weighting. Our estimates indicate that nonlinear probability weighting plays the most important role in explaining the data. More speci…cally, we …nd that standard risk aversion is small, loss aversion is nonexistent, and nonlinear probability weighting is large. When we estimate restricted models, we …nd that nonlinear probability weighting alone can better explain the data than standard risk aversion alone, loss aversion alone, and standard risk aversion and loss aversion combined. Our main …ndings are robust to a variety of modeling assumptions. JEL classi…cations: D01, D03, D12, D81, G22 Keywords: deductible, loss aversion, probability weighting, risk aversion We are grateful to Darcy Steeg Morris for excellent research assistance. For helpful comments, we thank Matthew Rabin as well as seminar and conference participants at Berkeley, UCLA, the Second Annual Behavioral Economics Conference, the Summer 2010 Workshop on Behavioral/Institutional Research and Financial...
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...Economics 272-18 Mean-Variance Analysis versus Full-Scale Optimization Out of Sample First Version: November 11, 2005 This Draft: December 13, 2005 Timothy Adler Windham Capital Management, LLC 5 Revere Street Cambridge, MA 02138 617 234-9459 tadler@windhamcapital.com Abstract For three decades, mean-variance analysis has served as the standard procedure for constructing portfolios. Recently, investors have experimented with a new optimization procedure, called full-scale optimization, to address certain limitations of mean-variance optimization. Specifically, mean-variance optimization assumes that returns are normally distributed or that investor preferences are well approximated by mean and variance. Full-scale optimization relies on sophisticated search algorithms to identify the optimal portfolio given any set of return distributions and based on any description of investor preferences. Full-scale optimization yields the truly optimal portfolio in sample, whereas the mean-variance solution is an approximation to the insample truth. Both approaches to portfolio formation, however, suffer from estimation error. Mean-variance analysis requires investors to estimate the means and variances of all assets and the covariances of all asset pairs. To the extent the out-of-sample experience of these parameters departs from the in-sample parameter values, the mean-variance approximation will be even less accurate. Full-scale optimization requires investors to estimate the entire...
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...company conducts a conjoint survey to find out how consumers trade off various aspects of credit card offerings: the brand, annual fee and credit limit. A potential consumer rates each of the following nine credit cards on a 0 to 9-point scale, where 0 means that the offering is really terrible and 9 means that the offering is very excellent. Card #1 Discover $20 annual fee $2,500 credit limit Score: 3 3 | Card #2 MasterCard $20 annual fee $5,000 credit limit Score: 8 8 | Card #3 Visa $10 annual fee $5,000 credit limit Score: 9 9 | Card #4 MasterCard No annual fee $1,000 credit limit Score: 4 4 | Card #5 Discover $10 annual fee $1,000 credit limit Score: 1 1 | Card #6 Discover No annual fee $5,000 credit limit Score: | Card #7 Visa No annual fee $2,500 credit limit Score: 5 5 | Card #8 MasterCard $10 annual fee $2,500 credit limit Score: | Card #9 Visa $20 annual fee $1,000 credit limit Score: 2 2 | a. Utility function: Calculate the utility function of each brand based on the above response. Show how you calculate the utilities to demonstrate understanding. Record the utilities in the table below Part worth utilities: Brand | Utility | Annual Fee | Utility | Credit Limit | Utility | Visa | 5.33 | No annual fee | 5.33 | $1,000 credit limit | 2.33 | MasterCard | 6.00 | $10 annual fee | 5.33 | $2,500 credit limit | 4.67 | Discover | 3.67 | $20 annual fee | 4.33 | $5,000 credit limit | 8.00 |...
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...Utility means satisfaction which consumers derive from commodities and services by purchasing different units of money.From Wikipedia, the free encyclopedia “Ineconomics, utility is a measure of satisfaction;it refers to the total satisfaction received by a consumer from consuming a good or service. “Given this measure, one may speak meaningfully of increasing or decreasing utility, and thereby explain economic behavior in terms of attempts to increase one's utility. Utility is often affected by consumption of various goods and services, possession of wealth and spending of leisure time. According to Utilitarian’s, such as Jeremy Bentham (1748–1832) and John Stuart Mill (1806–1873), theory “Society should aim to maximize the total utility of individuals, aiming for "the greatest happiness for the greatest number of people". Another theory forwarded by John Rawls (1921–2002) would have society maximize the utility of those with the lowest utility, raising them up to create a more equitable distribution across society. Utility is usually applied by economists in such constructs as the indifference curve, which plot the combination of commodities that an individual or a society would accept to maintain at given level of satisfaction. Individual utility and social utility can be construed as the value of a utility function and a social welfare function respectively. When coupled with production or commodity constraints, under some assumptions, these functions can be used to analyze...
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...Revolution in the World 1.2 Multiplexes arrive in India 1.3 Wave Multiplex, Lucknow 1.4 Future of Multiplexes in Lucknow 2. OBJECTIVES 3. PLANNING 4. DETAILS OF DATA COLLECTION 4.1 Sources of Data 4.2 Data Collection 4.3 Demographic Profile of respondents 4.4 Raw data conversion to meaningful data 5. ANALYSIS 5.1 Customer Satisfaction 5.1.1 Algorithm for computation of Satisfaction Levels 5.1.2 Explanation of Algorithm 5.1.3 Analysis from Satisfaction Levels 5.1.4 Results 5.2 Income Demand Elasticity 5.2.1 Aim 5.2.2 Data Collected 5.2.3 Interpretation of Data 5.2.4 Utility Curves 5.3 Price Demand Elasticity 5.3.1 Aim 5.3.2 Data Collected 5.3.3 Interpretation of Data 5.3.4 Utility Curves 5.4 Utility Curves 5.4.1 Aim 5.4.2 Data Collected 5.4.3 Interpretation of Data 5.4.4 Utility Curves 5.5 Preference Chart 5.5.1 Aim 5.5.2 Inference from Preference chart and supplementary data 6. RECOMMENDATIONS 7. LIMITATIONS 1. INTRODUCTION 1.1 The Multiplex Revolution in the World In 1985, a leisure centre opened in the new town of Milton Keynes, Buckinghamshire, and included a ten-screen 'multiplex' cinema that was designed and operated by an American company .Multiplexes proliferated from 1989 onwards, mainly built by American companies and emphasizing Hollywood movies. 1.2 Multiplexes arrive in India Multiplexes are not a new concept in India. Chennai (then Madras) had the Devi...
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...Ans 6 A wage is remuneration paid by an employer to an employee. It may be calculated as a fixed task based amount, or at an hourly rate, or based on an easily measured quantity of work done. It is contrasted with salaried work, which is based on a fixed time period. Depending on the structure and traditions of different economies around the world, wage rates will be influenced by market forces (supply and demand), legislation, and tradition. Market forces are perhaps more dominant in the United States, while tradition, social structure and seniority, perhaps play a greater role in Japan.[1] Wage Discrimination Even in countries where market forces primarily set wage rates, studies show that there are still differences in remuneration for work based on sex and race. For example, according to the U.S. Bureau of Labor Statistics, in 2007 women of all races made approximately 80% of the median wage of their male counterparts. Similarly, white men made about 84% the wage of Asian men, and black men 64%.[2] These are overall averages and are not adjusted for the type, amount, and quality of work done. The wage share (or labor share) is the ratio between compensation of employees (according to the system of National accounts) and one of the following variables: 1. gross domestic product at market prices 2. gross domestic product at factor cost. 3. net domestic product at factor cost (domestic income at factor cost) An adjustment is often made so that the wage share reflects...
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...probability of outcome i and Vi is the value of outcome i 3. If outcomes are expressed in money, utility may not be proportional to money. Instead, the concept of diminishing marginal utility suggests that as the value of the outcome expressed in money increases, the increase in utility resulting from one more dollar decreases. 4. Although it is impossible to specify any one form of a utility function is universally valid for everyone, the following functional form is convenient for illustrating problems related to decision making under uncertainty: U(V) = 100((V/Vmax)^1/k)) where n^k means n to the power k, as in Excel notation U is utility on a scale with U =0 when V=0 and U = 100 when V = Vmax V is the value of an outcome Vmax is the maximum possible value of the outcome k is a coefficient of risk aversion: k = 1 implies risk neutrality k > 1 implies risk aversion k < 1 implies positive risk preference The following graph shows a graph of the utility function for Vmax = 1000 and various values of k 5. The inverse utility function is derived by solving the utility function for V. It gives the value V which has a given utility U: V(U) = Vmax (U/100)^k 6. If a prospect consists of several outcomes, each having a value Vi, a utility Ui, and a probability Pri, then the expected value for the scenario is Ev = Pri * Vi and the expected utility of the scenario is Eu= Pri * U(Vi) 7. The certainty...
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...ISSN 0378-5254 Journal of Family Ecology and Consumer Sciences, Vol 31, 2003 The importance of apparel product attributes for female buyers Ernest J North, Retha B de Vos and T Kotzé OPSOMMING Die doel van hierdie artikel is om die bevindinge van ‘n empiriese ondersoek te rapporteer wat uitgevoer is om vroulike verbruikers se aankoopbesluite vir ‘n kledingstuk te ontleed wat gebaseer is op die waarde wat hulle aan sekere eienskappe van die produk heg. Alhoewel menige studies in die verlede verbruikers se houdings jeens produkte en hul eienskappe gemeet het, is die moontlikheid van die effek van interaksie tussen die attribute oorgesien. In die Suid-Afrikaanse konteks het die literatuurstudie getoon dat daar ‘n behoefte is aan ‘n studie om te bepaal wat die waarde is wat vroulike verbruikers aan sekere produkeienskappe heg voordat aankoopbesluite gefinaliseer word. ‘n Vraelysopname is as primêre data-insamelingsmetode gebruik waartydens die respondente versoek is om aan te toon wat hul voorkeure is vir dertig gepaarde kombinasies van die produk en sy eienskappe. Hierdie studie het op vier eienskappe, naamlik handelsmerk, styl, kleinhandelaar en prys gefokus. Hipoteses is geformuleer en voorkeurkeuse-ontleding (“conjoint analysis”) is vir die ontleding van data gebruik. Die bevindinge toon aan dat daar beduidende verskille is in die waardes wat vroulike verbruikers heg aan die eienskappe van ‘n kledingstuk voordat aankoopbesluite geneem word. INTRODUCTION Although the apparel...
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...Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure Michael C. Jensen Harvard Business School MJensen@hbs.edu And William H. Meckling University of Rochester Abstract This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith...
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