What Is Exponential Utility?

Utility theory is a theory adopted by leaders when making decisions. Decision-making is often influenced by the subjective consciousness of decision-making leaders. When making decisions, leaders must look to their environment and future development, respond to possible benefits and losses. The unique perception, feeling, reaction, or interest of benefits and losses is called utility. Utility actually reflects the attitude of leaders to risk. High risk is usually accompanied by high returns. Different leaders take different attitudes and choices when dealing with several options.

Utility theory

Utility theory is a theory adopted by leaders when making decisions. Decision-making is often influenced by the subjective consciousness of decision-making leaders. When making decisions, leaders must look to their environment and future development, respond to possible benefits and losses. The unique perception, feeling, reaction, or interest of benefits and losses is called utility. Utility actually reflects the attitude of leaders to risk. High risk is usually accompanied by high returns. Different leaders take different attitudes and choices when dealing with several options.

Chinese name

Utility theory

Foreign name

utility theory

nickname

Consumer behavior theory

Don't call it English

Theory of Consumer Behavior

definition

Analysis of decision makers' attitudes towards risk

Analytical method

Utility theory: The theory used to analyze decision makers' attitudes to risk, also known as priority theory.

Also known as: Theory of Consumer Behavior

Utility theory is a study of how consumers allocate their income among various goods and services to maximize satisfaction. This theory will explain why

Utility theory shows

(1) The demand theorem shows that the demand for a commodity changes in the opposite direction from the price.

Utility theory conclusion

(2) Consumers purchase various items in order to maximize the utility, or it can be said that the maximum consumer surplus. When the price of an item is fixed, the greater the utility the consumer gets from the item, that is, the higher the consumer evaluates the item, the greater the consumer surplus. When the consumer's evaluation of an item is fixed, the lower the price paid by the consumer, the greater the consumer surplus. Therefore, the price a consumer is willing to pay depends on the utility of the item he gets at that price. The currency price that a consumer is willing to pay to buy a certain quantity of an item depends on the utility he obtains from this quantity of goods. As the quantity of an item purchased by a consumer increases, the marginal utility of the item to the consumer is diminishing, while the marginal utility of money is constant. In this way, as the number of items increases, the price consumers are willing to pay also decreases. Therefore, demand and price will inevitably change in opposite directions.

(1) In a market economy, consumer sovereignty means that an enterprise must produce according to the needs of consumers. Consumer behavior theory tells us that consumers purchase items to maximize utility, and that the greater the utility of an item, the higher the price consumers are willing to pay.

(2) According to the theory of consumer behavior, when deciding what to produce, a company must first consider how effective a product can be for consumers. Utility is a psychological feeling that depends on consumer preferences. Therefore, if an enterprise wants to make the products it produces sell for a high price, it is necessary to analyze the psychology of consumers and satisfy consumer preferences. Consumer preferences first depend on consumer fashion. Different eras have different consumer fashions. To be successful, an enterprise must not only understand current consumer fashions, but also be good at discovering future consumer fashions. In this way, we can understand consumer preferences and changes from consumer fashion, and develop products that meet this preference in a timely manner. At the same time, consumer fashion is also affected by advertising. A successful advertisement will lead a new consumer fashion and influence consumer preferences. In this society, consumer fashion and advertising affect consumer preferences, but personally, consumer preferences are influenced by personal positions and ethics. Therefore, when developing products, enterprises should target a certain group of consumers and develop products according to the hobbies of specific groups.

(3) Consumer behavior theory also tells us that the marginal utility of a product is diminishing. If a product merely increases in quantity, the marginal utility it brings to consumers is diminishing, and the price that consumers are willing to pay is lower. Therefore, the company's products should be diversified. Even if the products are similar, as long as they are not the same, they will not cause diminishing marginal utility. The diminishing marginal utility principle enlightens companies to innovate and produce different products.