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utility (a thread)
Def: the state of being useful, profitable, or beneficial
In economics, utility refers 2 the enjoyment/satisfaction a person gets from the choices they make
Utility theory assumes that people will make decisions that provide maximum utility/satisfaction
1/11
Def: the state of being useful, profitable, or beneficial
In economics, utility refers 2 the enjoyment/satisfaction a person gets from the choices they make
Utility theory assumes that people will make decisions that provide maximum utility/satisfaction
1/11
2/11
Expected utility refers to the satisfaction a person EXPECTS to get from a choice they make
Utility can help explain why some people will never give up certain choices, even though those choices might otherwise be perceived as 'wrong' by others
Expected utility refers to the satisfaction a person EXPECTS to get from a choice they make
Utility can help explain why some people will never give up certain choices, even though those choices might otherwise be perceived as 'wrong' by others
3/11
(Expected)Utility explains why an individual may have certain preferences, e.g.
- choose to buy a R500k german sedan over a R100k cheapie
- choose to buy coffee instead of making it at home
- choose a R5 000 denim over a R150 one
- investing over consumption
(Expected)Utility explains why an individual may have certain preferences, e.g.
- choose to buy a R500k german sedan over a R100k cheapie
- choose to buy coffee instead of making it at home
- choose a R5 000 denim over a R150 one
- investing over consumption
4/11
- consumption over investing
- renting over buying
- travel over saving/investing
- paying off a bond early over investing
- hold certain shares over others
- A broker over DIY
- etfs over individual stock picks
- SPF15 sunscreen over SPF50 sunscreen
- etc
- consumption over investing
- renting over buying
- travel over saving/investing
- paying off a bond early over investing
- hold certain shares over others
- A broker over DIY
- etfs over individual stock picks
- SPF15 sunscreen over SPF50 sunscreen
- etc
5/11
(Expected)Utility can help explain why some people will never give up certain choices
The association with each choice is purely subjective.
There is no right or wrong choice
(Expected)Utility can help explain why some people will never give up certain choices
The association with each choice is purely subjective.
There is no right or wrong choice
6/11
Utility doesn't always have to monetary. Non-monetary utility explains decisions that may not make financial sense. The satisfaction from a specific choice can bring greater satisfaction than the price paid for that product/choice. Think of the say "reward yourself"
Utility doesn't always have to monetary. Non-monetary utility explains decisions that may not make financial sense. The satisfaction from a specific choice can bring greater satisfaction than the price paid for that product/choice. Think of the say "reward yourself"
7/11
The main downside of utility is that the choices one makes tend to be restricted to the 'known outcomes', which means EVERY decision a person makes is totally subjective. This often gets mistaken for ignorant, wrong or "stupid" decisions
The main downside of utility is that the choices one makes tend to be restricted to the 'known outcomes', which means EVERY decision a person makes is totally subjective. This often gets mistaken for ignorant, wrong or "stupid" decisions
8/11
Can you really blame a person who makes a decision based only on what they know?
And what do they know?! Can that easily be established?
People make the best decisions based the information they possess at a point in time
Can you really blame a person who makes a decision based only on what they know?
And what do they know?! Can that easily be established?
People make the best decisions based the information they possess at a point in time
9/11
As more information becomes known about the alternatives, the more likely a person is to change their decision if the (expected)utility associated with the 'new' information(or outcome) is perceived to be higher than one of a previous decision
As more information becomes known about the alternatives, the more likely a person is to change their decision if the (expected)utility associated with the 'new' information(or outcome) is perceived to be higher than one of a previous decision
10/11
So how does a person expand on known information and possible choices?
- Be Open
- Read: information and knowledge are key
- Learn new things everyday
- Learn what others are doing, where their journey started, what they are hoping to achieve, etc.
So how does a person expand on known information and possible choices?
- Be Open
- Read: information and knowledge are key
- Learn new things everyday
- Learn what others are doing, where their journey started, what they are hoping to achieve, etc.
11/11
Life has no certainties, just probabilities
While being around like-minded people is important, don't ignore those from different walks of life. What you can learn from these individuals may surprise you...
"When you know better, you do better"
(END)
Life has no certainties, just probabilities
While being around like-minded people is important, don't ignore those from different walks of life. What you can learn from these individuals may surprise you...
"When you know better, you do better"
(END)
