Decision-making and Utility Theory

Abstract

Decision-making is a process that would affect people's lives from simple daily decisions even to major life decisions. The understanding of judgment is critical for making better decisions as well as improving individual and collective outcomes. This paper would focus on historical decision theory, utility theory, prospective theory, and their applications in real life. The utility theory of the decision-making theory is a crucial part of the decision-making theories, as well as the prospect theory in the later paper. According to prospect theory and utility theory, people would make decisions based on the relative importance of the options' predicted values, and biases and heuristics would influence their choices. Both theories have applications in many fields such as economics, psychology, and medicine. They are used to form models and predict consumer behavior or financial decisions. Peoples lives are strongly associated with different decision makings, from simple to complex. The decision-making process is essential to human existence and fully connect to humans. By figuring out the decision-making processes, people can identify the factors that would influence the choices and make adjustments based on them. The application of the theories could be more practical. Thus, it is crucial to analyze or quantify it for more stable and reasonable choice-making.