Why utility theory is important
Critical thinking is a discipline which is very important when making administrative decisions. Lau (2011) describes critical thinking as orderly thinking which is open-minded, clear, informed and prorated through conscious, deliberate and evidence. The primary purpose of critical thinking is to help in making informed decision making because it encompasses being critical when thinking. Critical thinking relates to learning and thinking, while argument and argumentation relate to the communication of critical thinking to other people (Kallet and Kallet, 2014). Two essential concepts are describing essential thinking, one of them is argumentation while the other one is an argument. The argument is the smallest evident essential component of thinking by presenting different reasons which show that the assumption is valid or correct.
On the other hand, argumentation is the process of connecting different arguments or taking a particular stance or position regarding a given topic. Critical thinking supports the position during argumentations (Hassmén, Keegan, and Piggott, 2016). In this paper, I will discuss on some of the theories and tools which give more explanations on critical thinking and decision making by the management. The mechanisms to be addressed in this paper include utility theory, self-awareness, slow and fast thinking, logical reasoning, prospect theory, and emotional intelligence. The article explains how to apply critical thinking in decision making and also advises how to use it in our activities and its impacts.
Utility theory centers its assumptions upon the preference of individuals. In management, this assumption is postulated to explain individuals’ behavior according to how they rank their choices based on their preferences. According to utility theory, every person has a different preference, and it is always difficult to change the preferences. Utility theory suggests that the preference of individuals is intrinsic. Utility concept is one of the positive theories which explains the observed choices and behavior of individuals. We can draw our conclusions about individual’s preferences after discerning their choices because utility theory is a certain assumption. Under this assumption, we assume that individuals act according to their utilities or they all have a utility function.
The combination of decision making and utility function involves the formulation of decisions where the conditions for these choices are among the competing alternatives. These competing substitutes are grounded on numerical depictions of the resolution agent’s values and choices. Utility theory refers to the assumptions and the representations on preferences which relate to different mathematical representations. The opinion relates certainty to the formulation which excludes specific considerations of uncertainty or chance, encompassing situations where the outcome is referred to as beforehand (Morgenstern and Neumann, 1993). Utility theory is essential in managerial because it can help in making decisions on consumers demand. It also helps in determining risks by involving the chances of known odds or probabilities, but it excludes absolute uncertainty.
How self-awareness impacts my life and career
Utility theory is essential in my managerial field because it will help in making different decisions in the economy. The theory impacts on my life and career in different ways, for instance, the knowledge of utility theory can help me to know that people have separate utilities. The experience can help me in forecasting customer demand among other things such as human behaviors. In this theory, I have learned that preference is something which is different for every person.
Self-awareness is described as a situation where an individual recognizes his or her feelings and emotions besides preferences and abilities. Through self-awareness, individuals can understand how their beliefs impact their conduct and how their behaviors impact others. In a simple language, self-awareness involves how an individual perceives his or her feelings and how the person create different behaviors’ which impact on those who surround him or her (“Successful leadership starts with knowing yourself,” 2016). Self-awareness is an important concept to include in critical thinking because it helps in generating good managerial decisions. Scholars argue that our statements, thoughts, behaviors’ or choices come from personal beliefs about ourselves beside the nature of the world and those in our environment. It is believed that everyone acts through self-awareness, that is, there is nobody who behaves entirely rational.
Self-awareness is essential in my managerial field because it can assist me in making sound decisions. It is because I will make decisions based on what I see as right and the things which do not affect others negatively (Kahneman and Tversky, 1981). Through self-awareness, I can easily interpret and perceive everything I hear observe and hear. The interpretation and assumptions give me the ability to think critically before making decisions and help me in interacting with others.
The knowledge on self-awareness as a tool of decision making and critical thinking in management is essential in my career and life because it will help in determining how I relate with others. It is because the assumptions learned through self-awareness will help in controlling my interpretations which will assist in developing my inability or ability to participate in serious thinking. Self-awareness is therefore critical in my life because it will help me to engage in critical thinking when making decisions as a professional and also in my personal life.
Scientists describe thinking as either fast or slow, and this helps in determining how people behave. Some scientists suggest that people have two systems of thought, that is, slow and quick thinking. Fast thinking is emotional, fast and intuitive while the second system is more logical, slower and more deliberative. Scholars say that quick thinking is prone to bias, faults and also has extraordinary capabilities (Dane and Pratt, 2007). However, many people are influenced by the pervasiveness of intuitive imitations when acting and thinking. There are different impacts overconfidence and loss aversion on corporate decision making; it is always difficult to predict the future needs of customers.
Fast and slow thinking: Impacts on decision making
The knowledge of fast and slow thinking helps me to understand the different challenges of framing property risks at home and work (Kahneman and Egan, 2011). Knowing how the two structures work together helps in understanding the profound impact of intellectual biases based on everything in the economy including the planning of vacations and playing of the typical market. The understanding of these systems is therefore fundamental to me because it will help in shaping my decisions and judgments.
The knowledge will change my job in different ways. First, the information on the two concepts will help me to know that the way people make decisions can be intuitive or rational. The facts will also help me to discover that any reaction time can assist me in determining if an individual has applied analytical or an intuitive approach to making his or her decisions (Moore, Parker, and Rosenstand, 2011). It is because an individual can do something and then realize after some time that it was not the right thing. In my career, the knowledge will help me to analyze the consequences of my decisions before acting by involving critical thinking. I learn that people have two different systems of thought which include fast and slow thinking.
We can describe a cogent argument as the way of analyzing and observing reactions, feedback and phenomena’s and then drawing the conclusions based on the input. Logical thinkers can give a justification for their actions, decisions, and strategies grounded in the details they gather. Many organizations would like workers to make good choices using facts but not the personal emotions. It is because decisions made using the facts have outstanding outcomes, but the one based on feelings can lead to the making of irrational decisions.
Logical thinking is a fundamental concept when making decisions. Logical thinking involves thinking critically before acting, and this helps in making of good managerial decisions. It is essential to understand that problem solving, and reasoning of any matter is a mental process which allows people to act according to their plans, ideas, desires, and goals. Logical thinking may involve the gathering of data that engages and forms concepts in decision making, problem-solving and reasoning to benefit the concerned person or entity (“Critical thinking,” 2010). It is through logical thinking that people think about a specific issue and comes up with a conclusion. In situations and problems which require logical reasoning, it is essential to understand the facts so that you can make a right decision.
The importance of logical reasoning in decision making
Logical reasoning is crucial to me because it helps me in solving managerial problems by gathering facts and making decisions based on the circumstances. In my daily life, there are several times when I require logical thinking such as when deciding how to spend my money. In management, logical thinking helps me to make decisions on the best quality needed by customers by gathering facts from them through market research. I learn that rational thought is critical in my life and career because it gives me a chance to make better decisions which favor me and those in my environment.
According to prospect theory, gains and losses have different valuations, and as such people make decisions according to their perceived benefits but not their perceived failures (Smith, 2003). Prospect theory suggests that if an individual is given two equal choices, with one offered as a potential gain and another as a possible loss, the person will choose the potential benefits instead of the eventual defeat. The theory argues that the percentage of perceived benefits is more significant than the rate of perceived failures.
The assumption describes how people choose alternatives where there are risks involved, but the outcomes are known in advance. The approach helps us to understand that individuals make decisions according to their potential of gaining or losing but the choices are not based on the ultimate results. The gains and losses are evaluated based on the available facts. The theory is also relevant because it is descriptive which gives us an idyllic of choices made in our lives but not a prediction of the optimal decisions. People always prepare for the consequences of the decisions made so that they are not caught unawares (“You’re gone immediately,” 2018). The assumption is essential when making decisions when there are two alternatives which involve risks.
Prospect assumption is influenced differently both in my job and in my life. It helps me to discover that critical thinking is required when choosing loses or gains based on the results. As a professional in business, I can make assessments under uncertainty so that I can maximize on my expected utility. Through prospect theory, I learn that there are two concepts which are involved in the economy, which is losses and gains. It is the desire of every person to minimize losses and increase the percentage of benefits.
Scholars describe emotional intelligence as the capacity to control, express and to be aware of personal sentiments and handle interpersonal relationships empathetically and judiciously. It can also be defined as the ability of an individual to control and manage her or his views and also be able to control others emotions. Researchers have discovered that people make judgments based on their feelings. The decisions made based on feelings are usually poor because they are not even concerned with the subject matter. For instance, people suffer from emotional pains at home by transferring them to the workplace, and this influences their decisions.
Making decisions based on emotions can lead to losses due to poor decision making, but studies show that emotional intelligence can help to protect people from such prejudices. It is evident that people who are affected by anxiety have a high risk of making decisions based on emotions. According to Brown, George-Curran, and Smith, (2003), these people can make decisions without thinking which can help them to analyze the outcome of their choices. The understanding of emotional intelligence helps us to know that people should avoid making decisions while they have different emotions whether positive or negative.
In my career and my life, emotional intelligence is necessary because it gives me a chance to control my emotions when making different management decisions and also personal decisions. I can also control the behavior of those below me by encouraging them to think critically about the consequences of any decision they make. In a study on emotional intelligence, I learn that personal feelings such as a feeling of excitement can influence individual choices. Emotions should, therefore, be controlled when making decisions to avoid making wrong choices.
Conclusion
Critical thinking is critical when making decisions for any person or organization. Making good choices requires critical thinking because making bad decisions will always lead to bad consequences (Pierce, 1989). This paper has very useful information for everyone especially those who have an interest of being a manager. In this paper, I have given a detailed explanation on different tools and theories which support critical thinking to enhance proper decision making. The tools include utility theory, self-awareness, slow and fast thinking, logical reasoning, prospect theory and emotional intelligence. All of them emphasize on critical thinking as an important concept to enhance proper decision making. For instance, critical thinking is emphasized on emotional intelligence where it is stated that individuals need to think before acting to avoid basing their decisions on emotions. All these tools are very important to me because they guide me on how to make my decisions without making errors (Lowney, 2010). These tools also promote the business process by giving insights on how to forecast customer demand and understand their behaviors. The knowledge is also essential to me because it will help in promoting my career and also my personal life. For instance, the knowledge on utility will help me to think critically when serving different individuals because I understand they all have different preferences. The paper therefore has very useful information and anyone can read it to gain additional knowledge on critical thinking and decision making.
References
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Successful leadership starts with knowing yourself [Video file]. (2016). Retrieved from https://www.youtube.com/watch?v=eIUkzc9OOZ4
You’re gone immediately’. (2018). Retrieved from https://www.news.com.au/finance/business/media/cofounder-mitch-lowe-reveals-the-people-most-likely-to-get-hired-and-fired/news-story/8ca48de53ad415c7588ebb006af774d0
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