AP+2016+Rational+Utility-+Maximization

Rational Utility- Maximization: Joshua Sumpter



Area of analysis: Cultural Rational utility is the process of utilizing the resources that one possesses in the most efficient way possible. This is a concept utilized in economics to predict behavior, but is also a very interesting insight into modern culture. The use of rational utility as a decision making process is essentially a way for a person to receive the most benefit from his/her own choices, and is thus an extremely selfish mechanism. Economic journal Investopedia explains rational utility like this “ An economic principle that assumes that individuals always make prudent and logical decisions th at provide them with the greatest benefit or satisfaction and that are in their highest self-interest” (Rational Choice Theory). America has always been a land of independence and because of this is a place with very selfish ideals. The American dream is all about obtaining the best possible house and car and obtaining a high place in society. Rational utility provides the necessary justification for this lifestyle because it involves the selection of the option which provides the most personal benefit. This maximization process allows no consideration for the effect one’s choices will have on others, and this provides an extremely negative impact on culture.

Area of Analysis: Audience

Rational utility is a concept which is utilized mostly in the field of economics, as economists try to predict behavior patterns of consumers. The audience of this theory varies, but it can be utilized by anyone who would like to make a calculated financial risk. Rachael Briggs describes one example of a group that uses rational choice theory, “ Another area where expected utility theory finds applications is in insurance sales” (Briggs). Insurance companies use this theory because they believe it is more likely that the person they are insuring will remain safe or without damaged property. This is a calculated risk which will make them money in the long run according to the rational choice theory. The audience of this theory are able to use it in order to make smart, informed financial risks, but they don’t always pay off. The ability to use maximization allows both companies and individual people to make the best decision possible and make the most profit.

Area of Analysis: Aim The aim of maximization is to both be able to predict the behavior of consumers and provide a method by which individuals can decide the best or most profitable of available actions. By looking at the average outcomes of all available choices, one is able to decide the best option above all available alternatives. This aim is applicable to many different fields and areas besides just economics. “This concept  has applications  in economics  and marketing , and in criminology and international relations” (What is Rational Choice Theory). All of these different fields and areas can use rational choice theory to choose the best course of action when faced with a difficult choice. Opponents of maximization state that the theory is useless because it is impossible to predict the future benefit, or utility that a choice will actually yield. Whether their claims are true or not, the aim of rational choice theory is to provide a method for doing just that, making choices based on prediction of results.

Area of Analysis: Historical Even before the theory of rational utility was fully formed and supported by mathematics, people were using the concepts behind it. Specifically, Pascal utilized the concept of maximization to produce one of his most famous works, Pascal’s wager. Pascal’s wager is a way in which he argued that belief in God is beneficial and the most rational decision. This might seem extremely difficult, or even impossible, “However, the question of whether to believe in God can be understood as a decision problem, in which belief and disbelief are both acts. Pascal argues that belief in God is the better act” (Briggs). The fact that a mathematician in the 17th century used the concepts from the rational utility theory shows that it not only has a rich history, but that it has withstood the test of time. Maximization has made a great impact on different philosophies throughout history and will continue to do so. The theory of rational utility has existed for a long time, and will continue to impact people’s decisions in the future.

"What Is Rational Choice Theory (RCT)? Definition and Meaning." BusinessDictionary.com. N.p., n.d. Web. 06 Jan. 2016.

"Rational Choice Theory." Investopedia. N.p., 14 Feb. 2011. Web. 06 Jan. 2016.

Briggs, Rachael, "Normative Theories of Rational Choice: Expected Utility", The Stanford Encyclopedia of Philosophy (Winter 2015 Edition), Edward N. Zalta (ed.)