Journal Article

The Shape of Utility Functions and Organizational Behavior

Pennings, Joost M. E, Smidts, Ale

2003

Overview

Based on measurements among 332 owner–managers, we investigate how the global shape of the utility function (i.e., S–shaped versus concave or convex over the total range of outcomes) relates to choice behavior. We find that the global shape of the utility function differs across decision makers (about one–third of the owner–managers exhibit an S–shaped utility function) and that the global shape is linked to organizational behavior (i.e., the production system employed), a result that does not change when using different methods to identify the decision maker's global shape of the utility function. The decision maker's risk attitude (risk averse or risk seeking) does not affect the choice of the production system. Whereas the degree of risk aversion, based on the local shape of the utility function, may be important in explaining owner–managers' trading behavior (Pennings and Smidts 2000), more structural organizational behavior appears to be linked to the global shape of the utility function.

• Publisher: INFORMS,Institute for Operations Research and the Management Sciences
• Subject: Agricultural management / Attitudes / Business studies / choice / decision / Decision makers / Decision making / Decisions / Economics / Expected utility / Exponential functions / Farmers / Function / Heterogeneity in Utility Functions / Hogs / Loss aversion / Lotteries / Management science / Managers / Modes of production / Operations research / Organizational Behavior / Organizational behaviour / Ownership and control / parameter-free elicitation / Piglets / preferences / Prices / probability weighting function / Production / Production technology / prospect-theory / Real Decision Makers / Reference Points / reflection / Risk / risk attitude / Risk aversion / S-Shaped Utility Function / Studies / Utility functions