Theories used to model risk-taking behavior.
Introduction.
The focus of the study is to carry out the fundamental differences that are brought about between the expected utility theory (EUT) and the alternative theory that is used in the modeling of the risk-taking behavior which is Maslow’s Hierarchy of Needs. Therefore, a clear analysis will be conducted to identify the differences that are between the two theories and how they act as motivation in taking a risk by organizations which are to achieve the goals of that particular organization. Different predictions will be made by the theories whereby a clear discussion will be taken to identify the differences in risk-taking (Nieken and Sliwka, 2010, pg254-268). From the analysis that has been done by the various researchers, the theories can be used as a motivation to enhance the process of risk-taking which is the behavior of taking the risk in the different organizations to enhance a change in the economy of those organizations. Thereafter, there will be a detailed discussion of the implications for the economic policy or the business decisions that arise from the examples that will be provided from the two theories in the discussion. The research will be conducted through the use of related articles and the discussions that have been made in class.
Differences between expected utility and Maslow’s Hierarchy of needs.
As per the research done, expected utility theory deals with the analysis of situations that whereby the mandate of coming up with the appropriate decisions of an individual without the realization of the outcome is enhanced which is clearly stated as coming up with uncertain decisions. The decisions that are made thereafter are with the dependence of the agent risk aversion and the utilities that may be brought about by other agents (Boyd and De Nicolo, 2005, pg1329-1343). On the other hand, Maslow’s hierarchy of needs is a theory that was brought about by Abraham which was to act as a motivation to the people that are doing some business activities which therefore motivates them to take risks in any business that they have to undertake. Under this theory, a clear analysis will be done on the areas that are used to act as a motivation for the people doing a particular business to adopt a risk behavior and have motivation for the risks that they come across in business. Some of the areas that will be discussed include; self-actualization, esteem, belongings, safety, and physiological needs.. Don't use plagiarised sources.Get your custom essay just from $11/page
The expected utility theory is used with the economic policies to ensure that the organization can undertake all the risks that are involved in business despite the fact of the challenges that may come across in the adoption of the risks. Therefore, the theories can be identified to come up with a major difference in the expected risks that are used in conducting the research. Most business organizations take a risk in the boosting of their businesses and for that reason, they need motivation so that they can perform the activities that are of risk to ensure that there is the growth of their businesses (Shoham and Fiegenbaum, 2002). For a business to take a risk in doing business the theories are necessary to act as a motivation to that particular business. Consequently, Abraham Maslow came with the theory so that the business organizations can be motivated to undertake whatever risks and act in togetherness with the economic policies so that there will be a growth of the business especially in the financial market and acquiring competitive advantage in the market for its products.
Through the use of the expected utility theory, there can be a change in the behavior of most of the business organizations especially in conducting business to achieve certain goals. According to the research that was done on the expected utility theory, several calculations and analyses were done to provide clear evidence of how the theory was effective in risk-taking behavior. It is therefore defined as a positive theory that is used to create a normative reaction in promoting the economic success of business despite the risks that the business may have. There is a difference when it comes to Maslow’s theory as it is dealt with the provision of a major motivation in the undertaking of the risks and the motivation mostly comes from the behavior of individuals in business (Pagano, 2001, pg277-323). For instance, by self-actualization, there is an increase in the motivation for the agents that are running a particular business despite the risks that may be experienced in the process resulting in the growth of the needs that have been put in place. However, there can be a decrease in the motivation immediately after the needs are met. At this point, most of the businesses do not take any risk in ensuring that the business continues growing and this, therefore, becomes a major difference in this theory in comparison with the expected utility theory.
Also, in the expected utility theory, some risks are taken which is to come up with the best prices for the business products in the market and come up with the appropriate financial markets. The price is therefore preferred for all other lotteries and by that fact, a risk behavior has to be taken through the motivation of the theory resulting in the growth of the financial market. Under Maslow’s hierarchy of needs, a business has to have a change in its esteem to ensure that they are motivated to take the risk behavior despite the effects that the risks will bring to the business (Reyna and Mills, 2014, pg1627). There is also love for the belongings of any given business and to some extent, there is fear for that particular business to prefer taking the risk behavior even though there is a positive change that can be realized at the end. Most of the business takes much consideration on the safety of the business and therefore in taking of the risks, the business tends to be much keen on the safety of the business and taking consideration of also the physiological needs of the business in the process of taking the risks.
Therefore, the application of the theories about the risk behavior has been termed to be of much significance about the economic policy. Through the implication, there are many implications that several business decision that can come about as a result of the theories. As most businesses use the economic policy to act as a guideline on the areas to focus on in the business, the theories have been of much help in coming up with the decision that tends to make a positive change in the economy of that particular business (Antoncic, 2003, pg1-23). The financial market of a business makes a positive change due to the business decisions that arise due to the application of the theories and this has been helpful as most of the businesses are taking risks to achieve its objectives which is the motivation that is brought about by the theories that have been discussed and the economic policies that are used in business.
Business through the application of the theories can have a positive implication about the risks that are to be taken in business and come up with the business decisions and follow the economic policies that are much relevant to it to come up with the best output in business. Most of the businesses that come out successful have to take many risks to ensure that it achieves all that they need for the growth of the business (Hamdar et al., 2008, pg208-217). Therefore, for the businesses to be motivated to take the risk behavior, they have to apply the theories as they are the theories that act as motivation. Decisions that are made by the owners of a given business are the ones that are used as determinants as to whether there can be a positive change in the business in as far as the financial market is concerned, therefore, there is a need to apply the theories.
Conclusion.
In summary, the theories have been applied to act as a motivation to all the business organizations that are willing to take a risk behavior. Most of the business organizations that take much consideration of the theories have been identified to come out successful in terms of the economic growth and the growth of the financial markets (Igra and Irwin, 1996, pg35-51). Businesses must take risks in business so that they are at a position of identifying their financial position in the business. A clear discussion has therefore been made on the theories and how they are of much significance when it comes to taking of risk behavior by organizations. Business organizations are therefore required to come up with strategies that will be used to make them come out successful despite the challenges that they may face in taking the risks.
References.
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