Utility is an abstract concept commonly associated with economics. What is it? How it works?Definition of UtilitiesThe economic definition of utility is An economic term that refers to the total satisfaction received from consuming a good or service Everyone likes money. People get satisfaction, or utility, from money. The more money they have, the more satisfaction they get.Note that the law of diminishing returns is a factor here. When someone earns more, the same increase in money does not lead to the same increase in utility. $10,000 will bring a lot of satisfaction to those who work for the minimum wage. It will provide less (but not zero) satisfaction for a billionaire. That is the law of diminishing returns. Let’s look at another concept – leisure time. When someone increases their leisure time, it increases their satisfaction.Again, we have the law of diminishing returns. An extra hour of entertainment a week is valuable to a single parent working two jobs and raising three children. That same hour is less valuable if the person has no responsibility or time commitment.ExchangeWhile both charts make sense, what they cannot tell us is whether someone wants more leisure time or more money. When we present this as a trade-off, we need a way to describe how people make those trade-offs. . That’s good intuition. When we graph leisure time versus money, we get a utility curve.Economists also call this the indifference curve. For a person to be at any point on the curve, they don’t care about being at any other point on the same curve. When a person has very little money, they will trade a lot of leisure time for more money. When they have a lot of money, they trade a lot for a bit of leisure time back, which is one of the reasons our economy works. People with a lot of time sell something cheap (their time) to someone with a lot of money, who will pay dearly for something expensive to them (their time). Not everyone has the same utility curve shape.Some people inherently prefer money over time, or vice versa. Or a person’s situation to the point where they temporarily change their values. Each individual has a unique curve at a time. And for that person, all points on the curve give equal satisfaction.ImproveOK, understanding the trade-offs is good, but what we want to understand more about is how to improve the human condition. Products are not very attractive when people are not interested in buying them. How do we make people want to buy our products? People want to increase the utility of the product. If someone is indifferent to trading an hour for a dollar, they will be excited to trade half an hour for a dollar. On the contrary, they are not interested in trading two hours for a dollar. Graphically, in addition to being indifferent to all points on their curve, they are excited about all points above their curve and don’t care about moving to a point below the curve their.Rational people (and economists who make a point of excluding irrational people from most of their work) will be at least satisfied and generally prefer to increase their utility.Why the lines of indifference never intersectYou will notice that the two curves in the image above never intersect. Indifference curves never intersect, because by definition, all points on the same curve represent equivalent satisfaction. If the two curves overlap, that will produce a histogram (for an individual) that looks like the previous one (with red and green curves). Select a point on the “Money” axis. There are two intersections along the “Leisure Time” axis – each for the red and green curves. The red data point should have the same utility as where the curves intersect. The green data point will also have the same utility as the intersection of the indifference lines. This would require both red and green data points (with different values for “Leisure Time” and identical values for “Money” which would represent the same amount of utility. that would violate the premise that “more leisure time is always better, all else being equal.” This also points to a limitation of using utility curves – they only apply to monotonically increasing functions Only if “a little more” is always better, can the utility curve be plotted. Practical applicationThis is fine, if theoretical. How do we use this as part of great software development? It’s important to realize that there are trade-offs. As software creators, we face internal trade-offs. We can only accomplish so much. We may only release certain features within a certain timeframe. And we make those trade-offs based on ROI, or our perception of the trade-off between costs and benefits. Sometimes that profit is measured by usefulness. Consider the decision process around a set of usability requirements. Should we make the app easier to learn or faster to use? A utility curve helps us visualize this balance.The answer is some of both. But we must balance the need to break through the bad with word-of-mouth marketing and drive user adoption by designing for competent users. Understanding that each user has their own personal equalizer helps us make these decisions.
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