Almost‐Maximization as a Behavioral Theory of the Firm: Static, Dynamic and Evolutionary Perspectives

Dixon, Huw

Almost‐Maximization as a Behavioral Theory of the Firm: Static, Dynamic and Evolutionary Perspectives

Review of Industrial Organization, 2020, vol. 56, issue 2, No 3, 237-258

Abstract: Abstract In this paper we consider the effect of epsilon maximization on firm behavior. In particular we focus on the dynamic behavior of firms with the use of the example of price‐setting: We show how almost-rational firms can be more volatile in their behavior. However, if a lexicographic preference for simplicity is made, then we can explain nominal price rigidity as a result of epsilon optimization. The behavior of the firm—which is consistent with its long‐term survival—is examined. We argue that epsilon-optimization is consistent with survival in any context in which something is optimized: such as sales revenue.

Keywords: Bounded rationality; Dynamic choice; Inertia; Price rigidity; Volatility (search for similar items in EconPapers)
JEL-codes: B52 C61 D21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://link.springer.com/10.1007/s11151-019-09727-0 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:revind:v:56:y:2020:i:2:d:10.1007_s11151-019-09727-0

Ordering information: This journal article can be ordered from
http://www.springer. ... on/journal/11151/PS2

DOI: 10.1007/s11151-019-09727-0

Access Statistics for this article

Review of Industrial Organization is currently edited by L.J. White

More articles in Review of Industrial Organization from Springer, The Industrial Organization Society Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().