Heuristics, the Non‐maximizing Firm and Efficient Allocation

Furubotn, Eirik G.

doi:10.1111/j.1467-999x.2008.00324.x

Cited by 3 publications

(2 citation statements)

References 21 publications

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“…According to these arguments and keeping in mind that information is costly, determining a decision alternative that maximizes expected utility is not possible any more: the actor within this model has to limit the search for information but can genuinely not do this as an optimization under constraints (Furubotn and Richter 2005;Furubotn 2009Furubotn , 2014. Instead, the actor has no better option than selecting information arbitrarily.…”

Section: Markets According To the New Institutional Economics Approachmentioning

confidence: 99%

What are markets? Selected market theories under genuine uncertainty in comparison

Schmiel

Sander

2021

J Evol Econ

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Since market economies are the dominant form of regulating economic action all over the world, the question arises how markets are conceived theoretically. Answering this is relevant because we need to know how existing and hypothetical markets work in general, what they “can do”, and how one can improve the market order. There are three different market approaches that consider genuine uncertainty. According to the new institutional economics approach, markets are institutions that increase boundedly rational actors’ utility. The markets-as-institutional-arrangements approach denies that markets maximize or minimize market outcomes and argues that they enable harmony between individual and common interests. According to the political-cultural approach, markets are political arenas with conflicts between the relevant actors. Deciding reasonably for a theory requires answering whether one theory is more adequate than another. Since literature has not answered this so far, the present paper deals with this issue from a critical-rationalist perspective. It finds that the institutional economics approach is not adequate because its assumptions contradict reality and each other. In contrast, the markets-as-institutional-arrangements approach and the political-cultural approach fulfill critical-rationalist requirements. Therefore, the paper compares them and finds that there are reasons to prefer the political-cultural approach and to interpret the markets-as-institutional-arrangements approach as its special case. Referring to the political-cultural approach has different consequences for analyzing and improving the market order. Taking a political-cultural view implies, e.g., not only focusing on desirable social values and market rules but also on the relevance of interpretative frameworks and power.

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Section: Markets According To the New Institutional Economics Approachmentioning

confidence: 99%

What are markets? Selected market theories under genuine uncertainty in comparison

Schmiel

Sander

2021

J Evol Econ

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“…9 In the most simple case, if     is linear in the opponent's cost shock, using the heuristic strategy is equivalent to the Bayesian approach. Although the heuristic strategy doesn't use information 9 Although we focus on a function for which    is quadratic in  − , it is possible to adapt the previous result to the case of an arbitrary function, by defining quadratic functions which provide upper and lower bounds on the convexity/concavity of the arbitrary function. The analogous result is if     is globally convex (concave) in  − ,  *  will be greater (less) than  .…”

Section: Comparing Best Response Functionsmentioning

confidence: 99%

On the use of heuristics to approximate competitors’ private information

Lin

Muehlegger

2013

Journal of Economic Behavior & Organization

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Firms often lack knowledge of the nature of the uncertainty they or their opponents face and use heuristics or approximations to determine their strategy. We define and analyze one type of "heuristic strategy", in which firms choose strategies based on the expectation of their opponents' private information rather than the full information about the distribution of that private information. We find that, in equilibrium, the degree to which the heuristic strategy differs from the Bayesian strategy depends on: (1) the convexity of a firm's marginal profits with respect to their opponents' private information, and (2) whether firm strategies are complementary or substitutable. Under certain conditions, firms' equilibrium profits are greater when all firms use heuristics than when all firms use the full information. Our results provide insight into incentives firms may have to either facilitate or impede access to industry information.JEL Classification: D21, D80, L10

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The bias bias

Brighton

Gigerenzer

2015

Journal of Business Research

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Heuristics, the Non‐maximizing Firm and Efficient Allocation

Cited by 3 publications

References 21 publications

What are markets? Selected market theories under genuine uncertainty in comparison

What are markets? Selected market theories under genuine uncertainty in comparison

On the use of heuristics to approximate competitors’ private information

The bias bias

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