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Almost-maximization as a behavioral theory of the firm: Static, dynamic and evolutionary perspectives

Dixon, Huw 2020. Almost-maximization as a behavioral theory of the firm: Static, dynamic and evolutionary perspectives. Review of Industrial Organization 56 , pp. 237-258. 10.1007/s11151-019-09727-0

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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.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Springer Verlag (Germany)
ISSN: 0889-938X
Date of First Compliant Deposit: 18 September 2019
Date of Acceptance: 6 September 2019
Last Modified: 02 Mar 2020 14:31
URI: http://orca.cf.ac.uk/id/eprint/125504

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