The Convergence of Satisficing to Marginalism: An Empirical Test

Document Type

Article

Journal/Book Title/Conference

Journal of Economic Behavior and Organization

Volume

5

Publication Date

1984

First Page

375

Last Page

385

Abstract

This paper explores the empirical significance of Day's conjecture that given simple rules for adjusting versus repeating past output decisions, firm performance may converge to profit maximization even when managers operate in ignorance of their profit function. Using a sample of 107 companies drawn randomly from the Forbes 500 for the years 1972 to 1982, we find evidence that the learning strategy suggested by Day characterizes actual decision making quite well. In particular, a majority of the largest U.S. firms follow the feedback rules a majority of the time and, more often than not, experience increased profit as a result.

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