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A Behavioral Model of Cost Reduction

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  • Roy Radner
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    Abstract

    Three aspects of bounded rationality seem important for decision theory: (1) the existence of goals, (2) the search for improvement, and (3) long-run success. Two important criteria of long-run success are (a) the probability of survival, and (b) the long-run average rate of growth of performance (relative to one or more goals). One obstacle to the development of mathematical theories of resource allocation based on bounded rationality has been the absence of a clear and precise formulation of what is meant by "satisficing." In this paper I develop a few related mathematical models of satisficing in an uncertain environment, and apply them to the analysis of cost-reduction and technical change. An additional theme is that the allocation of resources in an organization is significantly influenced by the allocation of decision-making effort.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal Bell Journal of Economics.

    Volume (Year): 6 (1975)
    Issue (Month): 1 (Spring)
    Pages: 196-215

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    Handle: RePEc:rje:bellje:v:6:y:1975:i:spring:p:196-215

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    Cited by:
    1. Reinstaller ,Andreas & Hölzl,Werner, 2001. "The Technological Bias in the Establishment of a Technological Regime: the adoption and enforcement of early information processing technologies in US manufacturing, 1870-1930," Research Memorandum 013, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    2. Zhi Tang & Jintong Tang, 2012. "Entrepreneurial orientation and SME performance in China’s changing environment: The moderating effects of strategies," Asia Pacific Journal of Management, Springer, vol. 29(2), pages 409-431, June.

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