Local Hillclimbing on an Economic Landscape
Profit maximization is difficult. Sophisticated and experienced managers often disagree about which action is most likely to maximize profits for a given firm. Economic models of profit maximization, on the other hand, are---in general---easy. Well-trained economists can readily discern the action which maximizes the firm's objective function. The global maximum is unique and achievable because the objective function is designed to have this property. This paper weakens the assumption of analytically tractable objective functions. I propose a model of profit maximization in which it is, essentially, maximum. Firms have no choice but to, in the words of Lindblom (1959), "muddle through" in their attempt to find the optimal budgetary allocation in an extremely complex economic landscape. Computer simulations provide details of that landscape as well as evidence that certain strategies may be more effective in difficult environments. Specifically, "patience" may be a virtue which applies to firms as well as to people.
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| Length: | |
| Date of creation: | Aug 1996 |
| Date of revision: | |
| Handle: | RePEc:wop:safiwp:96-08-065 |
| Contact details of provider: | Postal: 1399 Hyde Park Road, Santa Fe, New Mexico 87501 Web page: http://www.santafe.edu/sfi/publications/working-papers.html More information through EDIRC
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mailath, George J., 1992. "Introduction: Symposium on evolutionary game theory," Journal of Economic Theory, Elsevier, vol. 57(2), pages 259-277, August.
- Krugman, Paul, 1991.
"Increasing Returns and Economic Geography,"
Journal of Political Economy,
University of Chicago Press, vol. 99(3), pages 483-99, June.
- Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
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