Decision making in the theory of the firm : an examination of the influence of multiple goals, information, and learning.

McDevitt, A. A. (Anthony A.) (1974). Decision making in the theory of the firm : an examination of the influence of multiple goals, information, and learning. Master's Thesis, School of Economics, University of Queensland.

       
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Author McDevitt, A. A. (Anthony A.)
Thesis Title Decision making in the theory of the firm : an examination of the influence of multiple goals, information, and learning.
School, Centre or Institute School of Economics
Institution University of Queensland
Publication date 1974
Thesis type Master's Thesis
Total pages 213
Language eng
Subjects 14 Economics
Formatted abstract Classical microeconomic theory postulates the entrepreneur as a rational, “economic" man with perfect knowledge of the environment in which he operates; his decision making is directed towards a single objective-maximisation of profit. However, it has long been "recognised by economists that this simple model of decision making becomes more difficult to support further one departs from a purely competitive situation. An examination of the major arguments presenting this point of view shows that they are applicable to only the short-term decision making of monopolistic and oligopolistic firms.

Nevertheless, the short-run decisions of such firms are important and, therefore, two alternative theories regarding the decision making of semi-monopolistic firms are reviewed. One of these theories--the managerial theory of the firm--provides a basis for the construction of normative decision models. It should be pointed out that although the basic quantitative framework used by economists for modelling a quantity setter firm is employed, a systems concept is adopted for the development of single goal and multiple 90a1 models of decision making in the firm. That is, an approach directed towards an integration of information, learning and decision making was attempted.

Several methods by which Baumol's (multiple goal) sales revenue maximisation hypothesis can be modelled are considered. Analysis of these models indicates that the composite penalty function model offers an extremely flexible approach for the modelling of both single stage and multi-stage decision making under certainty. To examine the performance of this model under a wider range of circumstances the notion of subgoals is introduced and the assumption of decision making under certainty is relaxed.

Two specific uncertainty situations are examined. The first involves decision making under information processing restrictions; the second considers adaptive decision making with partial information. Although this study did not employ an empirical investigation of the penalty function model applied to an actual decision situation, the salient properties of this model for decision making under certainty and uncertainty were explored by means of computer simulation.


 
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