Behavioral economics as applied to firms: a primer

Armstrong, Mark and Huck, Steffen (2010): Behavioral economics as applied to firms: a primer.

Abstract

We discuss the literatures on behavioral economics, bounded rationality and experimental economics as they apply to firm behavior in markets. Topics discussed include the impact of imitative and satisficing behavior by firms, outcomes when managers care about their position relative to peers, the benefits of employing managers whose objective diverges from profit-maximization (including managers who are overconfident or base pricing decisions on sunk costs), the impact of social preferences on the ability to collude, and the incentive for profit-maximizing firms to mimic irrational behavior.

• Item Type: MPRA Paper
• Language: English
• Keywords: Behavioral economics, bounded rationality, experimental economics, oligopoly, antitrust
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C92 - Laboratory, Group Behavior; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection

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