Satisficing

By:

James Knight

James is a lead editor for Invezz, where he covers topics from across the financial world, from the stock… read more.

Updated: Aug 20, 2021

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Decision-taking behaviour directed at finding a satisfactory rather than an optimum choice in any given situation. Virtually all conventional microeconomics is based on the assumption that an individual always seeks the best alternative out of those available. Thus firms are assumed to maximize profit and consumers to maximize utility. H. A. Simon has however consistently pointed out that to do so may require far better information and greater computational ability than individuals in fact possess. Given the real limitations on these which exist, individuals are more likely to select an alternative which meets some criterion of acceptability rather than go on looking for the best alternative. This hypothesis underlies the development of the behavioural theory of the firm. Despite its intuitive appeal, it must be said that the principle of satisficing has not replaced that of optimization in mainstream economics.

Reference: The Penguin Dictionary of Economics, 3rd edt.