Satisficing

Background

Satisficing is a concept in decision-making that contrasts with optimizing. Instead of seeking the best possible outcome, satisficing aims for a good enough solution that meets criteria of adequacy. This approach takes into consideration the limitations faced by decision-makers—such as time constraints and limited cognitive capabilities.

Historical Context

The term “satisficing” was coined by Herbert A. Simon in 1956. Simon introduced it within the framework of bounded rationality, challenging the traditional economic notion that individuals always make rational, utility-maximizing decisions. Simon’s work earned him the Nobel Prize in Economics in 1978, and the concept of satisficing has since been influential in various fields, including economics, psychology, and organizational theory.

Definitions and Concepts

Satisficing: A decision-making strategy that involves selecting the first option that meets a minimum threshold of acceptability, rather than seeking the best possible option.
Bounded Rationality: The concept that human cognition is limited, thus individuals often seek satisfactory solutions rather than optimal ones.
Optimum vs. Adequacy: Optimizing refers to achieving the best possible outcome, while satisficing prioritizes a satisfactory outcome that meets set standards.

Major Analytical Frameworks

Classical Economics

In Classical Economics, the presumption is that individuals have complete information and strive to maximize their utility. Satisficing was not commonly discussed within this framework because it assumes perfect rationality.

Neoclassical Economics

Similar to Classical Economics, Neoclassical Economics assumes utility maximization but incorporates marginal analysis. Bounded rationality and satisficing are not part of the standard models, although they have found their way into behavioural modifications of these models.

Keynesian Economics

Keynesian Economics, focusing on aggregate demand and supply, does not specifically incorporate the concept of satisficing in its core theories. However, macroeconomic models could implicitly involve satisficing behavior in consumption and investment decisions.

Marxian Economics

Marxian Economics does not specifically address satisficing. However, in labor theory contexts, workers or firms might engage in satisficing behavior when they do not strictly adhere to maximizing utility or profit due to socio-economic constraints.

Institutional Economics

Institutional Economics examines how institutions influence economic behavior. Within this framework, satisficing can help explain how institutional constraints impact decision-making.

Behavioral Economics

Behavioral Economics heavily incorporates satisficing, emphasizing the real-world cognitive limitations and heuristics that individuals use. The field builds on Simon’s idea of bounded rationality to provide a more accurate depiction of decision-making.

Post-Keynesian Economics

Post-Keynesian Economics might use satisficing to argue against mainstream neoclassical ideas, emphasizing realistic assumptions about economic behavior, uncertainty, and imperfect knowledge.

Austrian Economics

While Austrian Economics primarily focuses on the role of information and knowledge in market processes, it also recognizes that individuals have limited information and can engage in satisficing rather than optimizing.

Development Economics

Development Economics may incorporate satisficing behaviors when studying how individuals in low-income settings make decisions under uncertainty and with limited resources.

Monetarism

Monetarism, which focuses on the supply of money and its economic effects, does not deeply integrate the concept of satisficing but analyzes economic agents within a broader macroeconomic context, where satisficing could be implicitly considered.

Comparative Analysis

By contrasting satisficing with the normative assumptions of other economic theories, it is evident that satisficing provides a more realistic assessment of human behavior. Traditional economic theories assume optimal choices with perfect information, while satisficing accounts for cognitive and environmental constraints.

Case Studies

Empirical evidence of satisficing can be observed in various scenarios:

Consumer Behavior: Purchasing the same grocery items weekly can be considered satisficing.
Employee Training: Firms opting for inexpensive but adequate worker training instead of the best possible training program.
Investment Strategies: Investors often choose “good enough” investment portfolios rather than spending resources identifying the optimal portfolio.

Suggested Books for Further Studies

“Models of Man” by Herbert A. Simon
“Bounded Rationality and Industrial Organization” by Oliver Williamson
“Thinking, Fast and Slow” by Daniel Kahneman

Bounded Rationality: The concept that rationality is limited due to constraints in knowledge, cognitive abilities, and time.
Optimization: The act of making the best possible decision with the most advantageous outcome.
Heuristics: Simple, efficient rules or mental shortcuts used by people to make decisions.

By understanding satisficing, one gains insight into the