Theory of Satisfying Behaviour

Dissatisfaction with the profit-maximizing model, economists have developed other models of the firm. One of the first of these was Simon in 1995.
According to Simon Managers will have imperfect knowledge to take appropriate decision. If full knowledge or information’s will be available, the calculations involved in decision-making would be too complex and costly. Therefore, he argued that if this fact and the other inevitable uncertainties surrounding the business environment is real, business men never know whether they are to maximize profit or not. Indeed, he says, businessmen ‘satisfy and they do not maximize they aim at satisfactory profits.
If neither searches behavior, nor the lowering of aspiration levels results promptly enough in the achievement of a ‘satisfactory’ situation then, Simon argued that the manager’s behavior pattern will become one of apathy or of aggression. This model may seem a long way removed from managerial usefulness. This may not be true, but it represents a major departure from traditional ways of thinking about how firms operate and may results of utility. For example, it does not aware with the facts so that where businessmen price on a full cost basis, adding a satisfactory margin of profit, not knowing where the MR = MC Price and output combination does help to explain why some firms, faced with a falling market share, act more vigorously than competitor’s halt.