ECONOMICS

Behavioral Economics

Behavioral Economics

Introduction

The article is about behavioral economics when applied to firms and it is written by Marks Armstrong and Steffen Huck. The abstract is very clear in describing that behavioral economics play an important role in organizations and managers have to care about their positions in relation with peers. The introduction in the article is written in detail and use all the current happenings due to economics behavior in today market (Cyert & March, 1963). This introduction is describing that recently, there is a great deal of research in the investigation of poor and non standard decision making by stakeholders which are affecting the market outcomes. Introduction has also discuss the approaches of the firm behavior.

Discussion

Major Targets of the Firm

The major targets of any firm is to satisfy the customer requirements and, if customer requirements are not met then, there is no positive outcomes. There are different theories about the behavioral aspects and approaches used by number of authors. The assumptions of firms as described in the article clearly show that these assumptions are rational in order to aim the maximum profit. In this article, there is a focus on the firm behavior instead of non-standard approaches. We will evaluate the article with critics of different authors regarding firm behaviors (Coase, 1937, pp. 386-345). Consumers are not focused in the article and, there are evidences of real and experimental world. Several firms are copying the strategies of the other firms including their rivals to accomplish their desired goals. They also learn from the past experiences of other firms and these firms do not focus on the complex optimal strategies such as; sunk costs and avoidable costs.

Coasion View

According to Coasion view, price systems are used to handle the economics and, when decisions are taken by the firm then price system is ignored (Coase, 1937, pp. 386-345). This article is also favoring the Coasion view as it is important to set the economic behavior by the firm itself rather considering the price system. Firms tend to compete with each other which is not the case of the consumers. Firms are operated under complex situations and make decisions through short cuts and rules of thumbs. The economies of the organization is also based on the comparative institutional analysis which is also a view of Coase and Willamson.

Williamson View

Wiliamson built theories about the market failure which is not highlighted in detail in the article because article is not discussing about much failures and precautions in the economic behavior. Whenever the is uncertainty, there is a need to plan for the future results (Williamson, 1979, pp. 236-263). Williamson also talks about the sunk costs of inventing which is also discuss in the article.

Complexity

Complexity of the environment is also focused in the article but this article does not focus on the whole terrain behavioral economics which is found in the firms such as; the role of CEO affecting the firm performance. There is the discussion about the laboratory experiments which helps in ...