MAXIMIZATION AND MELIORATION AS ALTERNATIVE FORMS OF FIRM BEHAVIOR

Results from experimental psychology suggest that individuals reliably fail to optimize in cases where pay-offs to a binary choice depend on the way similar choices have been distributed over a period of time. The paper compares this observed form of behavior - 'melioration' - wi th maximisation. For illustration, time-distributed choice is introduc ed via the expedient of commodity durability and binary choice via mar ket segmentation. In a duopoly context, it is seen that meliorating fi rms, together or unilaterally, may earn more profits than maximizing f irms, Some implications are drawn concerning the question of firm 'nat ural selection'.