Significance of the behavioural approach, Managerial Economics

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The significance of behavioural approach is difficult to assess. It provides useful insights into some aspects of business behaviour. March and Cyert have claimed considerable short-run predictive success with their theory and have suggested that this is because of the realism of their assumptions about internal workings of firms in question.

Though many problems are yet to be resolved. In order to predict any particular firm's behaviour, detailed knowledge of the goals and standard operating procedures of that particular firm is essential. Since operating procedures in particular are by their nature highly particularised, there is little scope for generalisation. Changes in objectives and standard operating procedures take place in response to fairly immediate problems, within an essentially short-run framework. Of course, changes are made in accordance with higher level rules though these somehow just emerge from a long-run adaptive process which is not explored and they are presumably still very firm specific. Though not explored, it's clear that long-run adaptive process isn't to be regarded as tending towards long-run 'rationality', because in an unstable and uncertain environment; it has been argued short run adaptation is the key.There may, still, be interest in the relationship between short-run and long run and it has yet to be demonstrated that behavioural approach can be adapted in this direction. Associated with short-run orientation of behavioural approach is its concept of the firm as essentially passive. Stress on the process of short-run response to environmental stimuli, with longer-run considerations of survival conditions and strategic planning explicitly excluded is overwhelming. Yet, the characteristics of the large dominant firm suggest the requirement for a concept of the firm as an active entity, consciously seeking to influence its environment in ways which are favourable to the achievement of its goals. By focusing the way in that stimuli from an exogenous environment call forth responses from an isolated individual firm, attention is firmly directed away from properties of system as anentire. The environment exists somehow 'out there' and its properties are placed beyond the scope of inquiry.


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