The decision model of Trust Investment Behavior

The investment decision process can be divided into three parts: (1) the analysis and selection of a list of stocks suitable for current investment, (2) the formulation of an investment policy, and (3) the selection of a portfolio (see Fig. 10.1 ). Although the selection process contains rules on diversification and on how to

Testing the model of Trust Investment Behavior

In order to test the model’s ability to reproduce the actual behavior of the trust investor — i.e., to simulate the trust investment process — the model was required to select portfolios for a specific set of actual trust accounts. In particular, the model was required to generate portfolios for four accounts with which

The model of Trust Investment Behavior and the behavioral theory of the firm

A description of an organizational choice process was presented at the end  of Chapter 5. In brief, it assumed multiple, acceptable-level goals, sequential consideration of alternatives with acceptance of the first satisfactory one, and the dominance of the choice process by standard operating procedures and rules of thumb. Patently, a similar choice process is

Descriptive analysis: the firm

The arguments in this volume can be summarized by three statements: (1) The business firm is a relevant unit for investigation. (2) It is possible to construct a theory of decision-making behavior within such a unit. (3) Such a theory must focus explicitly on actual organizational decision process. We have tried both to show

Descriptive analysis: aggregates of firms

It is a common practice in economic theory to make a series of behavioral assumptions for micro-units and to generate from these assumptions a parallel series of implications for aggregations of such units. Assumptions about the  firm, consumer, and investor lead to a series of predictions of the behavior of markets, segments of the

Descriptive analysis: nonbusiness organizations

The business firm is a major decision-making organization. It is not the only type of large, complex organization that makes decisions, however. Even in a society using a market economy, many important decisions are made outside the framework of the firm. Most conspicuous among such institutions are the political institutions of the modern nation

Normative analysis: the firm

The problems of how business firms ought to makedecisions — as contrasted with how they do — form the basis for an extended,growing, and sophisticated literature. Substantial parts of such analyticaltools as modern statistical decision theory, linear, quadratic, dynamic,heuristic, and integer programing, various kinds of direct search methods,game theory, and theory of teams have

Normative analysis: economic policy

Finally, we can consider the implications of thetheory for economic policy. Insofar as economic policy is directed toward influencingthe behavior of business firms, it seems reasonable that a behavioraltheory of the firm might cast some light on policy alternatives. With theappropriate cautions, we think it does. As in the case of other problemsconsidered in

Nature of prediction and explanation

Since we will be using the terms prediction and explanation throughout this paper, it is important to examine in more detail the meaning of these terms in methodology. In closed systems, where the ceteris paribus condition is fulfilled or can be made to hold effectively, explanation and prediction are symmetrical: the model  is explanatory

Prediction in economics

At the heart of the current methodological discussion in the social sciences in general and in economics in particular is (we believe) the predictive weakness of existing theory. The cause of this weakness is the indefinitely large number of variables that can affect the course of economic events. Since predictive models can take into

Nature and use of assumptions

The inability strictly to disconfirm economic laws has raised the issue of the status and the function of assumptions in economic reasoning. Although a history of such propositions as the so-called “rational principle,” or the principle of profit maximization, transcends the scope of this work, it should be noted that these and similar propositions

A positive approach of Prediction and Explanation in Economics

Summing up the argument of the preceding sections, we find that the difficulties encountered in economics flow from the fact that hypotheses cannot be strictly disconfirmed. As long as it is logically impossible to disconfirm a hypothesis, the hypothesis remains in doubt no matter how much confirmatory evidence is accumulated in its support. This

Theory construction (model building)

The professional in any science works within a framework of definitions and concepts that becomes second nature to him. As a result, basic methodological points are frequently taken for granted. In appraising a methodological innovation, however, it is useful to re-examine such points. The explanation and evaluation of computer models can be simplified by

General characteristics of computer models

A computer model is a model in which the implications of the assumptions — that is, the conclusions — are derived by allowing an electronic digital computer to simulate the processes embodied in the assumptions. Computer programs can thus be considered to be a fourth language in which the assumptions of a theory can

Methodological problems of computer models

As with any new research technique, there are methodological difficulties connected with the efficient utilization of computer simulation. There are three basic classes of problems that arise in using computer models — the specification of functional forms, the estimation of parameters, and the validation of the models. The problem of specifying functional forms is

Future of computer models

We have examined the nature of computer models, the associated methodological problems, and some of the current literature utilizing computer models. It is now appropriate to evaluate the role of computer models in social science research. We clearly maintain that computer models are an important new tool for the social sciences. Computer models should

The terms of the discussion: “orthodox” and “evolutionary

We have above made the first of many references to something called “orthodox” economic theory. Throughout this book, we distinguish our own stance on various issues from the “orthodox” position. Some such usage is inevitable in any work that, like the present one, argues the need for a major shift of theoretical perspective on

The Structure of Orthodox Models

There are some readily identifiable building blocks and analytic tools employed in virtually all models within contemporary orthodox theory of the behavior of firms and industries.3 These same struc-tures are visible in models spanning a very diverse set of specific inquiries. While our discussion of the orthodox art form will be quite general, it

The Structure of Evolutionary Models

The decision rules employed by firms form a basic operational con­ cept of our proposed evolutionary theory as well as contemporary orthodoxy. However, we rej ect the notion of maximizing behavior as an explanation of why decision rules are what they are; indeed, we dispense with all three components of the maximization model-the global

The awkward treatment of economic change by orthodox theory

Much of economic analysis is concerned wi th predicting, explaining, evaluating, or prescribing change . Presumably, then, the adequacy of a theory of firm and industry behavior should be assessed in good part in terms of the light it sheds on such phenomena as the response of firms and the industry as a whole