What it means
Standard economic theory assumes that people and firms behave as maximisers. Consumers choose the combination of goods that gives them the most satisfaction for their budget, and firms choose the output and price that give the highest profit.
To be a maximiser, you must know your options, rank them and pick the best. That is easy for a simple calculation but hard in real life, where there are too many choices, information is incomplete and thinking takes time and effort.
The economist and psychologist Herbert Simon proposed a different approach, called satisficing, in which a decision-maker accepts the first option that meets a minimum standard. A person who spends a week researching every laptop on the market is acting as a maximiser, while someone who buys the first one that meets their needs is a satisficer.
Maximising has a cost. Research suggests that maximisers can end up with slightly better outcomes yet feel less satisfied, since they worry about missed alternatives, and the extra time spent comparing choices may be worth more than the improvement found.
In business, the idea matters for goal-setting and incentives. A company that is a pure profit maximiser may ignore customers, staff and long-term reputation, whereas many firms aim for sustainable returns while meeting other goals, and the best decision approach depends on the stakes involved.
For finance professionals, the lesson is to maximise where the stakes justify it, such as in a large acquisition or a financing decision. On small matters, where deliberation costs more than the gain, it is sensible to satisfice.
In practice
Real-world examples.
Example
A shopper wants a new phone and compares ten models on price, battery life and camera quality before buying the one with the best overall value. She is acting as a maximiser.
Example
A procurement manager awards a contract to the first supplier that meets the price and quality specifications, instead of seeking more quotes. He is a satisficer, because the extra effort would not be worth the small saving.
Example
A restaurant owner experiments with prices and portion sizes to find the combination that produces the highest profit per table. She tracks the results and adjusts until the improvements become too small to matter.
Formula
Calculation
Maximise Utility = Quantity of X x Quantity of Y, subject to Budget = (Price of X x Quantity of X) + (Price of Y x Quantity of Y)
A consumer has a budget of $120. Good X costs $10 per unit and good Y costs $20 per unit, and satisfaction is measured by the product of the quantities, so more of both is better.
Option 1: 8 units of X and 2 units of Y cost $80 + $40 = $120, giving utility 8 x 2 = 16. Option 2: 4 units of X and 4 units of Y cost $40 + $80 = $120, giving 4 x 4 = 16. Option 3: 6 units of X and 3 units of Y cost $60 + $60 = $120, giving 6 x 3 = 18. Option 3 gives the highest utility within the budget, so a maximiser chooses 6 units of X and 3 of Y, splitting the money evenly between the two goods.Case study
Seen in the real world.
Birchwood Software is an illustrative, fictional company whose finance director was a dedicated maximiser. For every purchase, however small, he demanded five quotes and a detailed comparison, and his team spent hours each week on routine buying decisions.
A review calculated that the team's time on these small purchases cost about $2,000 a month, while the savings from the extra quotes averaged only $500 a month. The finance director agreed to set a threshold: above $10,000, maximise with several quotes, and below it, satisfice with one or two.
The change freed up time for work on larger deals, such as a financing negotiation that saved far more. In this illustrative story the lesson was that effort is a scarce resource, and the best maximisers decide where to apply it.
Watch out
Common mistakes.
- Assuming that maximising always gives the best result, when the cost of searching can outweigh the gain.
- Believing that all firms only maximise profit, when many balance profit with other goals such as growth, reputation and sustainability.
- Treating a satisficer as lazy, when satisficing can be a sensible response to limited time and information.
Questions
People also ask.
What is the difference between a maximiser and a satisficer?
A maximiser looks for the best possible option, while a satisficer accepts the first option that is good enough.
Who introduced the idea of satisficing?
The economist and psychologist Herbert Simon developed it as part of his work on bounded rationality.
Where does maximising matter most in business?
It matters most in large, one-off or hard-to-reverse decisions, such as acquisitions, major capital projects and financing choices.
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