This explanatory model explains a lot of what companies do but not all. It is a useful first approximation for many firms.
Still, the conceit of modeling an organization as a rational individual only gets you so far. It works for certain levels of analysis, I will grant. But to build more detailed predictive models, more complexity is needed. For example, organizational inertia is a thing. One would be wise to factor in some mechanism for constrained rationality and/or “irrational” deviations. CEOs often move in herds, for example.
> The ones that aren't quickly get displaced by ones that are.
Theory, meet history. But more seriously, will you lay out what you mean by quickly? And what does market data show? Has this been studied empirically? (I’m aware that it is a theoretical consequence of some particular market theories — but I don’t think successful financial modelers would make that claim without getting much more specific.)
This explanatory model explains a lot of what companies do but not all. It is a useful first approximation for many firms.
Still, the conceit of modeling an organization as a rational individual only gets you so far. It works for certain levels of analysis, I will grant. But to build more detailed predictive models, more complexity is needed. For example, organizational inertia is a thing. One would be wise to factor in some mechanism for constrained rationality and/or “irrational” deviations. CEOs often move in herds, for example.
> The ones that aren't quickly get displaced by ones that are.
Theory, meet history. But more seriously, will you lay out what you mean by quickly? And what does market data show? Has this been studied empirically? (I’m aware that it is a theoretical consequence of some particular market theories — but I don’t think successful financial modelers would make that claim without getting much more specific.)