Local Hillclimbing on an Economic Landscape

Profit maximization is difficult. Sophisticated and experienced managers often disagree about which action is most likely to maximize profits for a given firm. Economic models of profit maximization, on the other hand, are—in general—easy to solve. Well-trained economists can readily discern the action which maximizes the firm’s objective function. The global maximum is unique and achievable because the objective function is designed to have this property. This paper weakens the assumption of analytically tractable objective functions. I propose a model of profit maximization in which it is, essentially, impossible for the firm to discover the global maximum. Firms have no choice but to, in the words of Charles Lindblom, “muddle through” in their attempt to find the optimal budgetary allocation in an extremely complex economic landscape [9]. Computer simulations provide details of that landscape as well as evidence that certain strategies may be more effective in difficult environments. Specifically, “patience” may be a virtue that applies to firms as well as to people.