What Is Satisficing?

Satisficing is a decision-making strategy that aims for a satisfactory or adequate result, rather than the
optimal solution. Instead of putting maximum exertion toward attaining the ideal outcome, satisficing
focuses on pragmatic effort when confronted with tasks. This is because aiming for the optimal solution
may necessitate a needless expenditure of time, energy, and resources.

The satisficing strategy can include adopting a minimalist approach in regard to achieving the first
attainable resolution that meets basic acceptable outcomes. Satisficing narrows the scope of options
that are considered to achieve those outcomes, setting aside options that would call for more intensive,
complex, or unfeasible efforts to attempt to attain more optimal results.

KEY TAKEAWAYS

 Satisficing is a decision-making process that strives for adequate rather than perfect results.
 Satisficing aims to be pragmatic and saves on costs or expenditures.
 The term “satisfice” was coined by American scientist and Nobel laureate Herbert Simon in 1956.
 Customers often select a product that is good enough, rather than perfect, and that’s an
example of satisficing.
 A limitation of satisficing is that there is no strict definition of an adequate or acceptable
outcome.

What Is the Application of Satisficing?

The theory of satisficing is explained by cognitive heuristics, behavioral science, and neuropsychology. Its
application is found in a number of fields, including economics, artificial intelligence, and sociology.
Satisficing implies that a consumer, when confronted with a plethora of choices for a specific need, will
select a product or service that is “good enough,” rather than expending effort and resources on finding
the best possible or optimal choice.

If a consumer were to require a tool to process and resolve a problem, under a satisficing strategy, they
would look to the simplest, most readily accessible piece of equipment, regardless of more effective
options being available at greater cost and time. For instance, satisficing might include the use of a single
software title vs. procuring an entire software suite that includes supplemental features.

What Is Satisficing Behavior?

Coined by Nobel laureate Herbert Simon in 1956, “satisficing” is a form of decision making where
individuals choose the acceptable option, rather than the optimal one. In essence, it combines the words
“satisfy” and “suffice.” Under this theory, Simon suggested that people make decisions under “bounded
rationality,” with factors like time, control of the situation, and one’s limitations affecting the individual’s
behavior.

What Is an Example of Satisficing?

Consider the following example of an executive who is a “satisficer”—in other words, they are prepared
to act once they have enough information to be satisfied. The executive is looking for a tech developer in
order to launch a new app. Among all the candidates, a few meet all the criteria, although none clearly
stands out above the rest or seems to be an optimal fit. Instead of looking for a better-suited fit, the
executive hires the developer since they are under a tight schedule, and waiting for the perfect
candidate may delay the timeline.

What Is the Difference Between Satisficing and Maximizing?

Satisficing and maximizing are two forms of decision-making styles. “Satisficers” make decisions based
on information they are satisfied with, based on an option that crosses an acceptable internal threshold.
By contrast, “maximizers” aim to find the best possible outcome, often through an exhaustive search of
options involving substantial time and effort.

What Is Economic Efficiency?

Economic efficiency is when all goods and factors of production in an economy are distributed or
allocated to their most valuable uses and waste is eliminated or minimized. A system is considered
economically efficient if the factors of production are used at a level at or near their capacity.

In contrast, a system is considered economically inefficient if available factors are not used to their
capacity. Wasted resources and deadweight losses may cause economic inefficiencies.

KEY TAKEAWAYS

 Economic efficiency refers to how effectively a society's scarce resources are used to produce
goods.
 Economists have several ways of measuring economic efficiency, based on the allocation of
inputs, costs, or the allocation of final consumer goods.
 Productive efficiency is a situation where firms seek the best combination of inputs to lower
their costs of production.
 Allocative efficiency means that economic resources are distributed in a way that produces the
highest consumer satisfaction relative to the cost of inputs.
 Pareto efficiency refers to a situation where it is impossible to improve one person's situation
without harming another person's situation.

Understanding Economic Efficiency

Economic efficiency implies an economic state in which every resource is optimally allocated to serve
each individual or entity in the best way while minimizing waste and inefficiency. When an economy is
economically efficient, any changes made to assist one entity would harm another. In terms of
production, goods are produced at their lowest possible cost, as are the variable inputs of production.

Some terms that encompass phases of economic efficiency include allocative efficiency, productive
efficiency, distributive efficiency, and Pareto efficiency. A state of economic efficiency is essentially
theoretical; a limit that can be approached but never reached. Instead, economists look at the amount of
loss, referred to as waste, between pure efficiency and reality to see how efficiently an economy
functions.

Economic Efficiency and Scarcity

The principles of economic efficiency are based on the concept that resources are scarce. Therefore,
there are not sufficient resources to ensure that all aspects of an economy function at their highest
capacity at all times. Instead, scarce resources must be distributed to meet the needs of the economy in
an ideal way while also limiting the amount of waste produced. The ideal state is related to the welfare
of the population with peak efficiency also resulting in the highest level of welfare possible based on the
resources available.

Efficiency in Production, Allocation, and Distribution

Productive firms seek to maximize their profits by bringing in the most revenue while minimizing costs.
To do this, they choose a combination of inputs that minimizes their costs while producing as much
output as possible. By doing so, they operate efficiently; when all firms in the economy do so, it is known
as productive efficiency.

Consumers, likewise, seek to maximize their well-being by consuming combinations of final consumer
goods that produce the highest total satisfaction of their wants and needs at the lowest cost to them.
The resulting consumer demand guides productive (through the laws of supply and demand) firms to
produce the right quantities of consumer goods in the economy that will provide the highest consumer
satisfaction relative to the costs of inputs. When economic resources are allocated across different firms
and industries (each following the principle of productive efficiency) in a way that produces the right
quantities of final consumer goods, this is called allocative efficiency.

Finally, because each individual values goods differently and according to the law of diminishing marginal
utility, the distribution of final consumer goods in an economy is efficient or inefficient. Distributive
efficiency is when the consumer goods in an economy are distributed so that each unit is consumed by
the individual who values that unit most highly compared to all other individuals. Note that this type of
efficiency assumes that the amount of value that individuals place on economic goods can be quantified
and compared across individuals.

Economic Efficiency and Welfare

Measuring economic efficiency is often subjective, relying on assumptions about the social good, or
welfare, created and how well that serves consumers. In this regard, welfare relates to the standard of
living and relative comfort experienced by people within the economy. At peak economic efficiency
(when the economy is at productive and allocative efficiency), the welfare of one cannot be improved
without subsequently lowering the welfare of another. This point is called Pareto efficiency.

Even if Pareto efficiency is reached, the standard of living of all individuals within the economy may not
be equal. Pareto efficiency does not include issues of fairness or equality among those within a particular
economy. Instead, the focus is purely on reaching a point of optimal operation regarding the use of
limited or scarce resources. It states that efficiency is obtained when a distribution exists where one
party's situation cannot be improved without making another party's situation worse.

How Does Privatization Affect Economic Efficiency?

Many economists believe that privatization can make some government-owned enterprises more
efficient by placing them under budget pressure and market discipline. This requires the administrators
of those companies to reduce their inefficiencies by downsizing unproductive departments or reducing
costs.
What Is the Difference Between Technical Efficiency and Economic Efficiency?

Technical efficiency refers to how effectively a company or system maximizes production based on a
limited number of inputs. A company is said to be technically efficient if it cannot produce more goods
without increasing the number of inputs used in production, such as labor or raw materials. In contrast,
economic efficiency seeks to minimize the number of costs per unit. This may be a similar goal to
technical efficiency, but they are not always the same.

How Do Taxes Affect Economic Efficiency?

Taxes often have the effect of reducing economic efficiency by introducing deadweight losses. For
example, a sales tax on a certain product increases the price, thereby reducing sales. These lost sales are
considered a deadweight loss because they represent potential economic activity that was not realized
because of the sales tax.

How Does Advertising Affect Economic Efficiency?

Advertising can increase economic efficiency by supporting competition between different companies in
the same market. As businesses compete for consumers, they may rely on advertisements to inform
buyers of the best bargains and products. If a business successfully attracts more customers through
advertising, it may be able to reduce its costs due to economies of scale. However, advertising can also
have negative effects, such as persuading consumers to buy overpriced products.

The Bottom Line

Economic efficiency refers to the effective utilization of productive resources, such as agricultural land,
manufacturing capacity, raw materials, or labor. Economists have several ways of measuring economic
efficiency. Understanding and improving efficiency is one of the main objectives of economics.