by Jim Rose in applied price theory, Armen Alchian, entrepreneurship, George Stigler, survivor principle, theory of the firm Tags: george stigler, market selection, profit-maximisation

Entrepreneurs often do not know why they survived in competition. George Stigler in his autobiography told this wonderful story about how you could not get businessmen to admit in a survey that they maximise profits.

You go to their office and asked them: Do they maximise profits?

Their answer would be, of course, not. I am here to provide employment to my workers and put a small amount aside for the education of my children.

The surveyor would then ask them: if you do were to raise your prices, do you expect to increase your profits?

The businessman answers no.

The surveyor how would then ask them: if you were to cut your prices, do you expect to increase your profits?

The businessman answers no.

The survey would then ask: can you point to a time in the last 12-months where you substituted profit for some other objective?

At this point of time, you would be thrown out of their office as some sort of lunatic.