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Philosophy of Management

, Volume 17, Issue 2, pp 137–147 | Cite as

The Inverse Invisible Hand and Heuristics in Managerial Decision-Making

  • Arnis VilksEmail author
Article

Abstract

The paper points out that Adam Smith’s famous argument about the “invisible hand” (IH) of markets can be inverted. While the IH argument suggests that the baker and butcher do what is in their costumers’ interests not because they care for their costumers, but out of their own self-interest, one can also defend the converse claim: if one cares for other people and finds a way to satisfy their needs, one can expect that those others will be willing to pay for the satisfaction of their needs. The paper argues that the IH argument has a strong link to the view that the ultimate goal of management should be “profit maximization” and to neo-liberalism’s tenet that in a market economy where companies attempt to maximize profits, a “socially optimal” allocation will be achieved. It is argued, however, that profit maximization is well-defined only within a mathematical model, while real-world decision-making requires one to choose the “relevant set” of options before any assessment of associated profits can be attempted. “Profit maximization” is therefore characterized as a heuristic for managerial decision-making, and it is pointed out that it is by no means essential for management to be successful and sustainable. The inverse IH argument supports natural alternatives, such as Prahalad and Hart’s “bottom-of-the-pyramid” and Yunus’s “social entrepreneurship” approach. Both require the manager to focus on people’s needs first, and regard the “money-making” aspect as secondary.

Keywords

Invisible hand Heuristics Managerial decision-making Profit maximization 

Notes

Acknowledgements

Helpful comments by Martin Kelly, Andreas Suchanek, Nigel Laurie and two referees are gratefully acknowledged.

Compliance with Ethical Standards

Conflict of Interest Statement

The author states that there is no conflict of interest.

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Copyright information

© Springer International Publishing AG 2017

Authors and Affiliations

  1. 1.HHL Leipzig Graduate School of Management, Chair of MicroeconomicsLeipzigGermany

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