The Economic
Analysis Underlying
Corporate Decision
Making
What Economists Do When Confronted With Business Realities—and How
They Might Improve
By Hugh Schwartz
Hugh Schwartz is a consultant
on decision making, industrial
economics, economic development,
and behavioral economics.
As of September 2004, he
will be a visiting professor at
the University of the Republic
and the ORT School of
Management in Montevideo,
Uruguay. He has taught at Kansas, Yale, and Case Western Reserve, and worked as
an industrial economist in the Inter-American
Development Bank. Subsequently, he was a Fulbright
Lecturer and held visiting professorships in economics
and finance in Brazil, Uruguay, and Mexico. He has
edited books on cost-benefit analysis and on Latin
American manufacturing, authored books on urban
planning and behavioral economics, and written about
two dozen articles. He holds a Ph.D. in economics from
Yale University.
The number of economists employed by industrial corporations
appears to have declined sharply since 1990,
an incentive for those remaining to redouble efforts to contribute to the profitability of their enterprises and
hold onto their positions. This report is based on indepth
interviews with a dozen economists over the course
of a year and is aimed at understanding the reasoning
processes that underlie their analyses and advice. It
considers the extent to which the analyses of economists
in industrial, construction, and financial enterprises are
based on optimizing techniques. It also considers, where
analyses are based on less formal heuristics and other
rules of thumb, the degree to which those rules are
clearly specified and—if necessary—adjusted so as to
contribute to rational and cost-efficient decision making.
Suggestions are offered to improve economic analysis
undertaken in business firms, with particular attention
to the use of rules of thumb.
Errata: In the hardcopy version, Hugh Schwartz'
email address is listed incorrectly. It is hughschwar@aol.com
On page 56 of the hard copy and PDF versions, the reference
should be to
Gary Klein in Gigerenzer and
Selten (2002).
By Hugh Schwartz