A STUDY OF PRODUCTION DECISIONS UNDER EXTREME UNCERTAINTY IN THE WOOD PRODUCTS INDUSTRY

Management under uncertainty has posed economists with the most important conceptual challenge to their basic models of profit maximization. This paper investigates firms' behavior under conditions of extreme uncertainty in the wood products industry of British Columbia. The investigation compares the predictive powers of models developed on the basis of empirical research of how firms decide “in fact” (behavioral models) and models derived from the assumption that firms behave “as if” they maximize profits. The paper lends support to the claim that firms are adaptive organisms and tend to behave as if they maximize profits. Copyright © 1990 John Wiley & Sons, Ltd.