Logical deduction is considered the most straightforward rule to make a decision. Sometimes it’s correct. There are times that it is wrong. There are twelve principles of finance that uses logical deduction to make its decision. Though it is not always correct, it’s the most used method.
Guillermo Furniture, a furniture manufacturer in Mexico, has built furniture for years. It was the top manufacturer until competition came in. We will look at the twelve principles to determine how they relate to the logical deduction of its competition.
Principle of Self-Interest Behavior
The principle of self-interest behavior is not related to this situation because money is not driving the competition between Guillermo and the new companies. The new companies were being built and created to establish new competition with Guillermo. Guillermo does however look into account the opportunity cost that it will save with some changes.
Principle of Two-Sided Transactions
Depending on which way you look at it, this principle could be related to this situation or may not be related to this situation. If looked at as part of a zero-sum game, then this principle is related to Guillermo’s situation. This is because if they are having success selling furniture, then the competition is not selling. If looked at from the aspect of purchasing another company, then this principle is not related because no company purchased the other.
The Behavioral Principle
The behavioral principle does not relate to this situation because Guillermo Furniture never based any decisions off of trying something that another company was doing. They actually tried to stay competitive by simply sticking to what they had done from earlier times.
The Principle of Valuable Ideas
This principle did not apply to Guillermo directly. It applied to their competition because the innovative new ideas that their competition was coming up with. These ideas consisted of a...