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Decision Making as Output and Bounded Rationality

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  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra
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Prime Minister’s Journeys Abroad and Forex Reserves Connection

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By the time he completes a year in office, Prime Minister Narendra Modi would have visited about 20 countries with significant success.   From vigorous promotion of Make in India to reconnecting with the diaspora to taking further steps in ending nuclear isolation to regaining the lost ground in the Indian Ocean region to rediscovering our neighbors, to restoring investor confidence in the Indian economy, towards projecting Indian soft power, Modi’s visits have all these and more.   Yet, in some quarters, these recurrent visits are treated with derision.    In a broad sense, Modi doctrine seeks integrating geopolitics and geoeconomics into a possible geostrategic doctrine. What is striking, however, is the fact that a quarter of century of post cold war and post non-alignment, suspicions about the West have not been erased from the Indian psyche.   Undeniably, conversation on geostrategic dimensions requires separate engagement, it would be nonetheless imprudent to discount
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Big Data and Diminishing Returns

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In many industries has become the buzzword. Scarcely a discussion seems to happen without touching upon the perceived advantages of big data. Firms seem to outcompeting with each other in collecting reams of data. The question however is the effectiveness of this data. The firm’s outcomes are determined primarily by the utilization of big data rather than collection of data per se. Ferreting out big data is a challenging task. Although the big data presents a data set that shows 10X or 100X in relation to existing mechanisms, it does not necessarily convey 10X or 100X worth of increase in insight. While the implication of big data is that quantity is paramount, the returns generated do not match the quantity of data generated. Big data too is subject to diminishing returns. Experts point out, it is not per se the data that should be big, but the primary factor that counts is the diversity of data. Even if datasets may be small, the amount of richness they provide when the
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Reality shows, fashion parades, cricket coaching classes, entreprenurship- what binds them together?????

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What makes people attract towards reality shows? Why do you see such a craze among parents to put their wards for cricket coaching classes? We see mushrooming of cricket coaching centres each advertising that the kid is a potential IPL player? Similarly what makes a industrialist like N,R.Narayana Murthy a role model for many a family? If this is not enough, take the craze for shopping festivals and modelling contests or fashion parades. Each of these activity may seem disconnected yet a common chord binds these all. People respond to incentives. A reality show winner is a kind of role model of many others aspiring that success and the rewards that come along with that success. the chances of success are not high yet the fact if we win, we hit a jackpot make the people crazy. One will not produce a Tendulkar, Richards or Dhoni or Steyn everyday. the success and the accompanying rewards that one gets makes kids and their parents want to try hand in cricket. Along the line at certai
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Caselets in Macroeconomics

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Caselet I- Rupee depreciation and textile industry The recent rupee depreciation has enabled the Indian textile industry to hold yarn prices and also increase yarn exports.   Though Indian industry demonstrates stronger backward linkages, low labour costs have enabled countries like Bangladesh, Pakistan and Vietnam to overtake India in terms of capturing textile export markets.   With Chinese Yuan appreciating, Indian exports have become more competitive. Indian textile export share is marginal ( 5% as compared to China’s 30%). Many analysts advocate leveraging the current scenario to capture the global market at the expense of China.   As a CEO of leading textile manufacturer, you are planning to go in for capacity expansion. Capacity expansion necessitates funding and thus you approach a consortium of banks. Prepare the detailed projections convincing the bankers how the global economic trends portray well for Indian textile exporters. (Note: Use financial statements sh
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