Decision Making as Output and Bounded Rationality

  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

Twitter, Facebook and Productivity: Are they Mutually Exclusive?


Employees would desire access to social networking sites at work places. Employers feel it as an unnecessary distraction. How do we reconcile the two?  In 2009, Nucleus Research estimated a loss of 1.5% to firms’ productivity thanks to online social networking usage. Similarly in 2010, a British research firm estimated the loss to British firms at $2.2 billion per year. This implies a trade off happens between the firm’s decision to allow employees to access social networking sites at work and the productivity of the employees.
However a contrary view too exists. Writing in Wired (February 2010; www.wired .com), Brendan Koerner argues otherwise.  He feels they are essential to enhance creativity and stoke a creative mind. He feels the studies that argue the loss of productivity ignore the impact of the creative process. With the human body unstructured to maintain a constant focus on assigned tasks, periodic breaks relieve the conscious minds of the pressure to perform. This enables the mind to see issues through fresh eyes. Researchers argue that people respond far effectively when they are distracted from a problem temporarily. Regular breaks enhance problem-solving skills significantly.  The participatory nature of Twitter and Facebook also makes them excellent tools for enhancing creativity and information being circulated might just trigger off creative solution that seem to vex the employees.
Let us examine this using the prism of leisure-work trade-off. The supply of human talent is an outcome of the trade-off that exists between work and leisure. Increased incomes result in sacrifice of leisure in favor of work. However, at a certain stage, the marginal utility of leisure is higher than the marginal utility earned by extra unit of income and this leads the people to work less at higher wages. Economists call this phenomenon backward bending labour supply curve.  Rather than taking a macro picture, let us go deep into microelements. When Koemer argues that periodic breaks refresh the human mind, he is referring to a situation where in the marginal utility gained by extra unit of work is less than the marginal utility gained by extra unit of leisure at that moment of time. The continuous work would diminish the marginal utility to a point where in a break from work would yield a greater satisfaction.  In absence of break, the marginal productivity of the worker would decrease with passage of time thus may yield lower productivity. How to reconcile the employer’s charge of distraction? Allow social networking sites and maybe in exchange for social networking sites, the employees may be required to spread the message of the companies or increase the reach of the company across the social network. Branding through Facebook or Twitter or Orkut would be an interesting option.  Employees get leisure, the firm additional resource to spread its reach.  Google allows employees to spend certain time working on their leisure pursuits and some of these pursuits will result in additional revenue for the firm!! Orkut is the obvious example.
After all they may not be mutually exclusive and access to social networking may not involve a trade off with productivity after all!! It may increase productivity

Source: Brendan I. Koerner, “How Twitter and Facebook Make Us More Productive” Wired, March 2010, www.wired.com

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