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

Pakistan and Role Model Dilemma


As one comes to terms with the horrors of the recent massacre of school children in Peshawar, What probably went unnoticed were the names of the children who either died or escaped.  Names like Osama, Dawood Ibrahim seemed common.  In a world where names are usually associated with aesthetic or even predictive powers, these names mean something. If names are meant to convey certain signals, these do certainly reflect in a way contemporary mindset of an average Pakistani.  Stephen Levitt in his bestseller, Freakonomics goes on to discuss the economics behind names. Yet, the explanation does not answer satisfactorily, the state of affairs. Incidentally, the broader theme around which Levitt’s ideas revolves around- role of incentives; might help us in some way to understand what it means. 


At the heart of the society and its inhabitants is the need to achieve, urge to succeed, climb the higher layers of the power pyramid, places oneself at the apex of the profession. Yet to suggest the field is highly competitive might be an understatement. Be it glamour professions like entertainment, advertising, sports, power driven professions like politics, economic professions like business, technical professions like engineering, design, software scientific professions like medicine, basic sciences, the scenario is pretty much the same. There is a tournament. The players start the lowest pyramid in the tournament. Through their talent, efforts, perseverance and may be bit of luck climb the ladders and the lucky few get to dominate at the very top. The rewards too are skewed highly in favor of those at the top of those pyramids and reduce considerably at the lower echelons of the ecosystem.  At the onset itself, it is clear that odds would be high but the lure of the rewards at the top encourage the players to enter the tournament. There might be a long period of substandard rewards but the anticipated fruits of reaching the top make the players thrive in the system.  Some realize soon their shortcomings to strike gold and may exit choosing alternative professions while some continue to linger on. Barriers to entry may be high but not sufficiently high enough to prevent those who have talent and willing to put an effort gaining entry into the elite club. This tournament cutting across professions and skills make the society thrive. The role models created by the tournament make the rest sufficiently motivated to keep on being in the game and encouraging the children to succeed where the parents have failed. The much talked about ‘Great American Dream’ is an example for this. Can this tournament driven on incentives explain the divergences between current standings of India and Pakistan? To explore answers to this question, let us little facts about India and Pakistan.


The median age for Pakistan population is 21.2 years (2010 estimates. For India it is just over 25 years). Implied is half the population is below 21 years and in the immediate future would be entering the job market.  The state has to provide the environment for job creation and also meet the growing aspirations for the young population.  Moreover, there is also need to sustain a thriving modern education system in the country.  An examination of the career options available to this age group in Pakistan makes an interesting reading and further comparison with India brings out stark differences.
A child or youth in India have a multitude of options to choose from. Despite much maligned Indian education system, India can still boast of schools, undergraduate profession and non professional colleges, post graduate colleges, centers for excellence which are of quite high standard. Does an average Pakistani student have access to the similar facilities? While Indian education system churns out students to prepare and prosper in host of fields, such a system is absent or accessible at best to very few in Pakistan. In technology circles which view differentials in capacity and access as major barriers to technology adoption, this can turn out to be a differential that might remain major barrier. 


The tournament is wide open in Indian context.  If Pakistan politics is preserve of few wealth families rooted in a feudal past, there are a number of instances where grass root workers have risen to occupy high public positions sheer on merit and hard work. This is true not just of present but even in the past. Similarly business establishments in Pakistan are either controlled directly or indirectly by the military or is an exclusive club of the chosen few. Despite from humble and non privileged background, many Indians have excelled in civil services. The same cannot be said in our neighboring country. A child in India dreams of growing into an engineer, software expert, doctor, scientist because it is in this environment that it grows in. This is hardly a case for Pakistan.  Several instances abound of Indians from modest background that has succeeded in sports. Very few Pakistani cricketers have actually emerged outside Lahore-Karachi circuit.


An Indian can dream of being Narendra Modi or Dhirubhai Ambani or Narayan Murthy or Amitabh Bachchan or Sachin Tendulkar or Kiran Bedi or Saina Nehwal or Aishwarya Rai or Kalpana Chawla. Can Pakistani child dream and even if so is there is a remote possibility of reaching similar heights. What does a Pakistani child grow up? For the whole lot of population that is soon tapping the doors of the employment market there apparently are two avenues to succeed. The first is the army and second are the Jihadi forces. The army has controlled a large part of Pakistani politics, economy and society and quite a few non elitist officers have made it big. The second and probably the relatively easier option is the jihadi forces. See the role models the Pakistani society offers. Osama Bin Laden, Dawood Ibrahim, Mullah Omar, Hafiz Sayeed, Zakiur Lakhvi, etc. the kind of power they possess and the appeal they command itself reflects the state of affairs in the society. These are the role models which children aspire to be since they are the only one available. Imagine an environment wherein prosperity and progress belongs to privileged few, barriers to entry deter a large sections of population from succeeding in host of professions, the Jihadi groups or the army are the only one which offer you a ‘career path’ to the top, what would one do. It is thus not surprising that current demographics offer fertile catchment area for exporting jihadi forces across the world.


The solution for Pakistan to redeem itself is simple. Open the doors of the economy to its youth.  Give the younger generation the opportunities to succeed across sectors and professions. The new role models have to be created. People respond to incentives. Preferences are changed when incentives change. Currently, incentives are too ‘lucrative’ to be either with jihadi groups or in the army. Unless Pakistan induces the change in these preferences, it will be sheer impossible for it to break out of the current quagmire it finds itself in. The million dollar question however is whether current establishment wants things to change. The observation of their actions suggest far from it. It is they who benefit the most from the current ecosystem and would like to perpetuate. Lack of employment opportunities might create large scale social unrest but the apparent feeling is the jihadi forces can absorb this and directing it against India. Nothing is worse than the above scenario being reality. 




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