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

Jim O'Neill, Coronavirus and Indian Response


A report in CNBC quotes Chatham House Chair Jim O’Neill praising China for its response to coronavirus. In a disparaging way, he derides Indian approach expressing fears what would have happened had it originated in India. The report is available here.  It is not something new for many Westerners. Their Indophobia or more precisely Hinduphobia makes them inhabit their deluded land of India being haven for snake-charmers and elephants.  They are simply unable to come to terms of India emerging on its own and being power contender.

To all the praise Jim O’Neill heaps on China it was China’s initial reaction of denial and secrecy that led to the scaling up of the current round of the epidemic. He seeks to explain the same as dichotomy between the dominance of President Xi and the officials at the state level. The explanation simply doesn’t hold well in the light of what has emerged.

The virus was noticed first by doctors in Wuhan. The first Chinese reaction was denial. In fact they hounded the doctors, forced them to apologize causing that initial delay that led to the scaling up of the disease. Had the Chinese reacted with alacrity it demanded, the global economy would not be jeopardized. Doctors feared reprisal and thus failed to conduct tests. The public were kept in the dark about the pathogens that were getting spread at an alarming rate across the provinces. . The Chinese highhandedness towards the whistle-blowers, their sense of extreme cover up are the key attributes towards the globalization of the disease.

In fact a Reuters report here, talks about the Chinese missteps in the last 19 months or so in failure to handle the African swine fever. The report goes on to blame the bureaucratic secrecy coupled with the perverse structure of the public policy incentives as critical hurdles in the battle against swine fever. Apparently, the fever has led to killing of millions of pigs.

The Chinese bureaucratic functioning is bordered on extreme secrecy. Any openness invites reprisal thus making many go with the flow of the tide rather than express independence. In the case of coronavirus causing COVID-19, the same semantics was at play. The secretive nature of operations clubbed with complete lack of transparency leads to burgeoning set of rumours that add to the panic.

In contrast, India has managed pretty well with response to the crisis. In 2018, Kerala was affected by Nippah virus. The virus too spreads through bats similar to spread of the COVID-19 coronavirus. There were initial casualties but the authorities restricted the casualties to under 20 and within the localised territories of Kozhikode and Mallapuram districts. If the same had happened in China, Nippah virus perhaps would have assumed dangerous proportions causing the global pandemic.

In fact, with reference to COVID-19, India’s response stands far better compared to China. As on date, only 73 cases are reported with no deaths. Almost all the cases are on account of being infected during their travel overseas or being family members of people who have travelled overseas. The infected include around 15 Italian tourists who contracted the virus. For a population and density like India, this is no mean achievement. For a comparison, a person travelling in a Mumbai local in peak hours can potentially infect thousands who have gathered in their pursuit to earn their daily bread. Despite massive crowds in public places, the virus has been controlled to great extent. Critics of course contend, the lack of testing being a reason for lower number of positive reports but as Foreign Minister Jaishankar recently pointed in an unrelated context, we tend to be hard on ourselves.

Moreover, India has managed evacuate its citizens from the infected regions with nearly 1000 people being evacuated so far. More such flights are in the offing to Iran, Italy among other countries. India has moved fast in imposing quarantine on those who come from infected regions and has cancelled most visas. There could be an impact on foreign travel and domestic economy, yet India has gone ahead with the appropriate measures to contain the uncertainty of the COVID-19.

China adopted an opaque policy, sought to deny the epidemic, harassed and punished the whistle blowers and moved in at a time when it was perhaps too late. Their response was hard-line, a complete shutdown of the provinces and cessation of a large quantum of economic activity. It was perhaps rational for China to engage in the response it chose to, yet it cannot be shed aside its culpability in spreading the disease. If China had taken steps in acknowledging the novel coronavirus and the risk to poses, lot of global impact and panic could have been avoided. India has acted with far more calm and transparency in similar situations limiting the reach of the epidemics.

The Indian government in its daily press conferences displays a sense of calm, reassurance of feeling of control. The Prime Minister in his tweets appeal for calm and not to give in for panic. At the same time, the government has taken some steps perhaps drastic but seem rational to the occasion. This in contrast to statements of French President Macron and German Chancellor Angela Merkel whose statements indicate panic setting in. Their assertions signal perhaps a lost cause for them. The panic it might set in downwards might be difficult to handle. To Jim O’Neill, this contrast in the approaches of the so called advanced countries and his example of backward terrain like India should be in full glare but for the deliberate blindness he is displaying.

On balance, Jim O’Neill was either displaying wilful ignorance or alternatively was part of massive Chinese PR apparatus that is on overtime to claim the virus did not originate in China and just that China was its first victim. Either way Jim is erroneous and displays a disparaging condescension towards India.



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