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Showing posts from April, 2020

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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Public Expenditure and Revenue in Times of Pandemic- Some Notes

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The last couple of days is abuzz with a report from the young officers of Indian Revenue Service (IRS) over the proposed taxation measures to overcome the fiscal crisis likely to be created by the extended lockdown. The measures among other things proposed a reintroduction of the wealth tax, an inheritance tax and increased taxation beyond the current 40% for the super-rich. As expected, it has created a furore in the social media. While the government has expressed its reservations on the proposal, the right wing economic conservatives seem not to let down the opportunity of having a go at the proposals. At the same time, the government reaction is making the left led economists and politicos crying foul over the back down and seeking to project government as anti-poor and under the influence of the super-rich. In between the extreme poles, there seem to be many good suggestions that are being given a go-by. While the analysis of the proposals can be undertaken, it would be instruc
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Wuhan Pandemic, Fatality Rate and Statistical Determinants

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The post “ Investigating Wuhan Pandemic Spread and Determinants ” discussed the statistical determinants of the Wuhan pandemic. The analysis used the death incidence as the dependent variable and tested its susceptibility to changes in different independent variables. A couple of interesting pointers emerged. The first was the significant differences in death incidence between advanced economies and emerging or underdeveloped economies. One of the possible explanations was the probability of deaths being attributed to several other causes rather than Chinese virus induced Wuhan flu. There was a possibility that cases were being under-reported and deaths occurring were delinked from the COVID-19. Secondly, contrary to arguments by experts, there was no significance of BCG vaccine programmes on the death incidence. This was little puzzling given the opinion of experts. In the meantime there are anecdotal notes about the impact of temperature on the incidence of coronavirus. It is
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Kiranonomics !

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Across the world, the economy has come to a standstill. Few exceptions might exist however, indicators like declining oil prices (negative futures), decline in shipping, and restrictions on sale of non-essential goods remain in place in most parts of the world.   India too is no exception. India was one of the frontline markets for e-commerce and supermarkets. In India over the last couple of decades, there was a movement from the unorganized kirana retail outlets to an organized retail outlets comprising of super markets, hyper markets, malls among other things. In the emergent context, these super or hyper markets too were facing challenges from the rise of the online e-commerce giants including Amazon, Flipkart (acquired by Walmart) among others. The spread of the organized retail both offline and e-commerce did not confine merely to the few upper income groups and demographics in urban areas but pervaded deep into the semi-urban and rural clusters as also the urban low incom
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Economic Tidbits of Sporting Events

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Sporting events attract fans and fan loyalty. As a matter of fact, across countries and provinces and towns sports can be great unifier and great divider. It is a paradox of sorts yet a fact. There is a loyalty towards a team and as the two teams or two individuals compete for a prize in their sporting event at different layers, the loyalty translates into an emotional outpouring of support which in itself is competitive. The emotions that come out from the rival supporters create divisions often difficult to heal at times. Each sporting event is a competition for a trophy. The trophy is inelastic conceivably to a large degree. There is just one prize on offer and just because many compete, the number of winners on offer doesn’t increase. The winner gets the rewards disproportionate to the others and thus most sought for. This operates at every layer. Even in the schools, the inter-school competition within the city or the sub-district or the district are the most sought after.
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Technology Forecasts for Post Wuhan Virus World

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COVID-19, the pandemic caused by a virus originating from Wuhan, China seems no sign of peaking out. Yet, as in any battle, human mankind will emerge triumphant. However, to expect life to be same post pandemic might not be a valid proposition. Indubitably, life will return to normal and with passage of time, the aftereffects are forgotten. Hardly anybody remembers the after effects of Spanish flu though in terms of destruction it was far more severe. As with any disruption, there are bound to be changes that bring about their own unique idiosyncrasies. Similarly, the changes brought about by the current round would be long lasting. The post “ Tech Forecasts and the Post China Virus World ” captured some of the possible changes thanks to technology in the post pandemic world.   In continuation with the above post, it would be pertinent to decode some more features that might characterize the post pandemic universe. Sanitization Tunnels The economy cannot come to a standstill
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Peak End Experience of Wuhan VIrus Lockdown

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Thanks to the virus originating from Wuhan, China and the destruction it has spawned as it traverses across the world, seemingly the whole world is shut down. The economic activity is down to a standstill with experts talking about a long recession ahead globally. There are a few however who believe the world is headed towards a V shaped recovery- a sharp dip in growth rates followed by equally sharp recovery. As the economies shut down, a lot of discussion is happening over the duration of the lockdown. With no vaccine or cure in sight, options seem to be very limited with either a priority on health implying a long lockdown or a priority on economy which carries the burden of swifter spread of the infection. The debate between advocates of economy first and advocates of health first has been captured in this post . Aside of the debate is a serious question of the socio-eco-political consequences that arise of the decision in extending or exiting the lockdown. In India, politic
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The Post Pandemic Globalization

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While the world fights the Wuhan originated virus, it is unlikely that the post COVID-19 world would be the same. As with any war, the post war architecture undergoes a transformation change with little similarity to the past. The new normal is something different. The current global architecture in social, economic, political, cultural, military and technological governance is a product of the discussions and thinking that emerged in the immediate post World War II regime. The end of the Cold War with the collapse of the Soviet Union or rather a little earlier through a collapse of the Berlin Wall drove the world into an era of unabashed globalization. The outcome of such an era was the optimization of business resources perhaps an euphemism for cost minimization given the level of price. This led the business to seek new hunting grounds for production something that led them to China. The post “ Coronavirus, Global Economy and Redundancy ” captures the need for redundancies du
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Information Assymetry, Diya and Wuhan Virus

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Economics assumes rational action by agents under perfect available information. Yet the cognitive constraints in gathering and processing information makes agents take decisions under uncertainty. Rationality thus is bounded by cognitive abilities of the agents. In real life, contrary to theory, bounded rationality is evident. It is not to suggest irrationality in decision making but each action by an economic agent is a rational action undertaken through a grasp of cost benefit dynamics under the existing constraints. Information asymmetry between agents and among agents necessitate different approach to decision making. The buyer knows something about herself which the seller does not know. This could have significant implications in industries like insurance and banking. Suppose a person has a certain disability or disease while going for insurance which he or she can hide the same. Alternatively someone is going for fire insurance with a hidden objective of setting house or
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Primer on Real Life and Economics - III

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In the previous posts on Primers in Ecnomics, examples were discussed here and here on how economics makes its presence in day to day life. The overarching theme was the reflection of rational economic behaviour under constraints as we go about our daily routine. It is time to continue the discussion taking economics into more aspects of life. Some examples are presented below. Like in the previous cases, one column highlights the real life phenomenon what we observe, while the second column builds up the theoretical linkage to economics. Real Life Practice/ phenomenon          Economics Linkage Sports coaching classes Come summer holidays, parents will seek outcompeting with each other trying to find a place for their wards in numerous summer camps, sports coaching classes, art classes among others. At first glance, it seems that the parents many of them double income couples in nuclear families would want a way to kee
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