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Showing posts from December, 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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2020 in Retrospect

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  The year 2020 is about to fly by and we are welcoming 2021. As with any year, there would obviously be optimism as one welcomes 2021. The outgoing year has not been memorable across the human mankind. It might be one of those years which would be best left forgotten. The year 2021 is beginning with optimism and one hopes the challenges facing the existence of human mankind are overcome and a new beginning emerges. The year 2020 too was welcomed with optimism but somewhere along Wuhan in Hubei province of China, a virus was sweeping around claiming victims as it spread its tentacles far and wide. It was not that the rest of the world did not know, what perhaps was unknown the magnitude of damage it was inflicting across the city of Wuhan. China could have alerted the rest of the world but as with any other Chinese thing, they chose to remain secretive. It was a potential ruin event, to borrow from Taleb, but the World Health Organization (WHO) instead of alerting the rest of the world
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Long Tail of Indian Tourism

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  One of the earliest campaigns of the Modi government elected in 2014 was the Incredible India campaign. It was an attempt to draw tourists from across the world into exploring different facets of India. The facets are not merely historical monuments but would extend to wildlife sanctuaries, national parks, beaches, old temples, historical places, snow clad mountains, trekking routes, mountain drives, river rafting, island exploration, cultural exploration, sartorial tourism, to just sample a few. It again was not merely about few landmarks but drawing across the country from the snow clad mountains of Kashmir, Ladakh, Himachal Pradesh to Uttarakhand to the hill stations in the Himalayas to the Nilgiris, from the beaches of West Coast to the distant beaches of the East Coast to just sample a few. The campaign was of course a moderate success, yet its success could be measured only in the long run. The shift in consumer preferences take quite a bit of time. what added to the woes was t
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Celebrities in Politics

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  The news emerging from Tamil Nadu is a sort of anti-climax for those who believed some churn happening in Tamil Nadu post the entry of noted film star Rajinikanth into politics. The much awaited entry of Rajini as he is known has turned into a non-starter. Ostensibly on the advice of doctors, Rajini has decided not to venture into politics. For all the suspense he had created and the air of intrigue that was built over, it seemed everything was perhaps speculating in the air. The forthcoming Tamil Nadu elections will be the first after the death of two stalwarts Jayalalitha and Karunanidhi who strode over the state politics for decades. The AIADMK was struggling with the current leadership yet to gain acceptability while Stalin is facing his first independent test in the Assembly elections. With the DMK having a clear edge, Rajini was expected to turn the things around and bring about a new direction in Tamil Nadu politics. He was an outsider whom his fans believed could turn the sha
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Reclaiming Lost History

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  In a previous post “ Saffron Swords ”, there was an attempt to review the book by the same name. The book sought to collate together the stories of those known and unknown fighters who put their lives at stake in defence of the motherland. They might have fought against the British or they might have fought against the Sultanate and their successors, but they did not shirk away from fighting to protect their independence. As the book argues, contrary to the popular perception, neither the Islamic invaders nor the Europeans had an easy time in managing India. They were faced with resistance at every nook and corner and in many instances, the victory they obtained was perhaps pyrrhic. Interestingly, barring the Mughals, there was hardly an Islamic dynasty that had a long uninterrupted rule either in Delhi or in other regions. Maybe the Bahamans would come close but they never had uncontested supremacy with them being constantly challenged and often outpowered by the Vijayanagara rulers
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Notes on Inflation

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  Inflation is a continuous increase in the general price level. It measures the changes in the price level in the economy. If the firms desire a stability in price, the price levels must remain stable. Therefore, an eye on inflation figures is no doubt important for any manager or an entrepreneur. For the inflation to be measured, there must be a construction of general price level. Generally, there are two measures that are constructed for general price level. Going back to the circular flow model, there are two actors, the firms and the households in the economy. Firms produce goods and services which the households consume. The firms sell goods at certain prices and the households consume the goods at certain other prices. There is a difference between the prices at which the firms sell and the prices at which the households consume. Therefore it becomes important to know which prices have to be taken for constructing a general price level. In all cases, price levels are constructe
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Deciphering Judicial Overreach

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  Article 142 of the Indian constitution provides for enforcement of Supreme Court decrees. The cause was the carriage of justice. If the victims knock at the court of justice and if justice is delivered, it has to be enforced too. Therefore, the judiciary must have the power to enforce its orders. Thus arose the need for Article 142. The lower courts while having the power to enforce their decrees are also subject to the review by their higher courts. Since Supreme Court is the highest judicial body in the country, naturally its decisions are not subject to review unless it takes up its own review. Secondly, even though justice might have been delivered on paper, it needs to be enforced on the ground. For instance, there is an eviction order, but the person refuses to leave the property. So in this context, the constitutional backing allows the judiciary to enforce its orders anywhere in India. Yet, with the passage of time, there exists a possibility of the Supreme Court overreaching
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Macroeconomic Scenario in India: A Note

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  The year 2020 is about to end and perhaps looking back it would be a year that would be best forgotten for all the things. The Chinese virus induced pandemic does not seem to subside with new mutations being reported and countries going into lockdowns ahead of Christmas. This is despite the vaccines are getting administered albeit the baby steps in combating this disease. While experts do believe the end game for the pandemic has begun, one has to await for some more time before any concrete results are likely to be visible. As one looks forward to 2021, at this stage it seems the economic recovery is still some way off across the world. There would be a new President in the United States and it must remain to be seen how President Joseph Biden would deal with China, the country primarily responsible for the current global crisis, social, economic and health.   The macroeconomic projections for India have been less worse than anticipated. The second quarter of the financial year
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Defectors Vs. Original Party Workers

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  Election season comes with its own idiosyncrasies one of which is the defections. The days of Aya Ram Gaya Ram might be over in the traditional sense due to the prevalence of Anti-Defection Law but nevertheless, they continue to find new modus operandi to defect. To the political party taking in the defectors, there are multiple reasons. These reasons were captured in an earlier post “ The Allure of the Political Defector ”. It highlighted the several factors that go in the party’s decision to admit the defector. These issues once again seemed to have gained traction in the view of recent defections to the BJP in West Bengal. Suvendu Adhikari once a key a Mamta lieutenant has now changed boats and is sailing with the Modi-Shah boat in the run up to the Bengal elections. There are reports of a large number of Trinamool MLAs besides those from the Congress and the Left joining BJP prompting some to wonder what would be the fate of the original BJP workers. There is a good possibility o
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India's Lowest Cricket Test Scores

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  The Adelaide test has seen a new low for India. The Indian team in the race for the World Test Championship victory has been shot down for 36 in its second innings thus its lowest score in Test cricket. The previous dubious distinction was held by Ajit Wadekar’s side of 1974 when it was dismissed for 42 at Lords. It too incidentally came in the second innings. As an aside, Indians were known to make great comebacks in second innings in the past. There was a saying why doesn’t India play the second innings first. In the current test, India did go with a sizeable advantage into the second innings. In a low scoring test, a first innings lead of even 50 would be quite handy and chasing something like 200+ in the fourth innings would anyway be difficult no matter the batting strength. Yet India handed the match on the platter with a rather timid display against some fine bowling from the Australians. No pitch would obviously be 36 all out pitch and it must be to the batsman who miserably
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Economics and Ergodicity

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  Economics posits human behaviour and thus human actions on the premise of utility maximization. Therefore, the next step obviously was in calculating the expected utility. The expected utility theory posits the economic agent being rational will evaluate all possible outcomes of his or her action and the probability of their occurrence before determining their action. In other words, the probability of the expected outcome will determine the trajectory of behaviour on the part of the economic agent. If the agent feels the probability is skewed towards a positive payoff, they will go ahead with the action else they are likely to adopt a risk averse attitude and go with the contrary action. Yet in real life, experiments have indicated something to the contrary. While mathematically the actions do point towards a probable positive outcome, the agents however shirk from undertaking those actions. These have been explained through models like prospect theory in behavioural economics. Whil
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Teaching Economics: Some Observations

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  Economics is something very interesting yet at the same time sounds drab and abstract. Perhaps this has to do with the way economics evolved. From the beginning, there seems to be something disconnected between economics theory and its applications. While Adam Smith built up his foundations of economics through the learnings he inculcated in his decades long observation of human life and behaviour, yet with passage of time, economics moved away from reality into a world of geometry and algebra and what not. Mathematical formulations intensified dragging economics away from reality. It might be a case of prisoner’s dilemma wherein the world was away with collectively being worse off because the objective seemed to be individually getting better off relative to others. The zero sum games turned economics into something dull and drab with no connection to reality. It naturally spilled over to economics teaching. Text books barring some exceptions focused on theory rather than the eviden
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Macroeconomics and Firm Decision Making

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  As observed in many past posts, economics has close linkages with real life. As practising managers or entrepreneurs economics helps in undertaking structured analysis and decision making. There are pointers towards increasing returns of decision making using structured tools like economics. Therefore, economics to a business practitioner would be indispensable. It is not that economics offers something new or novel. Many economic theories have been practiced consciously or sub-consciously over centuries by businessmen and others. What economists have done from Adam Smith onwards is to theorize the empirical observations. The empirical observations when aggregated would point to certain patterns which emerge as theory. For long, there were no distinction between macro or micro economics, something came into existence through the thoughts of John Maynard Keynes and his successors. Macroeconomics evolved in a different fashion in contrast to microeconomics. The former sounded glamorous
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