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

Lockdowns, Utility, Costs and the Second Wave of the Chinese Pandemic

 

India is facing a second wave of corona virus induced pandemic. The cases are rising quite sharply. Hardly any state has been left untouched. The experts feel the peak is a little distance away. The tests have to increase and definitely have shown an increase. The spread is faster compared to the first wave. The cases are already increasing in excess of 1.5 lakhs per day compared to a peak of around 1 lakhs in the first wave. The vaccinations are steady, yet given the sheer size of India, they appear inadequate. India is vaccinating perhaps at the highest rate in absolute numbers but still they fall way behind the required rate to attain herd immunity in the shortest period of time. At this stage, there are again voices all around calling for a lockdown.

 

There is increasing view that Maharashtra will have to go in for a lockdown maybe for a couple of weeks. Despite the disagreement with the coalition partners, it would be safe to assume that Maharashtra is left with no option but to go for a lockdown. Chattisgarh is already in a lockdown. Madhya Pradesh might not be in a full lockdown but certainly, it is in a state of quite an escalated lockdown in many cities and districts. In Maharashtra too, the state is in virtual lockdown with only the official announcement expected. The elections are going on in West Bengal. One might sit in judgment of whether the public rallies by leaders offer the best image to demonstrate the virtues of mask and social distancing but that is another matter. While states are gearing for lockdowns in varying degrees, it must be examined the merits of the same at this stage.

 

Lockdowns offer perhaps in theory the best way to combat the pandemic since it would prevent people to people interaction and thus reduce the spread. The European second wave is largely being combated through a series of lockdowns. Britain has vaccinated nearly half its population at least partially, but its control of the second wave also came largely through the lockdown it had enforced for most part of December through March. Therefore lockdown gave the authorities the time to vaccinate significant amount of people thus reducing mortality. The other European countries too would have to factor in the same. Their success in lockdowns easing the crisis would rest by and large on their ability to scale up their vaccination programs. The current round of vaccinations in Europe does not however give such a confidence. In this context, it might be pondered over the US strategy where there is no official lockdown at least in most parts. US of course is reporting higher cases and also mortality rates but they are expected given the economy being in relatively open mode.

 

Lockdowns have an impact when they are enforced pretty early. It is not the correctness or an evaluation of cost benefit analysis in total that matters but the swiftness in which the action is taken that matters. In India, since all regions are not uniformly affected, the national lockdown might not be a feasible solution at this point. Each geography or perhaps a sub-geography requires a customized or differential treatment in its own way. There might be instances where lockdown has to happen irrespective of the options or the costs it might incur. For instance, in Maharashtra, there is very little option other than a hard lockdown irrespective of the economic consequences. Europe too had faced the situation and they had to bite the bullet. The problem with Maharashtra is the lack of leadership. Leadership is about taking decisions whether good or bad. The decisions must be swift and timely. What one observes from Maharashtra is the lack of certainty over the decision making. There is too much of an uncertainty and hesitancy. The leaders must not hesitate to take a step if they feel is appropriate. The fact this is missing in Maharashtra is aggravating the problems. The other states too might have to confront with such scenarios sooner or later unless they are able to tame the wave.

 

Yet accompanying the lockdown should be a few sine qua non. The lockdown would be successful if it manages to localize the pandemic. If the pandemic were to spread after the lockdown is lifted, it would only be postponing the inevitable rather than killing the virus. The lockdowns must be accompanied by high level of testing. For instance, if Maharashtra were to go in for a hard lockdown, it must be accompanied by around 3-4 lakh tests per day over a fortnight or so to reduce the positivity rate. It is only at very high levels of testing that the positivity rate will start to reduce with passage of time. The labs must be prepared to process such a high level of tests in short period of time. Alternatively, the lockdown must be accompanied by an increase in vaccination to a significant magnitude. If India were to go in for a lockdown, it must be accompanied by at least 1.5-2 crore vaccinations per day over a two to three week period. This would translate into around 25-30 crore vaccination doses in the said period.

 

Yet as one glances at the situation, it is evident that neither are possible in the short duration period. In fact, the last lockdown imposed a year ago, postponed the inevitable rather than the escape of the inevitable. The reason was lack of tests at that moment and perhaps that was due to lack of infrastructure in terms of testing. If there existed a similar infrastructure today, the testing would have been in the order of nearly 10 lakhs per day, the pandemic could have been prevented from spreading. Today, the problem is different. It mandates a localized lockdowns wherever needed. In fact, people movement must be curbed into bare necessity. Yet along with the curbs or micro lockdowns where needed, there must be an increase of vaccinations. The rise in vaccinations would go in quite a long way to tempering the magnitude of the second wave. The direction of second wave might remain strong for some time to come but what is essential is to curb the magnitude and reduce the mortality rate. That should be the immediate objective. If not, the lockdown would have little utility but high costs.

 

 

Comments

Popular posts from this blog

Decision Making as Output and Bounded Rationality

The Chicken-Egg Conundrum of Economics

A Note on Supply-Demand Dynamics