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

Modi and the Second Wave of Chinese Pandemic

 

India is in the grip of the second wave of the pandemic induced by the virus originated in China. The cases are hitting records which were unseen in the previous wave. India has now recorded more than two thousand deaths per day. Though the death rate is lower relative to the first wave, the fact that deaths happen around a week or two after testing positive cannot be ruled out. Therefore, it would be premature to discuss the deaths in comparison to the first wave. There has been a lot of talk about the reasons for the second wave. While there might reasons one too many, what cannot be discounted is the fact that once the wave strikes, there is very little one can do other than cessation of economic and social life. Britain has been able to come out of the second wave thanks to the lockdown accompanied by the rapid increase in vaccinations. Europe is still in the grip of the lockdown. It seems inevitable that India too would have to go in for a lockdown.

 

One of the reasons why India did not fare badly in the previous wave was there was an early lockdown followed by cautious unlock. This gave time for health infrastructure to cope up while also ensuring people do not interact in social life frequently. The migrant crisis did increase infection but to limited extent. The major reason for the second wave seems to be an absence of lockdown. The second wave has been attributed to the complacency of the governments. There is certainly merit in the assertion that government declared a premature victory in the battle over the pandemic. All that was needed was some lapse somewhere. It was provided in Maharashtra followed by Delhi. The migrant movement from Maharashtra to other parts of the country spread the wave into Uttar Pradesh among others. While many parts of the country had successfully reduced the positivity rate to under 1%,, Maharashtra and Kerala continued to report high positives. There was sheer complacency in those two states both known for PR activities than administrative efficiency. The same went for Delhi too.

 

Contrary to the perception that election rallies caused the second wave along with the Kumbh Mela, it is the complacency on the state governments that resulted in the wave. In fact, the election bound states perform comparatively better relative to the non-election bound states. The ability to control the virus seems to be absent at least in Maharashtra or Chattisgarh whose Chief Minister spent more time in Assam rather than managing the state of affairs in his home state. Election rallies does definitely send a wrong message. The people normally frame their decisions based on the availability heuristic. As such any information on the pandemic is based on what is available. The easily available information are the election rallies in West Bengal or the Kumbh Mela in Uttarakhand. In fact, the latter state continues to show lower positivity rate relative to many other states. Therefore, Kumbh as a superspreader event has to be taken with caution more so given the COVID negative report was mandatory for attending Kumbh.

 

The primary reason for the increased spread is the absence of any restrictions or at least in terms of adherence to norms. With lax enforcement of norms, it was expected that a wave once struck would magnify or in other words proceed with increasing returns to scale. It might be moot to talk about the duration of the spread but without a lockdown in some degree and enforcement of mask norms would have to happen if the wave has to be controlled. There is shortage of oxygen and other medicines which is to be expected. Given their relatively short shelf life, no one can store for infinite time in anticipation of a rainy day. Therefore, when there is an excess demand for a short period relative to supply, there would exist a lag before the supply matches demand. This is what is being observed in the context of oxygen shortages or for that matter shortage of other drugs. People who get access to these drugs or oxygen will tend to store in anticipation of worst case scenario relating to hoarding thus an induced supply demand mismatch.

 

It might be tempting to blame Modi for the current state but then the blame would be erroneous if one were to look at the wave in isolation. Neither the rallies in Bengal nor the Kumbh Mela are responsible per se. if Modi had erred, it is somewhere else. He perhaps depended too much on the two vaccines rather than expanding the basket of vaccines. If the basket of vaccines is sufficiently large, there would be little reason to panic and the process could have been opened up earlier for all the age groups. Secondly, the international obligations meant that India had to export. The exports in many cases were symbolic and this could have avoided if the basket of vaccines was higher. The vaccine manufacturers could have got additional funding much earlier rather than at the present. This would have led to expansion of capacity and thus the relatively higher pace of vaccination. It is a different matter that vaccine hesitancy is responsible for current round of deaths. Had people got vaccinated when their age groups became eligible, at least significant amount of current deaths would have been avoided.

 

The error thus would lay perhaps in complacency of not expecting a worst case scenario and perhaps plotting for the minimum required in terms of breaking the chain. In addition, the images of senior ministers including Amit Shah campaigning without a mask sent a very wrong signal when people were being fined for not wearing a mask in other places. Secondly, the statements of the Health Secretary on the needs and wants was unwarranted and reflected arrogance. Similar was  the tweets from the Principal Economic Adviser who almost stated that every Indian should be prepared to contract the infection. Rather than sending a message of reassurance and empathy, it was arrogance that came out. PM Modi could have put an end to it, but he chose to engage in a pep talk and the action came later as a forethought. Therefore, contrary to perception, it is not in the election rallies or other mass events where the error lie but in not preparing the preventive measures to enable quick scaling up wherein the government could be hauled up for error.

 

 

 

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