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

Intuitive Qualitative Grasping of Statistic Concepts

 

Statistics invokes certain phobia in many. Numbers create awe and fear. There are apprehensions of faltering with numbers. Moreover, when one works with numbers, they bring together their numerous complexities woven into a single thread of sorts. It is difficult for some layman to comprehend the intricacies of the numbers and their findings. There are so many tests and measures and formulas with very little grasp of what they mean to the common man. To an outsider, it is reflective of perhaps an inferiority complex in referring themselves as unable to comprehend statistics or for that matter on a broader terms, the logic of mathematics. Yet when one views the same in its applied form, they are beautiful. Beauty might lie in the eyes of the beholder. There exists beauty and fear in the same breadth. To many, invocation of numbers might mean to suggest one upmanship over the rest. This might actually yield prisoner’s dilemma.

 

For instance, there are contexts in economics which might need or do with qualitative reasoning. For that matter, many things might be explained with common sense. Yet there is someone who wishes to explain in some grander terms to demonstrate their high competencies. When everyone begins to do it, it conceivably turns into a rat race of sorts thus leading to everybody being collectively worse off. There could have been a scenario where everyone could have been better off collectively, but the pursuit to maximize their gain or in other words be individually better off relative to others will lead everyone in the field to adopt similar strategy – dominant strategy and thus yield a scenario resembling of Prisoner’s Dilemma.

 

Yet as one looks at the conceptualization of statistical measures, there does exist numerous common sense examples to help people understand the logic behind statistics. One can take an instance of current vaccination program. There might be a desire to know the better vaccine of the two that are being used in India. The logical way of understanding this would be whether there exists differences in terms of breakthrough infections between these two groups. There is one group of those vaccinated by Covishield and another group vaccinated by Covaxin. If there were to be differences in breakthrough infection between these two groups, then there might have to be adopted certain remedial measures whatever they might mean. Therefore, naturally, the researchers would collect the data and then examine the same. If there were to purely random observations, there would exist a certain pattern of breakthrough infections. Therefore, they would seek to examine the differences between the observed incidences and predicted incidences. To engage in this, there gets applied what is called the chi-square test. All the statisticians do is to collect the data and test it to chi-square to arrive at conclusions.

The question might of course be expanded whether the breakthrough infections vary across these vaccines across genders. Therefore, there gets added an extra qualification around which one has to measure the efficiency. It is not suffice to say there is difference or not but must be tested against an added parameter which in the current instance in gender. The statistician has collected the data but he or she can longer do with the chi-square but now will use another tool going by the name of t-test. So in short t-test is used to test qualifiers over and beyond the chi-square test.

 

There might arise another question. The comparisons across vaccines are right. However, it needs to be examined whether everybody vaccinated with a certain vaccine generates a similar impact. In other words, it must be examined whether the groups are uniform or there is a heterogeneity in terms of impact within the groups. This might be for instance whether the impact of vaccination is similar across all age groups for Covishield or Covaxin or are there differences that exist across these age groups or between these age groups. To test the variations within these groups or across the groups, the statistician will now have to apply the analysis of variance of course popularly called the ANOVA.

 

In this context, it would be useful for the policy makers to understand the age patterns of those getting infected even after vaccination. There is a possibility that certain age groups are more susceptible than certain other age groups. One might assume all age groups are uniformly vaccinated. The statistician would build up a data set of all those infected by their age group. Further he or she would plot these frequencies on a graph. Implied is they calculate how many 20 year olds have got infected, or how 60 year olds have got infected and so on and so forth. Once these frequencies are plotted on a graph, the pictorial representation will give the age groups that are more susceptible for infection. A line running through these observations is drawn around which is called building up of the distribution. The data distributed is examined and the variation or its square root the standard deviation is calculated. It helps us to examine whether every group is susceptible to be infected or do there exists age groups which are outliers either in terms of getting infected or not getting infected.

 

The above instances are perhaps tip of the iceberg of what statistics or for that the quantitative tools can provide one. There could be numerous other examples ranging from different factors that would influence let us say the severity of infection. In this context, there would be data collected about different factors by examining each patient and their severity and a relationship would be built up. Statistical tools are not something abstract. They are made to be felt abstract and out of the world kind of feeling by the practitioners. Yet, when they are applied through common sense approach, numerous practical applications are found out and can be explained in quite easy manner. There is of course a need to make statistics easier in terms of grasping the concept. If the concepts are understood, the applications will open at a pace of increasing returns.  This is what has to be thought of in quantitative domain rather than a focus on increasing complexity.

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