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Showing posts with the label adverse selectio prisoner

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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The Stock Analyst's Dilemma

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Robert Frank discusses an attention-grabbing question in his presentation of different assignments he posts to the students. As one peruses the reports of various stock recommendations by analysts, invariably they point out to a ‘Buy’ recommendation. Alternatively, sometimes they might recommend a ‘Hold’ position but rarely do they suggest a ‘Sell’ recommendation. He seeks to identify the reasons behind this behaviour. All stocks do not behave in the same manner since they are linked to their firm performance which is uneven. Hence the stock prices would move a different trajectory for each firm and thus to a stock investor or somebody holding the stock in his or her portfolio, the decision cannot be the same. A genuine analyst would go into the intricacies of the fundamentals and technical of the stock and base his or recommendations on these foundations. A uniform recommendation in most cases defies the natural order. It suggests a signal of some sort of manipulation.   To an ana
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