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Showing posts with the label adverse selection

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 Economics of Segregation

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To be politically correct, ghettoization is taboo. Yet they not merely exist, they thrive. In colonial times segregation was imposed. Segregation in social economic and political was imposed top down in many societies at different points of history. The apartheid in South Africa, non-entry to Indians in certain clubs or roads during British era etc. were examples of enforced segregation. Yet in many other instances, segregation evolved organically, became an implicit barrier of entry even though there was no explicit barrier or enforcement of the same. The bottom-up evolution of segregation has perhaps interesting roots. Many times in real life, there is observed a kind of evolved segregation plausibly at subconscious levels. Take a simple example. There are many self-service ‘eat while standing’ hotels in India. One interesting observation is very few women frequent these eateries or ‘darshinis’ as they are called in South India.   It is usually male predominated. In management
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The Digital and the Market

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Internet, predictably, provoked the time-honored silhouette of business, government and society interfaces. Critics notwithstanding, pervasive digitalization, indubitably, is causative to geometric spread of organically evolved markets. The ubiquitous internet ecosystem, chaotic as it may seem, is trenchant in dismantling the sources of market failure. Changing Price Elasticity Price discrimination manifests itself from airfare differentials across portals; loan and deposit rate differential across banks and among customers of similar hue, inter-firm differentials in insurance premium, among others. Information asymmetry surfaces in consequence of cognitive costs of choice evaluation thus making the goods price inelastic. Sites like momondo.com, Google flights, policybazaar.com, paisabazaar.com, confused.com etc. by presenting a simple comparison of prices across firms reduce switching costs thus making products price elastic, consequently lower prices. Narrowing price dif
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