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Showing posts with the label cost benefit analysis

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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Self Interest, Collective Interest and Evolutionary Biology

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  Market economics is based on the foundations of Adam Smith theorising the ‘Invisible Hand’. To Smith, it was an individual’s pursuit of self-interest that lead unintentionally to collective interest and thus enhances social welfare. Of course, the term social welfare was an innovation that came decades later after Smith. Many economists have built their models and theories based on the Invisible Hand paradigm. There are no doubt many examples of the same. For instance a cab driver comes to pick up after travelling for 3-4 kilometres not because of his benevolence but because of his self-interest, his interest in earning daily bread, his interest in stepping to higher levels of income. A hotelier would keep the restaurant open even in times of pandemic not because he or she cares for the hunger of the people but for their own interest in earning and sustaining their daily bread. E-commerce delivery agents functioned in the pandemic partly because of their self-interest rather than an
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Economics in Real life- Amusement Parks and Touring Exhibitions

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  Many past posts have discussed the applications of economics in real life. The modus operandi in each post has been simple. Take an example from real life and discuss how economics consciously or subconsciously plays a role in the same. The events one observes in life are many and diverse. Each ins unique yet perhaps to a keen student of economics, these manifest in many possibilities of economics lies underlined in their demonstration. The current post too will take this forward and brings few more examples that add lustre to economics in life. Real Life Practice/ phenomenon Economics Linkage Unlimited rides in Amusement Parks In India, amusement parks came in much later and it is only in the last twenty odd years, they have spread to many cities. Any visitor to an amusement park would notice an interesting observation. They charge a fixed entry fee and offer unlimited rides for the visitors. One might wonder the reasons behind th
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Economic Logic of the Silent and the Shy Voter

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  In politics and elections, there is often a talk about the presence of a silent voter or a shy voter. There is a belief that these voters generally remain silent about their preferences, do not voice any opinion on the same and cast their votes silently for their candidate. These silent votes if large in number can affect the forecasts of the pollsters. This is because of the silent or the shy voter refusing to participate or reveal their choice to the pollsters. Very few pollsters might be in a position to capture their choices.   It is usually believed that these voters belong to the subaltern classes or castes or those groups who are usually outside the power circles. They fear reprisals if their other caste or class groups learn about their choices. It is a different matter that an idea could be obtained on their voting preferences post the election results but that is another story. In India, it is usually believed that the voters of parties such as BSP do not reveal their c
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Economics in Practice in Work Life

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  Economics as we have noted before has numerous applications in real life. Each of those past posts that have dealt with economics in action in real life have tended to theorize the practicalities on the ground through the prism of concepts in economics. The present post too would continue to be in the series to demonstrate how economics helps in real life   Real Life Practice/ phenomenon   Economics Linkage   Extending maternity leaves from 90 days to 180 days is counterproductive   This is an argument quite a number of economists and practitioners often make. When the government of India did extend maternity leaves from 90 days to 180 days a few years ago, social media was flooded with comments on how this could be detrimental to the employment of women in the industry. Their reasoning was simple. The firms are constantly endeavouring to reduce costs. If they are faced with the prospects of paying six months of pay wi
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