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Showing posts with the label economic theory

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 Economic Construction of Corruption

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One word that makes one take notice is corruption. People are, at least in theory, seemingly opposed to corrupt practices and project a need for honesty. While there would be little dispute or rather undisputed stated preference towards eliminating corruption or critical of corrupt, revealed preference often demonstrates otherwise. People may go hammer and tong on the corrupt, yet given an opportunity, they are unlikely to resist themselves from exercising what is termed corruption. People might tend to proclaim themselves honest and non-corrupt, yet a detailed analysis of their personal or professional lives might indicate otherwise. It is obvious that no one   wants to describe themselves as corrupt   but would engage in practices that can be deemed corrupt.   A story comes to the mind that was revealed by co-passenger in a train. He was describing principles imbibed by his father and father in law which shaped his views against corruption. He was against bribery and would not pa
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Historical Evolution of Economics Theoretical Thought and Practice in Modern Times

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In popular perception economics is about demand and supply. Nothing can be farther from the truth. The origin of the word economics can be traced to an ancient Greek word ‘oikonomikos’ which literally meant managing the household.  The French mercantilist thinkers at their peak expanded the definition into one of managing public administration laying the foundations of political economy. Mercantilists like James Stewart conceptualised economics as an art of providing for all wants of the family. In fact, the concept of reciprocal altruism can be traced in its anchors to mercantilist definitions of economics.  The objectives of funding a subsistence level of livelihood, providing employment to inhabitants, providing all necessities for secure livelihood by the state was essentially to create a set of related dependencies thus a motive for reciprocal altruism.  Adam Smith conceptualized economics in terms of national wealth. Therefore his understanding of economics was captured in
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