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Showing posts with the label economics

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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Teaching Economics: Complement Rather Than Compartmentalize

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  To students of economics, it might prove to very interesting subject. Yet to many others economics evokes a phobia, a phobia of those graphs and calculations and theories and assertions often contradicting and often supplementing and what not. Irrespective of the context, there is always the other hand which would forecast very differently. This is something a puzzle to the outsiders or what they might call an economist’s hedge but to economists it is about viewing things in different perspective and the manner in which the outcome would differ following the change in any of the variables. Teaching economics therefore is a challenge in the sense of convincing the students of the validity of the theories without evoking the boredom associated with the ingraining of the theoretical contours.   Economics teaching at many a level especially down the elite grade is all about stereotyping. It is about regurgitation of the text books. Text books themselves would be a compendium of exist
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An Economics Approach to Thinking: A Note

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  As mentioned many a time before in the past posts, economics is not something narrow in the sense that it is restricted to demand and supply. It is an erroneous assumption that economics is about matching demand and supply. There is no doubt economics over the last 125 years or so has moved to demand based analysis and this virtually meant the demand curve becoming critical to the analysis. Yet, it would be only part of the answer as the demand is correlated to the supply. Therefore, to many, in common sense it became easier to associate economics with demand and supply. As they say in branding, perception is more important than the truth. Therefore, in the context of economics too, the perception often overrides the truth. Economics is far more than demand and supply. It is about understanding of interactions of individuals in producing the aggregate outcomes. This was something was the nicely summarized by Thomas Schelling as micromotives leading macrobehavior. There is an economic
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Economics of Conflicting Dietary Preferences

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  The world is by and large consumers of meat and related products as part of their diet. Humans from time immemorial are omnivores. The notion of vegetarian food is something fairly recent in human history, perhaps with the advent of the settled life and agricultural civilization. Geography has determined food preferences and thus in large parts of the world agriculture was not possible till fairly recent centuries in history. This meant the option was animal food for survival. Wild fruits or nuts or even honey might have been discovered millennia ago and formed part of the human diet thus enabling it to accommodate to the omnivorous diet. This also perhaps helped in rapid adoption of vegetarianism as diet preferences in agrarian societies. Yet in history the notion of vegetarianism is about minorities rather than of the majority. Till date, most humans eat animal food as their choice rather than vegetarian. However, choice of animal based food is not exclusive of vegetarian choices.
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Random Musings on Economics

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  Economics deals with behavior of agents as stated many a times in the past posts. The agents might be individuals, groups of individuals, organizations, families, society, castes, classes, institutions, nations, economies and what not. There might be a behavior observed under individual conditions and something under aggregate conditions. There is behavior which might be innocuous or something independent when viewed through the prism of an individual yet the same when aggregated might result in a totally different behavior. The motives might be micro yet the aggregate behavior might result in something of a macro outcome. It might be simple decision to park a car at some place which if followed by others might set a pattern and thus a macro behavior of sort would emerge. If somebody were to venture a question on why the king has no clothes, there might be no answers. As the economists, Thomas Schelling once remarked, he was addressing a session and he found the first eight rows were
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Of Economics, Right and Left

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  In recent days, there was news that Amazon is forcing its employees, especially the delivery team to urinate in bottles so as to save time. This is something that has come to be associated with what is wrong with capitalism and its variants and mutations. What Amazon seems to have done is nothing unusual if one goes by past precedents? There are countless stories of excesses by the capitalist enterprises in terms of their treatment of the employees. Instances from China highlight how poor conditions haunt the workers who assemble a Nike shoe to an Apple iPhone. They work in conditions that are pathetic and little time is given even for meeting their biological requirements. Instances of pregnant women being harassed and dismissed in factories from China to Sri Lanka to the Central America to avoid meeting maternity leaves and similar perks too have been well documented. The sweatshops as these get branded have been considered by a school of thought as something unavoidable evil in th
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Teaching Economics: Some Observations

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  Economics is something very interesting yet at the same time sounds drab and abstract. Perhaps this has to do with the way economics evolved. From the beginning, there seems to be something disconnected between economics theory and its applications. While Adam Smith built up his foundations of economics through the learnings he inculcated in his decades long observation of human life and behaviour, yet with passage of time, economics moved away from reality into a world of geometry and algebra and what not. Mathematical formulations intensified dragging economics away from reality. It might be a case of prisoner’s dilemma wherein the world was away with collectively being worse off because the objective seemed to be individually getting better off relative to others. The zero sum games turned economics into something dull and drab with no connection to reality. It naturally spilled over to economics teaching. Text books barring some exceptions focused on theory rather than the eviden
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BCG, PLC and Returns to Scale

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  Management practitioners have their own jargons. Without doubt these terminologies developed help conceptualize ideas and their implementation in practice. While the observations lead to the formation of theory, it is equally true that the theoretical formulations thus developed play an input in strategy and tactics of a firm. Many management jargons and concepts owe their origin to concepts or models elucidated in economics. It would be prudent to discuss these concepts often used in management to their roots in economics. It must be stated that these roots might have often emerged subconsciously without a reference to the economic underpinnings. The current post will deal with a couple of such concepts.   One of the critical understandings that practitioners seek to pursue in product development is the product life cycle. It conceptualizes the journey of the product from its inception to its end cycle or the decline or perhaps death. It does give insights to the practitioners o
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The Economics of Plant and Animal Milk

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  A couple of days, one chanced upon a tweet by PETA on animal milk and its impact as against the use of plant milk. Implied in the tweet, given the way animals are milked, it would make sense to shift to plant based milk. Without doubt, it sounds quite great in theory. It is well documented on the treatment of animals as they are milked in the industrial farms. In the earlier days, the animals were milked at home. Normally, there would be few cows/buffaloes that would be reared. These would be milked as against the demand for the product. There would of course some amount that was milked for self-use. Yet with passage of time, the demand for milk increased while the agrarian families usually engaged in rearing cattle declined. There was a shift to the urban centres owing to industrialization. The demand for milk in urban centres had to be met by relatively lesser number of agrarian families owning dairy farms thus necessitating the transportation of milk. This invariably led to impro
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Why the Prostitute Doesn't Earn More Than an Architect?

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Steven Levitt along with Stephen Dubner wrote a book Freakonomics that came out in print in 2005. This was a bestseller and in some ways revolutionized writing books on economics. While there were similar books of the genre before, it was for the first time a book on economics written in popular and layman’s language was published. It was positioned as something that explores the hidden side of economics in everything. In fact Steven Levitt sought to describe himself as rogue economist who ventures into areas where others haven’t. They have come with some more books in the genre. It is not to delve into the merits or otherwise of the book which necessitates separate engagement.   Yet, what would be of interest is the examination of the one of the interesting propositions they have put forth in the book. In their contention, which they expand in the book, in theory, a prostitute will earn more than an architect. This looks outrageous at the first glance but they offer theoretical e
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Primer on Real Life and Economics - III

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In the previous posts on Primers in Ecnomics, examples were discussed here and here on how economics makes its presence in day to day life. The overarching theme was the reflection of rational economic behaviour under constraints as we go about our daily routine. It is time to continue the discussion taking economics into more aspects of life. Some examples are presented below. Like in the previous cases, one column highlights the real life phenomenon what we observe, while the second column builds up the theoretical linkage to economics. Real Life Practice/ phenomenon          Economics Linkage Sports coaching classes Come summer holidays, parents will seek outcompeting with each other trying to find a place for their wards in numerous summer camps, sports coaching classes, art classes among others. At first glance, it seems that the parents many of them double income couples in nuclear families would want a way to kee
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Surveying Repugnant Markets

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Markets conjure several things. They allure a numerous. There exist many types of markets. One talks of stock markets- the market for ownership; there are commodity markets at B2B levels, B2C levels- commodity exchanges, food markets, retail outlets, wholesale outlets; there are markets for financial capital- debt and equity markets; there are markets for goods and services and more. To economists of classical and neo-classical school, markets perform the role of allocation and distribution fo goods and services best. To them, Pareto efficiency is something best achieved through market mechanisms and not through central planning. Yet there are markets which people find it nauseating or repulsive to see they exist. In fact, the very idea of certain goods being exchanged in a market model is something that would be contrary to the norms established in the cultural context. In some geographies and societies, some of these markets might find favor yet in many others there are seem s
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