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Showing posts with the label economics and practical world

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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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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Real Life Applications of Economics: Some Examples

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  There are many past posts wherein it has been attempted to explore the applications of economics in real life. Many textbooks as noted before, posit economics in abstract terms. Yet, at every stage of life, one finds subconscious applications of economic theories, concepts and models in real life. It is often conceivable that the agent is unaware of economics and is only applying what is common sense. Yet, economists theorise this common sense. In continuation with the past posts on economics and its real life applications, the current post will take a few more examples to illustrate the same. Real Life Practice/ phenomenon     Economics Linkage Rise of Brands Firms operate in the normal course, in theory, in a perfect competition. In perfect competition, goods are homogenous, firms are price takers and thus have no control over the price. They have control only over the output. Yet firms seek some degree of control over the pr
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