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Showing posts with the label ergodicity

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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Economics and Ergodicity

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  Economics posits human behaviour and thus human actions on the premise of utility maximization. Therefore, the next step obviously was in calculating the expected utility. The expected utility theory posits the economic agent being rational will evaluate all possible outcomes of his or her action and the probability of their occurrence before determining their action. In other words, the probability of the expected outcome will determine the trajectory of behaviour on the part of the economic agent. If the agent feels the probability is skewed towards a positive payoff, they will go ahead with the action else they are likely to adopt a risk averse attitude and go with the contrary action. Yet in real life, experiments have indicated something to the contrary. While mathematically the actions do point towards a probable positive outcome, the agents however shirk from undertaking those actions. These have been explained through models like prospect theory in behavioural economics. Whil
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China, Rationality and Pandemic Uncertainty

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The emergence of coronavirus in Chinese region of Wuhan and subsequent spread elsewhere in China and abroad is sending shockwaves. The governmental response is a shutdown of cities and provinces home to millions. It could not have come at a worse time given the holidays for Chinese lunar New Year. People would be travelling back home, to their ancestral places, to be with their friends etc. The virus has put paid to the plans and tourism industry is at a standstill. Worse, the panic seems to be gripping large scale population and upheavals not ruled out. Historically Chinese Communist Party has been secretive about the incidence and spread of virus and this adds to the rumours all around. Most accounts suggest, underreporting on casualties from the Chinese authorities, some even suggesting underreporting by factor 8-10. Setting aside the exaggerations, it can be safely assumed the reporting would be around 40-50% of the total cases in the best case scenario. Given the global travel
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