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Showing posts with the label fat tail

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 Convexity of Recovery

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As always, Nassim Taleb loves to ruffle the feathers. More often than not he comes with a proposition that seems odd with everybody else. From Black Swan to Anti Fragile to Incerto to Skin in the Game, he has taken very interesting and unusual stands. The line of thinking revolves around the behavior of extremes as opposed to behaviour of means in the orthodox analysis. As the Wuhan pandemic continues unabated in its toll, the discussion has shifted towards the recovery period post the pandemic. There is increasing discussion on the recovery package that needs to be addressed by different governments. The post Second World War led to the development of Marshall Plan that allowed US to offer money to Europe to rebuild their society. The Marshall plan acted as a fiscal and monetary booster in restarting the European economy. The debate therefore today is revolving again on a new Marshall Plan post the pandemic. The devastation it is likely to create will need a huge resources.
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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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