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Showing posts with the label people respond to incentives

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 Motivators of Activism

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  There is apparently quite a bit of divide that has emerged with the recent arrest of an environmental activist Disha Ravi from Bangalore in connection with the Republic Day violence and aftermath. Disha apparently is aged twenty two and thus seemed to find sympathy among the section of the crowd that is egging on her. Her supporters are of course bounded by a common dislike often degenerating into a pathological hatred for Modi, which would make her their celebrity hero irrespective of her age. Age might just be a number. Conceivably, Disha began her activism at age of nineteen and has evolved from an environmental activist into one of anti-establishment activist. There might be an irony she is fighting in favour of those farming interests, singularly responsible for environmental degradation of Punjab and Haryana. Rather than examining the merits or otherwise of the case, it would be instructive to decode her motivations for activism. It begs to be understood why youngsters are attr
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Jan Bhagidaari, Signalling and Bottom of Pyramid Entrepreneurial Creation

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  In the presence of information asymmetry, it is difficult to gauge the intentions of the opposing party. The only way to detect any possible moves is through a careful observations of the signals they are likely to send. Thus signalling is of critical import in economics. In the past posts, the role of signalling has been discussed in certain contexts. The current post would seek to take it forward. Recently there was a communication from the RBI Governor to the players in the debt market be competitive and not combative to achieve the best results. There is a tendency in the section of debt players to act pro-cyclically in tune with RBI whereas the others might act counter-cyclically to the RBI stance. This often negates the RBI purpose and thus monetary transmission might not achieve the desired results. This of course in some ways reflects the tragedy of commons often discussed in economics literature but owes its origin to biology.   Yet in discussion on signalling, two dimen
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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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Urdu and Anti-Establishmentarians: Dominant Strategy?

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Anti-establishmentarian rhetoric in India habitually conjures Urdu imagery and artistry. The same can be conceivably ascribed to the fact the rhetoric is an amalgamation of Islamic revivalism in attempts to reclaim its socio-political veto, Marxism ceaselessly in quest of a villain (Modi-Shah as new bourgeoisie) subduing the proletariat (Islam) and Nehruvian posterities unable to come to terms with the loss of power and privileges associated thereof and amplified by the Indian media cacophony. As I cited in Why Elitism Flourishes? http://stalkingtheory.blogspot.com/2019/12/why-elitism-flourishes.html , clubs once formed are protectionist but barriers to entry are formidable with connections not merit defining the benchmarks for admission. Foot soldiers desire to enter upper layers of the elite pyramid and therefore thus a need on their part to demonstrate their eligibility. Implied is using certain signals in conveying their utility to the apex. The competition however is harsh
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Reality shows, fashion parades, cricket coaching classes, entreprenurship- what binds them together?????

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What makes people attract towards reality shows? Why do you see such a craze among parents to put their wards for cricket coaching classes? We see mushrooming of cricket coaching centres each advertising that the kid is a potential IPL player? Similarly what makes a industrialist like N,R.Narayana Murthy a role model for many a family? If this is not enough, take the craze for shopping festivals and modelling contests or fashion parades. Each of these activity may seem disconnected yet a common chord binds these all. People respond to incentives. A reality show winner is a kind of role model of many others aspiring that success and the rewards that come along with that success. the chances of success are not high yet the fact if we win, we hit a jackpot make the people crazy. One will not produce a Tendulkar, Richards or Dhoni or Steyn everyday. the success and the accompanying rewards that one gets makes kids and their parents want to try hand in cricket. Along the line at certai
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Bangalore as Cyber Capital- People Respond to Incentives?

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By the late 1990s, the journey of Bangalore to be the Silicon Valley of India was truly under way. Many Information technology companies had set up their shops in Bangalore.   The origins of Bangalore being the Cyber capital lay in establishing the foundations of Electronics City and later the Information Technology Park (ITPL).   Electronics City was developed over 300 acres of land and provided initial impetus to firms setting up their units in electronic production and software.   In the process, it would be interesting to examine why Bangalore became the IT capital. The government went out of its way and facilitated the IT industry with a host of benefits. These included tax holidays, power at cheaper rates, land at cheaper rates etc. When the firm gets power, water and other utilities at lower than market price; it is able to produce at lower costs of production thus passing on the benefit of lower prices to the customers. Further, the presence of similar industries i
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