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Showing posts with the label rationality

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 Rationality of Medieval Punishment Practices

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  It has been stated many times that economics is about behavior. Demand and supply are mere manifestations. Economics is concerned with how people take decisions under various circumstances. There is a positing about rationality in decision making. Economics assumes agents are rational when they make decisions. Implied is the agents are well aware of the cost benefit analysis when they exercise those choices. While the exercise of choices might seem irrational or weird to the observers, yet to the agents, there exists a certain calculations that would have gone into their choice. The behavioral economics contests this proposition, yet it is more about decisions under cognitive constraints or informational constraints. It is about boundaries to the rationality in terms of decision making. Therefore, behavioral economics talks about bounded rationality. Yet within these boundaries, there does exist a cost benefit analysis towards execution of preferences. Not evaluating every possible c
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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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Perverse Incentives!

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There is a proverbial story about snakes in Delhi. During British days, apparently there was a time when Delhi was infested with snakes. The authorities were challenged to find a solution to the snake menace. People respond to incentives and one might not take recourse to economics for the same and instead follow common sense. So the authorities announced a reward for all those who kill snakes. The condition was the dead snake has to be produced as proof for claiming reward. The story goes when the reward was stopped, Delhi was infested with far more snakes than it began with. In other words the problem had multiplied. Without doubt, one needs to look why the policy failed. Does this story remind us that economics is not infallible and incentive mechanism does not work? Let us probe it in some depth. As Adam Smith first pointed out, at least in documented modern times, people function in their self interest. The self interest as an aggregate is what culminates into enlightened c
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Unlimited all the way- Diminishing Marginal Utility in Practice?

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As one walks in to a five star hotel, we find ourselves inclined to try Buffet Meals for a fixed price. Andhra restaurants have become popular for offering unlimited meals. As we visit few amusement parks, we find they charge a fixed entrance fee and let us enjoy unlimited rides. Mobile service providers woo customers by offering unlimited SMS per day at a flat fee. Bangalore Metropolitan Transport Corporation (BMTC) lures us to try its buses with a day pass (unlimited rides for a flat fee for the calendar day). Further for ages we have had the concept of Bus passes for students and frequent users as also the Suburban rail passes in Mumbai and other cities in India.   Internet service providers offer unlimited browsing per month for a flat fee. Unlimited rides in public transports, enjoy unlimited SMS, telephone calls, internet usage or even unlimited cuisine sound attractive and are part and parcel of our daily economic life. Yet step back and wonder what logic prevails here. Th
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