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Showing posts with the label real life and economics

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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Teaching Economics: Some Observations

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  Economics is something very interesting yet at the same time sounds drab and abstract. Perhaps this has to do with the way economics evolved. From the beginning, there seems to be something disconnected between economics theory and its applications. While Adam Smith built up his foundations of economics through the learnings he inculcated in his decades long observation of human life and behaviour, yet with passage of time, economics moved away from reality into a world of geometry and algebra and what not. Mathematical formulations intensified dragging economics away from reality. It might be a case of prisoner’s dilemma wherein the world was away with collectively being worse off because the objective seemed to be individually getting better off relative to others. The zero sum games turned economics into something dull and drab with no connection to reality. It naturally spilled over to economics teaching. Text books barring some exceptions focused on theory rather than the eviden
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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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A Primer on Real Life Action and Economics- I

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We often use economics subconsciously as we go about our daily routine. Economics is about human actions and behaviour and we engage in plenty every day from birth to death. These actions consistently demonstrated over period of time reveal patterns that build up the theoretical and conceptual foundations in economics. Quite often, many actions undertaken either in personal, social, or professional capacities might occur without any explicit linkage to economics but each of those actions perhaps reveal something about economics and its idiosyncrasies in life. Presented below are few examples in tabular form. 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 Free E-mail services It might be puzzling to find why Gmail offers free email services. Given the server capacity they possess, any addition of extra user to
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