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Showing posts with the label separating equilibrium

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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The Mythology and the Separating Equilibrium

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In game theory, separating equilibrium is a scenario wherein each player is forced to reveal his or her private information. In normal circumstances agents send out different signals for different contexts. The recipient would be served best if he or she are able to decode the true self of the messenger and the mess. Often, the hiding of private information and preferences by the agents is to enable them to counter posit the strategy of the rivals. Ideally, any strategy must be aimed to garner the private information and preferences of the agent. Implied is the true self of the agent must be revealed. For example to an insurance company the firm must be in a position to get the exact status of health information of the person doing the policy. The agent knowing a great deal of their health would obviously have incentives in hiding the information from the insurance company. For the firm, the ideal scenario is wherein, the agent has to reveal his or her true health status. The equili
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