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Decision Making as Output and Bounded Rationality

  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

Why the Prostitute Doesn't Earn More Than an Architect?

Steven Levitt along with Stephen Dubner wrote a book Freakonomics that came out in print in 2005. This was a bestseller and in some ways revolutionized writing books on economics. While there were similar books of the genre before, it was for the first time a book on economics written in popular and layman’s language was published. It was positioned as something that explores the hidden side of economics in everything. In fact Steven Levitt sought to describe himself as rogue economist who ventures into areas where others haven’t. They have come with some more books in the genre. It is not to delve into the merits or otherwise of the book which necessitates separate engagement.   Yet, what would be of interest is the examination of the one of the interesting propositions they have put forth in the book. In their contention, which they expand in the book, in theory, a prostitute will earn more than an architect. This looks outrageous at the first glance but they offer theoretical e