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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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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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Job- Family Balance: Trade Offs, Double Income and Single Income Families

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Many believe that job-family balance is strictly a time management issue. With many women and men reporting difficulties in constantly adjusting to the demands of the double duties of employment and family in an atmosphere of economic insecurity, demanding jobs, and unsupported workplaces, tradeoffs become essential.    Yet inspite of these perceived difficulties, we do find existence of both single income and double income families. Let us explore this phenomenon through a lens of an economist. Economics posits the presence of trade-offs. Studies indicate the existence of both employment trade-offs and family trade-offs.   The former refer to sacrifices that people make in their jobs because of their family responsibilities and the latter refers to the other way round.   As individuals offer themselves in the labour market, the benefits accrue through increased income, increased knowledge and consequent associated higher living standards. This however results in decreased t
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Twitter, Facebook and Productivity: Are they Mutually Exclusive?

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Employees would desire access to social networking sites at work places. Employers feel it as an unnecessary distraction. How do we reconcile the two?   In 2009, Nucleus Research estimated a loss of 1.5% to firms’ productivity thanks to online social networking usage. Similarly in 2010, a British research firm estimated the loss to British firms at $2.2 billion per year. This implies a trade off happens between the firm’s decision to allow employees to access social networking sites at work and the productivity of the employees. However a contrary view too exists. Writing in Wired (February 2010; www.wired .com), Brendan Koerner argues otherwise.   He feels they are essential to enhance creativity and stoke a creative mind. He feels the studies that argue the loss of productivity ignore the impact of the creative process. With the human body unstructured to maintain a constant focus on assigned tasks, periodic breaks relieve the conscious minds of the pressure to perform. This e
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Prisoners Dilemma and Retail Promotions

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It is not unusual to get 1 kg onion free for purchases above say Rs. 250/- or half kg sugar free for purchases above say Rs. 300/- in leading retail outlets. Does this attract consumer loyalty. A study sometime back along with my students revealed certain interesting dimensions. The presentation is found here . I will delve into certain dimension here. Promotions are key element in this process and higher promotional elasticity will be driven by the increased ambiance as an output coupled with reduction in psychic costs. Researchers and strategists can use utility models to study consumer behavior and the reasons for their preference towards particular stores. In the increased emphasis on promotions, an interesting fact to note that customers continue to be loyal to firms like Nilgiris and Namdharis which are very low on promotions. At least in the initial phases, customer loyalty could not be generated in major food retailers despite excessive emphasis on promotions as the f
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