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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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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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Corner or convex solutions –Mahabharata to Jinnah to Anna Hazare

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Indifference analysis enables locating the optimal consumption bundle of typical consumer. Corner solutions are exception to law of equi-marginal utility. But do they occur in practice? The answer is yes if one is prepared to go beyond the text book. Few examples are in order. Corner solutions refer to the situation wherein the consumer is happy when he has all of one good and none of the other. He either wants all of it or none at all. Take the example of Mahabharata. Pandavas and Kauravas fight for the land of Hastinapura.   Bheeshma’s solution of division of the territory did not solve the matters but postponed it. The game of dice and Pandava’s consequent exile resulted in Duryodhana ruling over the Indraprastha hitherto ruled by the Pandavas.   Post their return from exile, there were multiple options. The whole kingdom could go either to Pandavas or to Kauravas or a division could happen which could allot varying proportions to the both the parties. Bheeshma’s formula r
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B-School Survival Dilemma

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B-Schools mushrooming all over the place have created their own set of problems. While normally B-Schools entrepreneurs attribute to market conditions for their plight, I argue that it might not be the case. Blaming the market is simplistic and to a good extents the entrepreneurs have to the share of their blame. More on this here
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Blockbuster Populism

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Often we see populist policies getting all round support from political parties. There are number of instances wherein pieces of legislation perceived to be good economics get defeated or withdrawn. Is it merely perception of something else at work. I've my own take on this. We need to understand this apparent paradox through Game Theory and Prisoner's Dilemma. More on this here
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(Mis)Managing the Rupee

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Rupee fall is the talk of the town. My take on the rupee fall can be read here
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Electoral alliances

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Come election seasons; its time for theories to make their appearance...Theories afloat on probable winning candidates and winnable issues. My take on alliances as key to winning to proposition can be found at http://centreright.in/2013/06/deciphering-the-strategic-logic-of-electoral-alliances/ 
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Weather changes and food production

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Agriculture is often characterized by high variability of production outcomes or, production risk . Unlike most other entrepreneurs, farmers are not able to predict with certainty the amount of output that the production process will yield due to external factors such as weather, pests, and diseases. While one cannot deny the rapid advances in technology in food production through better seeds, yield management, irrigation systems etc, weather and climate yet remain wild cards. The drought in South Asia in 1987 and consequent wheat imports and havoc in livelihoods still remains fresh after 25 years.   The origin of Arab spring in late 2010in Tunisia started with the failure to quell food prices and the rise of water wildcatting in Yemen flared up protests there.  Some scientists believe that weather changes due to global warming can depress the food production beyond the current estimates.   UN estimates in 2011 revealed that food prices rose consecutively for eight months
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