Economics And Decision Making

Submitted By: Gary Hadler

he issues and reasons behind decision making are of great interest to me. I have written many articles on the subject over a long period of time. The below article looks at decision making from an economic point of view. If you wish to read some more of my articles please visit ITS Tutorial School website at http://www.tuition.com.hk/links.htm .

How do individuals and businesses in society make decisions? From the viewpoint of an economist there are three basic assumptions. Rationality, maximization and costs & benefit analysis.

Rationality: Economists start by assuming that economic decision makers act in a rational manner. What this means is that decision makers act according to reason, rather than in any odd way. For instance, if a person wanted to increase his or her income, it is assumed that he or she would try to work longer hours, rather than shorter hours. Equally if there were two identical products of washing detergent on the supermarket shelf, one price at $5.00, the other on sale at $3.00, it is assumed the shopper would buy the cheaper packet.

Maximization: A second economic assumption is that economic decision-makers attempt to maximize. This means that they try to get the best out of any economic situation. If a person chooses to work for 38 hours a week instead of 40 hours, everything else being the same including the wage, then he or she will choose to maximize leisure time by working 38 hours. Equally, a business will prefer to earn as much profit as possible, rather than a lower profit as possible.

Costs and benefits: In order to decide what is biggest in any economic situation, a decision-maker has to asses the costs and benefits of any particular course of action. For example what would be the costs and benefits of a decision by workers to buy a factory that they worked for if it was about to close down? The costs would be the money they had to put up to buy the factory from its owners. However, costs could be even greater. If the factory started to make a loss, they could not only loose all their money they had put in the firm but may have to commit more money to keep it going. Another cost would be the lost opportunity to find a new job. The benefits would be that they would still be in a job. They would get a salary. What’s more if the company were successful, they would get a share of the profits and see the value of their initial capital investments increase.

These costs and benefits relate to the individual workers who are making the decision about weather to buy the factory. The economic model of decision maker than assumes these workers would decide to support buying or not buying by weighing up these costs and benefits and making a rationale decision about how to maximize their individual utility. This is the basis of an economic decision making model.

Read more...

Integration of Meta-analysis and Economic Decision Modeling for Evaluating Diagnostic Tests

Alexander J. Sutton, PhD

Centre for Biostatistics & Genetic Epidemiology, Department of Health Sciences, University of Leicester, 22-28 Princess Road West, Leicester LE1 7RH, UK, ajs22@le.ac.uk

Nicola J. Cooper, PhD

Department of Health Sciences, University of Leicester, Leicester, England

Steve Goodacre, PhD

School of Health and Related Research, University of Sheffield, Sheffield, England

Matthew Stevenson, PhD

School of Health and Related Research, University of Sheffield, Sheffield, England

Meta-analysis of diagnostic test accuracy data is more difficult than of effectiveness data because of 1) statistical challenges of dealing with multiple measures of accuracy (e.g., sensitivity and specificity) simultaneously and 2) incorporating threshold effects. A number of meta-analysis models are in use, ranging from naïve synthesis of independent sensitivity and specificity to optimization of a hierarchical summary receiver operating characteristic (SROC) curve. Little work has been done on how such analyses should inform decision models. This article aims to present a unified framework for the synthesis of primary data and economic evaluation of alternative diagnostic testing strategies using Bayesian Markov Chain Monte Carlo simulation methods. The authors extend this previous work by using systematic review to derive model parameters, fully allowing for uncertainty in their estimation, and formally incorporating variability between study results into the decision analysis. Using a simple decision model comparing alternative testing strategies for suspected deep vein thrombosis as an example, the authors consider how to use outputs of different alternative meta-analysis models in decision models. They also explore the limitations of diagnostic test studies, particularly when there is no obvious threshold value. To correct some of the limitations of diagnostic test studies, they propose that tests with implicit and explicit thresholds should be studied using distinctly different frameworks. Specifically, when a threshold exists, quantitative threshold information should be included in meta-analysis models to aid interpretation of SROCs. Setting policy to relate to a specific point may be much more difficult for studies with implicit thresholds.

Read more...

Irrational Economic Decision-Making after Ventromedial Prefrontal Damage: Evidence from the Ultimatum Game

by Michael Koenigs and Daniel Tranel

Department of Neurology, Division of Cognitive Neuroscience, University of Iowa College of Medicine and Neuroscience Graduate Program, University of Iowa, Iowa City, Iowa 52242

Correspondence should be addressed to Dr. Michael Koenigs, Building 10, Room 7-5648, 10 Center Drive, Bethesda, MD 20892. Email: koenigsm@ninds.nih.gov

Emotion regulation is often critical for adaptive decision making. Here, we investigate whether emotion regulation defects following focal prefrontal brain damage are associated with exceptionally irrational economic decision making in situations of unfair treatment. In the Ultimatum Game, two players are given one opportunity to split a sum of money. One player (the proposer) offers a portion of the money to the second player (the responder) and keeps the rest. The responder can either accept the offer (in which case both players split the money as proposed) or reject the offer (in which case both players get nothing). Relatively low Ultimatum offers are often rejected, and this "irrational" behavior has been attributed to an emotional reaction to unfair treatment. Using the lesion method, we tested the hypothesis that damage to ventromedial prefrontal cortex (VMPC), an area critical for the modulation of emotional reactions, would result in exaggerated irrational economic decisions. Subjects acted as the responder to 22 different proposers who offered various splits of $10. Offers ranged from fair (give $5, keep $5) to extremely unfair (give $1, keep $9). The rejection rate of the VMPC group was higher than the rejection rates of the comparison groups for each of the most unfair offers ($7/$3, $8/$2, $9/$1). These results suggest that emotion regulation processes subserved by VMPC are a critical component of normal economic decision making.

Read more...

Bad Economy Or Bad Decisions?

Posted on 8:47 pm by Paul Colligan

What a day, …

Dow is down (again).

Revision3 lets GaryV and Epic Fu go.

I start agreeing with Valleywag.

And then Kent Nichols starts responding to my Tweets.

I’ve had the makings of this post rumbling around in my head for awhile. It is time to post.

If somebody makes a bad business decision, it is their fault, not the economy’s.

If you read the Valleywag piece, they mention a company that “never should have launched at all.” You can argue with their suggestion but I dare anyone reading this to tell me that every company in the New Media space is being 100% smart with their money.

There is a lot of waste in an industry that can’t afford it anymore (let alone should have allowed it back then). It is time to change.

Earlier today, Kent Nichols suggested we “add Revision3 to the ‘Dead Pool.’” I had to argue with him (hence the Tweets mentioned above) - I don’t think it is that bad. But, as we all know, Kent is one smart cookie and, well, when he says something, we need to pay attention.

There are some things that need fixing.

I have to believe there is something in the middle here. I think we can actually respond smart and pull out of this.

I see companies with shows with a few thousand downloads per episode who earnestly hope that one day they’ll be able to pay the bills on this model.

That makes as much sense as lending money to people who don’t have the ability to pay it back - and then giving yourself an obscene bonus for meeting your quota.

And then asking the government to bail you out (at my expense).

So that you can keep you bonuses.

Cause you deserve them.

For bad business decisions.

I applaud Louderback (or anyone else like him) who decides to make the hard decisions. We need to read the spreadsheets, run the numbers, and make the right decisions.

Want to flush this economy down the drain?

Blame it on your bad decisions.

Or, … start taking account for your actions.

And make the hard decisions.

And come out o.k. on the other side.

You can do this.

What do you need stop stop spending money on right now? I know those new Macbooks are as sexy as all get out but, … twenty five hundred bucks growing your audience might be money better spent.

I know it ain’t easy for all of us to build a whole business around our content (like Kent has done) and would love to just produce and let someone else pay but, … maybe the industry ain’t ready for that yet.

Take control.

Make smart decisions.

Don’t blame anything on anybody but yourself.

And then do something about it.

I could care less who you vote for.

I care a lot about what you do the rest of November 4th.

Good decisions will make for a good economy.

Be part of it.

Produce content of value.

Read more...

All talks, no decision seen at WTO meet

All talks, no decision seen at WTO meet 26 Jul 2008, 0301 hrs IST, Amiti Sen, ET Bureau

GENEVA: Uncertainty prevailed at the WTO mini-ministerial here on Friday as the talks entered the fifth day without signs of gaps narrowing between developed and developing countries on opening up trade in agriculture and industrial goods. There was, however, some progress late in the day with the group of seven countries, including India, Brazil, the EU and the US, deciding to end their ``exclusive” meeting and start negotiating again with the other 23 trade ministers waiting on the sidelines. European Union trade commissioner Peter Mandelson said: “There has been some encouraging progress.” When asked whether there could be a deal, he said a deal finally looked possible. WTO director general Pascal Lamy, however, warned talks could collapse if negotiators did not show further flexibilities in the next hours, while commerce & industry minister Kamal Nath put the ball in the court of the US and the EU and asked them to do their bit. Issues of crucial interest to India remained unresolved, both in agriculture and non-agriculture market access (Nama or industrial goods). An agreement on special products (vulnerable goods dictating the food and livelihood security of poor farmers) and flexibilities that would determine the tariff cuts which Indian industry needs to take were elusive. Disregarding whispers about India’s hard stance in the negotiations which could lead to its failure, Mr Nath said India has shown flexibility in the last four years and now the EU and the US needed to move forward. “They are charging me (that) since you have arrived you are breaking the talks. The moment you arrived, you are making things more difficult. We were all moving all right. We were happy when you won the trust vote, we thought you would come and help us,” Mr Nath said. He said India had made many concessions in the 2005 Hong Kong ministerial, such as agreeing to the developed country formula for tariff reduction in industrial products, which had been pocketed and it was time for the developed countries to give. Brushing aside speculation that the WTO DG would come out with his own draft modalities text for tariff and subsidy cuts, Mr Lamy said this was not a way for convergence and there would be no surprises. The Uruguay Round, which preceded the Doha round, was concluded on the basis of the draft produced by the then WTO DG Arthur Dunkel. The process was widely criticised by developing countries. Mr Lamy said the draft texts on farm and Nama circulated on July 10 would continue to be the basis of talks. He said revisions were required in the text, and members would decide if an overall package was acceptable. WTO spokesperson Keith Rockwell said on special products, there was no decision on the number of tariff lines and exemption of a certain percentage of these lines for tariff cuts. As per the mandate of the round, developing countries would be required to take either zero cuts or very low cuts on items designated as special products. India as part of the G-33 alliance has been asking for the freedom to designate 18% of its tariff lines as SPs and make no cuts in 6% of these tariff lines. In Nama, there was no agreement on the reduction commitments by countries and the flexibilities to be given to developing countries to protect certain sectors from tariff cuts.

Read more...

Economics and other subjects

Main articles: Law and Economics, Philosophy of economics, Natural resource economics, and Thermoeconomics

Economics is one social science among several and has fields bordering on other areas, including economic geography, economic history, public choice, energy economics, cultural economics, and institutional economics.
Law and economics, or economic analysis of law, is an approach to legal theory that applies methods of economics to law. It includes the use of economic concepts to explain the effects of legal rules, to assess which legal rules are economically efficient, and to predict what the legal rules will be.[111][112] A seminal article by Ronald Coase published in 1961 suggested that well-defined property rights could overcome the problems of externalities.[113]
The relationship between economics and ethics is complex. Many economists consider normative choices and value judgments, like what needs or wants, or what is good for society, to be political or personal questions outside the scope of economics. Once a person or government has established a set of goals, however, economics can provide insight as to how they might best be achieved.
Others see the influence of economic ideas, such as those underlying modern capitalism, to promote a certain system of values with which they may or may not agree. (See, for example, consumerism and Buy Nothing Day.) According to some thinkers, a theory of economics is also, or implies also, a theory of moral reasoning.[114]
The premise of ethical consumerism is that one should take into account ethical and environmental concerns, in addition to financial and traditional economic considerations, when making buying decisions.
On the other hand, the rational allocation of limited resources toward public welfare and safety is also an area of economics. Some have pointed out that not studying the best ways to allocate resources toward goals like health and safety, the environment, justice, or disaster assistance is a sort of willful ignorance that results in less public welfare or even increased suffering.[115] In this sense, it would be unethical not to assess the economics of such issues. In fact, state agencies all over the world, including the federal agencies in the United States, routinely conduct economic analysis studies toward that end.
Energy economics relating to thermoeconomics, is a broad scientific subject area which includes topics related to supply and use of energy in societies. Thermoeconomists argue that economic systems always involve matter, energy, entropy, and information.[116]Thermoeconomics is based on the proposition that the role of energy in biological evolution should be defined and understood through the second law of thermodynamics but in terms of such economic criteria as productivity, efficiency, and especially the costs and benefits of the various mechanisms for capturing and utilizing available energy to build biomass and do work.[117][118] As a result, thermoeconomics are often discussed in the field of ecological economics, which itself is related to the fields of sustainability and sustainable development.
Georgescu-Roegen introduced into economics, the concept of entropy from thermodynamics (as distinguished from the mechanistic foundation of neoclassical economics drawn from Newtonian physics) and did foundational work which later developed into evolutionary economics. His work contributed significantly to bioeconomics and to ecological economics.[119][120][121][122][123]
Source : Wikipedia.org

Read more...

Credit cards before 2007?

Source :www.economylab.org

i heard on the radio that if you took out a credit card before 2007 everything you own on the card will be wiped clean?
i didn't hear the full story, but for them that know..
does that count for every credit card?
if not, which ones? and why?
does anyone have any links for this thing? i've tryed looking arond but can't find anything…
can anyone tell me more on how this works and how to do it
thanks
Answer
I think what have heard about is the changes that were made to the Consumer Credit Act (1974) in 2006. Under the terms of this act, credit cards and other types of credit agreement have to be drawn up in a particular way, include specific details, be accompanied by certain bits of information. What happens if some of these things are missing? Well, it used to be that if an agreement wasn't drawn up correctly the debt could not be pursued through the courts. It would not be wiped clean as such, but the creditor would not be able to enforce it in court. The government decided this was a bad thing and changed the law to give the court the right to decide, in each case where the original agreement was not drawn up correctly, whether it should be possible to take action to recover the debt. This change took effect in 2007 - on 1 April, I think.
So, you weren't dreaming. Some people who took out credit in 2007 or earlier will have agreements they can't be taken to court for. It isn't all that common though, particularly with credit cards, since credit card companies generally know what they need to do to stay on the right side of the law. None of this is relevant if your agreement was drawn up correctly, which will have been the case in the majority of cases.

Read more...