I decided last week – as a rational choice – that I will pay the old man that works in the guest house I’m staying at 5 Rupees per day for bringing me the newspaper (The Hindu) every morning to my door. It is a good deal for both of us. The newspaper costs 3.5 [...]

My friends from childhood, and even my brother, would say that I’m “stingy“. However, an Indian girl from Delhi I met some weeks ago, told me that I have “splurging tendencies”. It is, indeed, very confusing. What’s happening?

I realized I’m suffering from Money Illusion, which is when decisions are influenced by nominal amounts of money. [...]

In Economics, the term “Free Rider” refers to a situation when an individual “consumes more than their fair share of a public resource” (from Wikipedia).

I’ve found repeated evidence of Free Riding in Thanjavur:

These pictures are taken by me in the back seat of two different auto rickshaw that took me to the office [...]

Economic theory suggests that in equilibrium, the price of a good is given by the intersection of the demand and supply curves. This means that the market chooses a quantity to be produced and a price for that good such that the consumers and producers’ surplus is zero. You may be thinking: “WHAT is this [...]

I think I may have just stumbled upon the holy grail of macro-economics. I think I have found qualitative evidence in support of the seemingly ridiculous intuition of the Real Business Cycle (RBC). RBC theories try to explain why there are booms or recessions which deviate the economy from their growing trend.

RBC created a revolution [...]

I rarely drink coffee, but the other day I went with a couple of friends to Starbucks, and decided to try an iced coffee. I asked for the smallest one available. However, the woman in the counter told me: “Are you sure? You know you could get the “Grande” (medium sized) for the same price”.

Effectively, [...]

In economics, equilibrium is the long term stable outcome of any dynamic process. We not always reach equilibrium, and to be honest, we don’t really care how do we reach them. We only care about their existence.

However, shocks can move us out of equilibrium, and it is interesting to see if after a shock we [...]

Another interesting study regarding Chimpanzees. Thanks to my friend Cesar for the link.

It is interesting to see that rationality and incentives have ruled the world way before money markets.

And for the male readers, here is the tip of today Check out the link:

http://sciencenow.sciencemag.org/cgi/content/full/2009/408/3

An application to real life, is this scene in [...]

I took this from Greg Mankiw’s Blog. I think is a wonderful example of the Prissioner’s Dilema of Game Theory which I mentioned in the context of one post. I encourage you to watch it.

Most of consumer’s theory in Economics is based on – guess what – consumption. How do people make their consumption decisions? What if the price of one good increases or if suddenly you have more income or an increase in your salary?

Of course, all these questions depend on one’s preferences. Each one of us have [...]