Rational decision making

A lot of economic models are based on rational decision making and a principle of maximisation. In reality the human decision making process may not be quite as tidy as this. The recent announcement by Antonio Horta-Osorio, the chief executive of Lloyds who took a leave of absence from the bank because of exhaustion, that he wishes to return to work highlighted the stress managers can work under. Horta-Osorio is basically having to reapply for his job because  the board of Lloyds needs to be reassured that he won’t again become incapable of working. The pressure of senior positions especially at times of major economic turmoil may make us wonder quite how logical, calculating and dispassionate the decision making process actually is and how many other influences there may be on it.

No easy access to Indian consumer

India’s parliament has prevented the reform proposal that would have allowed foreign ownership of retail outlets. This has halted the expansion plans of business such as Wal-Mart and Tesco (at least temporarily). A foolish attempt to hold back the crushing waves of globalisation? A mistaken defence of local inefficient producers? Or an honourable defence of domestic culture and business?




Ready for 80?

Proposals to raise the speed limit to 80 on the motorways has highlighted the difficulties of cost benefit analysis. Will a higher speed limit mean more accidents and , if so, how do we value injuries and human lives. What about the impact on the environment if more fuel is used at higher speeds? but then what about the benefits of moving products more quickly around the country and the extra time that might be gained at work?  A complex decision involving numerous external effects.

So how important is price?

Chris Huhne , the energy secretary, recently told The Times that part of the reason for our high energy prices is that customers don’t spend long enough shopping around for better deals. According to Huhne we make more effort looking for the best price for a toaster than we do when looking for energy suppliers. In Economics we put a great deal of emphasis on the role of price on the buying decision. Marketing professionals know our approach to buying different products is a very complicated and not always rational process!



Does austerity support growth?

According to Christine Lagarde, head of the International Monetary Fund (IMF), the global economy is not growing at a fast enough pace and a threat of global recession remains.

In her first major speech since taking over as head of the IMF Lagarde said “Put simply, macroeconomic policies must support growth”. An interesting observation at a time when many governments are delivering austerity packages. The ability of such measure to “support growth” could be questioned suggesting difficult times ahead.



The burger tax

According to the British Heart Foundation more than 10 per cent of six-year-olds in the United Kingdom are obese and a fifth of four-year-olds are overweight. To help reduce this problem Professor Malek, head of social sciences at the University of St Andrews, has suggested a 10 p tax on burgers that have more than a certain fat content. The aim is to reduce consumption of this type of food and encourage producers to use leaner meat.

A classic case of market failure leading to overconsumption and requiring government intervention. But is tax the best solution do you think?