This is by no means a paper in Economics and neither is it an “attempt” towards one (as it turns out for me in most cases). This is just a piece where I plan to freely share my opinion on some interesting research problems faced by economists over the evolution of the subject and how we find some striking similarities to them in our daily lives. It is also an opportunity for me to provide my heartiest best wishes and greetings to the organizers of YESM 2013, which is now a regular feature in the calendar of economics students in the city of Kolkata, and perhaps even beyond!
One of the major problems that economists and researchers in economics face worldwide is aligning theoretical predictions to behavioral results. It is not uncommon to peep into an undergraduate class and find mention of “rational” agents. It is often seen that certain results which do not line up with economic theory are supposed to have been derived from irrational behavior or outlier data points. There is a whole literature on “excess sensitivity” and “excess smoothness” of data in predicting economic variables and the agent behavior. People particularly interested in macroeconomics and especially inter-temporal consumption behavior will be totally aware that these two terms are at many times your companion in the subject. In fact, any research paper looking to identify inter-temporal consumption aspects and trying to back up theoretical claims with empirical data by running rigorous fearful scary looking regressions might have to end up with some findings that are owed to these two fancy terms!!
I presume that the readers of this article are undergraduate students in majority (though I know some senior people are raising their eyebrows while reading this line) owing to the fact that this publication is associated with an event meant for budding students and researchers. To them it might all seem a bit out of context and strange to talk about such extravagant expressions. However, this is not very alien to what we all study at an intermediate level by any means. We do come across certain “simplifying” and restrictive assumptions which make our models and comparative statics good to look at and easy to do, respectively but in reality we may often end up finding different results while working with true data. I just chose the inter-temporal consumption problem for expositional clarity and ease of understanding.
Consider our day to day lives. We have to make several such decisions like consuming “today” versus consuming “tomorrow.” It can be regarding anything. Say for example, a person is contemplating buying a new iPad today or postponing it till the next quarter when he expects a rise in his pay. Such decisions over time do matter to us and are frequently happening around us. Every day, we are weighing our present day benefits against the future. Now, suppose our potential ipad buyer suddenly knows that his pay shall increase right from the next month and he won’t have...