The Invisible Paradox: Does Self-maximization Always Lead to Maximization of the Self-objectives?

Adam Smith, the father of economics, believed that State should intervene less in the functioning of the market and also in the economy. His idea is this: because every individual tries to maximize her objectives, in the aggregate the nation’s objectives or welfare will be maximized. This is fine. But then we know that due to presence of market imperfections like information asymmetry and market failure, and coordination problems, individuals’ maximization of objectives don’t guarantee us a maximization of the State objectives. (Though in a different context, we must not forget that how maximization of individual objectives has landed the world in a great crisis). The observation that I am going to put forward here is similar to the Paradox of Thrift of Keynes. Anybody familiar to the electronic E-mail world knows that we have a chat option, where we can talk passively with our dear ones. Now suppose I observe that in my chat list, at least 20 persons are available to chat with. And for the sake of argument, say on average at least 5 persons chat with me ever day and each for at least 10 minutes. So being a utility maximizing agent, I would like to minimize the disturbance, while ensuring that I also maximize my utility from the chats. So my objective function is to maximize utility subject to time constraint, where my variables are number of persons available for chatting and time per each chatting. We can work out what will be the optimal number of chats. But let’s not go to the quantitative aspect, for it will not tell where I will get maximum satisfaction from. By this I mean that I can get maximum utility from chatting with Mr. Y rather than say Mr. X. Hence to account for this aspect what I will do is to exercise the “invisible” option, for it allows us to know who is available for chatting and we can be selective here and we can chat to whom we wish.

So the question is whether this action will maximize my utility maximization objective. The answer is no. Why? Let’s put one assumption that every individual has ego and is also rational. Now suppose Mr. Y observes that I am doing this. Because she is rational has ego, she will do this. If everybody in my friends list does this I can’t maximize utility from chatting, for my mail account will show everybody is invisible. Hence, we see that everybody’s objective of maximizing utility from chatting landed them a loss of utility. So what is the best solution if I want to get maximum satisfaction from chatting? I should be always available for chatting while admitting candidly that I am unable to chat with Mr. Y, if I don’t want to chat with that guy or due to other reasons.

What do u think???

How to curb Coolie's Monopoly Power at Railway Stations?

We all travel in trains. If you have luggage you normally take the help of a Coolie, that is, the luggage pickers. And you know how do and how much they exploit passengers. The exploitation is more if you are alone and if you have couple of heavy-weighted luggage bags. You have no other way than to surrender yourself before them. They also know this. Like couple of dogs tugging at a bone, couple of coolies will surround you to pick up luggage form you. No doubt they are doing a great job. Imagine how you would handle so many luggages in big railway stations.  So, they have an upper-hand in bargaining. But unlike the dogs tugging at a bone (who fight each other for that piece of bone), here collies work like a sophisticated cartel; uniform price and better coordination among them. Just Like OPEC. For example, if you have two bags and you want to go platform no-4, coach no-3, and the distance from your platform to the place of bargaining is 1 K.M, then no matter how many coolies you ask, you would only hear one price.

So what determines price? How do they charge? In other words how do they fix that price, on what basis? I guess two factors play a major role. The number of bags (implicitly the weight) and the distance from your platform to the place of bargaining.

So to curb the monopoly power we can install weighing machines or a machine that tells you the distance to the coach position and weight of your luggage. Price will be fixed accordingly. Further, a rate will be fixed in night times and rain time. I think this would reduce the monopoly power. And it is good for both passengers and of course, for coolies. So we don’t feel cheated.