Life and Lagrangian - Decision making and Economics
In this post, I review an interesting interview about the decision-making process by an ex-spy and the National Security Advisor of India and connect it with a simplistic optimization procedure used in fundamentally and frequently in economics. I try to demonstrate the beautiful language of mathematics and how its embrace with economics can help us understand the way of life.
Inherently all of us, our brains and its psyche, more or less operates similarly. The major difference lies in the way we respond. In a simple yet insightful way, scenarios are like rainfall, it falls on everyone evenly but some are immune, some catch cold, some are prepared with an umbrella and so on. Decision making always has uncertainties involved since no one’s a crystal gazer and the outcome of any decision is revealed only ex-post the event. We cant prevent the things that are happening to us. I do agree that what happens with us in life is important, but it is more important that how we respond to what happens to us. Nature or circumstances sometimes are preparing not for what happens to us, but how we respond to that. This interaction between nature and our response forms our psyche. On top, the events which one has planned for themselves doesn't effect psyche because they planned. The things that effect our psyche is something that was not planned and thus leaves a mark.
When taking a decision, plan for the worst-case scenario. If the worst-case scenario is affordable, then we can start improving its cost-effectiveness. This requires patience and work. Basically, by articulating the fear, it could be realized that it is not as bad as we think it is. Additionally, by preparation, knowledge, understanding and hard work we can further reduce it.
When taking a vital decision, it is also good to have a contingency plan. This reduces fear levels significantly to the levels where one can say "come what may, and we will deal with it."Tough decisions are those which have a high-risk factor. While taking such decisions broadly one can follow these steps:
1. Necessary to have clear objectives in mind. "Take out all adjectives, all adverbs, it should be only nouns and pronouns. Make it as small and as simple as possible." Our objectives must be clearly defined and focused. After this, we must do an objective analysis of ourselves, our circumstances, resource availability.
2. After the objectives are defined, we should do an objective analysis of what are the options available to achieve it. What creates these options, its experience, knowledge. These enable us to relax our constrained basket of choices.
3. How to select the best option? Each option has its own cost and opportunities. The chosen option should basically be the one, which is the most cost-effective and is most probable to be achieved. When someone says they took a wrong decision, it wasn’t actually the decision that was wrong but it was this chosen option which was wrong. The decision is always right, it is, for this reason, it in the first place. Why would anyone take a wrong decision knowingly? It wasn't the efficacy of decision which should be blamed since its ex-post, but it was the discretion of the option taken. Why the wrong option might have been selected, its because our knowledge was constrained, lack of communication, improper research etc.
4. After selecting the option, then we should start preparing for it. We have to work our best to achieve our objective. As mentioned our decisions are not right or wrong, but many times we simply don't work towards it to fruitify. "More than taking the right decision, it is important to make a decision right. Even if sometimes we realize, there are some mistakes in the judgement of decisions, we should always work to make it right. And so, it's important to concentrate more on actions than keep on changing decisions. Take a decision, and go on...
If I have to go from point A to point B, and there are say 10 routes to go traverse. Suppose I chose a particular route and it took me way more time than it should have taken. Then, it wasn't the decision to go to point B which was wrong. It was the chosen route which was wrong. If I had known every route, every turn of every route, I would have known the best possible route.
In terms of economics, I think of this decision-making approach as a constrained optimization problem.
Our decisions x affects the outcome and thus needs to be chosen carefully. Before starting, our objective F(x) must be clearly specified and understood. After this, all the constraints must take constraints into account, thus our objectivity, else there’s no optimization. It is then followed by the validation of assumptions of concavities. After all this is done, then we can progress towards searching for the best choice or our decision. Having completed these steps, our problem becomes a little sophisticated now.
Lagrangian multiplier needs to be taken into account as it depicts the trade-off, thus indirectly controlling the availability of options. Care should be taken here and the equation should be comprehended properly or else it would result in a wrong option being adopted. We should also remember that these FOCs are not the solution. They are necessary, not sufficient conditions. It takes time and effort to find the best option, forming lagrangian (say) and taking first-order conditions which can be complex enough. Now after having selected the option, we check the conditions and start preparing to put values in and finally attain the objective value.
The decision making part is my review of Mr. Ajit Doval’s interview “Talking Point” aired on Mar 27, 2019. Mr. Doval is the current National Security Advisor to the Prime Minister of India. He has also served as the director of Intelligence Bureau in 2004-05. He is considered to have played an instrumental role in strategizing Surgical strikes 2016, Balakot strikes 2019, revocation of the special status of J&K 2019 and many such events of national importance. In this interview, he briefly talked about the way of decision making. I decided to write this review because I believe such suggestions coming from a person whose job is to take some of the toughest decisions where the history is at stake would be quite useful for all of us. Its analogy with economics has been added by me and is my view.
When taking a vital decision, it is also good to have a contingency plan. This reduces fear levels significantly to the levels where one can say "come what may, and we will deal with it."Tough decisions are those which have a high-risk factor. While taking such decisions broadly one can follow these steps:
1. Necessary to have clear objectives in mind. "Take out all adjectives, all adverbs, it should be only nouns and pronouns. Make it as small and as simple as possible." Our objectives must be clearly defined and focused. After this, we must do an objective analysis of ourselves, our circumstances, resource availability.
2. After the objectives are defined, we should do an objective analysis of what are the options available to achieve it. What creates these options, its experience, knowledge. These enable us to relax our constrained basket of choices.
3. How to select the best option? Each option has its own cost and opportunities. The chosen option should basically be the one, which is the most cost-effective and is most probable to be achieved. When someone says they took a wrong decision, it wasn’t actually the decision that was wrong but it was this chosen option which was wrong. The decision is always right, it is, for this reason, it in the first place. Why would anyone take a wrong decision knowingly? It wasn't the efficacy of decision which should be blamed since its ex-post, but it was the discretion of the option taken. Why the wrong option might have been selected, its because our knowledge was constrained, lack of communication, improper research etc.
4. After selecting the option, then we should start preparing for it. We have to work our best to achieve our objective. As mentioned our decisions are not right or wrong, but many times we simply don't work towards it to fruitify. "More than taking the right decision, it is important to make a decision right. Even if sometimes we realize, there are some mistakes in the judgement of decisions, we should always work to make it right. And so, it's important to concentrate more on actions than keep on changing decisions. Take a decision, and go on...
If I have to go from point A to point B, and there are say 10 routes to go traverse. Suppose I chose a particular route and it took me way more time than it should have taken. Then, it wasn't the decision to go to point B which was wrong. It was the chosen route which was wrong. If I had known every route, every turn of every route, I would have known the best possible route.
In terms of economics, I think of this decision-making approach as a constrained optimization problem.
Our decisions x affects the outcome and thus needs to be chosen carefully. Before starting, our objective F(x) must be clearly specified and understood. After this, all the constraints must take constraints into account, thus our objectivity, else there’s no optimization. It is then followed by the validation of assumptions of concavities. After all this is done, then we can progress towards searching for the best choice or our decision. Having completed these steps, our problem becomes a little sophisticated now.
Lagrangian multiplier needs to be taken into account as it depicts the trade-off, thus indirectly controlling the availability of options. Care should be taken here and the equation should be comprehended properly or else it would result in a wrong option being adopted. We should also remember that these FOCs are not the solution. They are necessary, not sufficient conditions. It takes time and effort to find the best option, forming lagrangian (say) and taking first-order conditions which can be complex enough. Now after having selected the option, we check the conditions and start preparing to put values in and finally attain the objective value.
"Every day in your life is the first day of the life that is left"
The decision making part is my review of Mr. Ajit Doval’s interview “Talking Point” aired on Mar 27, 2019. Mr. Doval is the current National Security Advisor to the Prime Minister of India. He has also served as the director of Intelligence Bureau in 2004-05. He is considered to have played an instrumental role in strategizing Surgical strikes 2016, Balakot strikes 2019, revocation of the special status of J&K 2019 and many such events of national importance. In this interview, he briefly talked about the way of decision making. I decided to write this review because I believe such suggestions coming from a person whose job is to take some of the toughest decisions where the history is at stake would be quite useful for all of us. Its analogy with economics has been added by me and is my view.
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