What is the distinction between rationality and irrationalit

What is the distinction between rationality and irrationality? Provide examples to support your answer.

Choose a global product or company and describe its global footprint. Compare and contrast how the company is rational versus “irrational,” and cite specific examples. Does this make it more efficient or inefficient?

Solution

Solution:

Rationality: - In economics, rationality is described as a behaviour of an individual, company or institution which maximise utility with the given choices available. It also says that individual, company or institution always make wise and prudent decision to reach the optimal level of benefits. While making decision they also solely focus on the facts and remove all emotional components attached with it. Some examples are- a) a person is choose a job of profile of his like over high paid job. In this decision making, he use his logic that in long term this decision will result in strong profile built up and more job opportunity. B) Even gambling for fun is a rational decision to maximise utility in terms of fun.

Irrationality: In economics, irrationality is described as a behaviour of an individual, company or institution which doesn’t maximise utility and causes loss of economic welfare. Some examples are –a) People knows that chewing tobacco can cause biggest health problems like cancer. But knowing the fact that it will result in bigger loss people continue to chew tobacco. b) Indigo is cheap and provides on time fly. If a person had bad experience while travelling with indigo and if he assumes that entire Indigo is bad and stop travelling with Indigo. This behaviour comes out due to emotional response.

Comparison of rational Vs irrational for a global company named as Acer:

Acer is a big name in the segment of Electronics. It has presence in many countries including Australia, Europe, India, Indonesia and North America. The revenue for the year 2015 was approx. $263 billion and net income of $604 million. Its wide ranges of products are ranging from computer, tablets, mobiles, laptops, smartphones, etc.

Acer rational behaviour- Acer started just with $25000 and eleven employees. Since then it grows worldwide and increased its sales and become no 3 in computer providers and number 2 in notebooks. It uses the marketing strategies that used their existing distribution channel and reduced the labour force. This rational decision made it very profitable in that category.

Acer irrational behaviour- While focusing on growing distribution channel Acer ignored the fact that the buying behaviour of people are changing. They are more focused on online sales. Acer completely ignored this sector that later resulted in big market failure.

Acer again shows its irrational behaviour when it made Hritik Roushan as his brand ambassador in India. Hritik is a name mainly popular for his in house films. He is not much popular in India outside his in house production. Also, There is no connection between Hritik and computers. His persona is also not matched with acer brand laptops. It uttered in drastic failure of Acer in India. Later Acer identified it and after the market research and data it made youth icon Anushka Sharma as his brand ambassador.

Conclusion: When Acer was focused on increasing distribution channel while ignoring online sales, it was efficient for it, in early stages. But, when people buying behaviour changed it became less efficient or inefficient for it.