Question

For each concept --write a short answer

(1) Explain the concept—what is it? 2 points

(2) Explain its significance—why is it important to understand it? What does it explain? 2 points

(3) Given an example —illustrating the concept in practice. 1 point

Rationality of irrationality                             

Credible signal

Natural experiment   

Informal Institution                                        

Structure

Institutional overhang                           

Alternative explanations

Answer 1

Answering the First FOUR parts of the question

1) Rationality of irrationality

CONCEPT:
The idea of rational irrationality reconciles the widespread existence of irrational behavior with the idea of rationality made by mainstream economics and theory of games. It advocated by economist Bryan Caplan in 2001. Rationality is defined as the search for truth, irrationality the opposite.
SIGNIFICATION AND EXPLANATION:
The original significance of the concept was to elucidate how (allegedly) detrimental policies might be implemented during a democracy, and, unlike conventional public choice theory, Caplan posited that bad policies were selected by voters themselves. this idea has benefits just like the psychological benefits of supporting policies that feel good but are actually harmful could also be greater than these small expected costs. This creates a situation where voters could also be rationally irrational for practical morale reasons.
EXAMPLE:
For example, if shares rise and other people see a rise in wealth, this might encourage them to stay buying more. If prices rise above their long-term value, we will think ‘this time is different’, and maybe there's some reason for the increased value of shares. Irrational exuberance has occurred during ‘bubbles’ like the “Dot Com Bubble” of the late 1990s and therefore the financial bubble of the first 2000s.

2) Credible signal

CONCEPT
Signaling occurs when an individual within the market who has information that others don't have – referred to as an insider – triggers selling or buying behavior by those that don't have information, due to the actions of that insider. The insider’s behavior is taken as a ‘market signal’ to others on what could be happening to a share value – hence the term ‘signaling’. a credible signal may be a signal that gives accurate information; a sign which will distinguish among senders.
SIGNIFICANCE AND EXPLANATION
They generate benefits by creating more information. they assist individuals in markets realize gains from trade by overcoming problems of asymmetric information. Since a reliable sign of an individual's purpose, showing that the person is committed and trustworthy. the knowledge provided as a symbol is taken into account accurate.
EXAMPLE
For example, in job-market signaling, interested candidates send a sign about their ability and capability level to the employer by acquiring certain education credentials. The informational value of the credential comes from the very fact that the employer assumes it's positively correlated with having greater ability.

3) Natural experiment

CONCEPT
A natural experiment is an empirical study during which individuals (or clusters of individuals) are exposed to the experimental and control conditions that are determined naturally or by other factors outside the control of the investigators.
SIGNIFICANCE AND EXPLANATION
Natural experimental approaches are important because they widen the range of interventions which will usefully be evaluated beyond people who are amenable to planned experimentation. They illustrate the range of interventions that are evaluated as natural experiments, and therefore the wide selection of methods that are applied. Many of the studies have benefited from the supply of top quality , routinely collected data on exposures, potential confounders and outcomes and substantial, rapid changes in exposure across an entire population, which reduces the danger of selective exposure or confounding by secular trends and increases the arrogance with which changes in outcomes are often attributed to the interventions.
EXAMPLE
The Oregon insurance Experiment, is one among the foremost documented natural experiments in recent years publicly health. it's the primary study to use a randomized design to look at the impact of access to Medicaid, the American social health care program for low-income individuals. This wasn't a field experiment because, interestingly, the researchers themselves didn't create the randomization process. Instead, in early 2008, Oregon opened a roll for its Medicaid program for low-income adults that had previously been closed to new enrollment. Approximately 90,000 people came for the available 10,000 openings. The state drew names from this roll by lottery to fill the openings. Essentially, this was an RCT within the wild.

4) Informal Institution

CONCEPT
Institutions are the formal and casual principles and standards that arrange social, political and monetary relations.Informal institutions are largely overlooked within the comparative politics, but in many countries it's the informal institutions and rules that govern the political landscape. to know the political behaviour during a country it's important to seem at how that behaviour is enabled or constrained by informal institutions, and the way this affects how formal institutions are run.
SIGNIFICANCE AND EXPLANATION
They provide a comparatively predictable structure for everyday social, economic and political life. They also cause enduring patterns of behaviour over time but they also change. Institutions are constantly being reformed through people’s actions. Lastly, they produce positive or negative development outcomes. this relies on the sorts of relations and behaviours that institutions enable, and therefore the outcomes for the enjoyment of rights and allocation of resources in society.
EXAMPLE
As Avner Greif has shown, Genovese traders were able to expand their economic activity successfully because their individualist ethos led to the building of institutions that facilitated the expansion of anonymous arms-length transactions across long distances, whereas Muslim traders were constrained by a closed, communal ethos that relied on inter-communal, face-to-face dealings based on collectivistic modes of sanctioning (Greif 2006). This example instance demonstrates how culturally-determined norms and attitudes, and therefore the rules of the sport they prescribe determine the nature of economic activity