Wednesday, November 2, 2011

The world of second best

What is first best? In economics-speak, first best is when information is complete and everyone acts rationally. In the real world, we operate under incomplete information and irrationality. That is the world of second best, when optimality conditions cannot be satisfied. Does it mean that we don't act optimally in the world of second best. Not at all. There is still an optimal action/outcome given non-optimality conditions. We should still do the best we can even though we are not at the preferred optimum.

Indeed that should always be the case, for we are never in the first best world. Things can and do go wrong - in races, in training and in life. We just have to make do the best we can.

And that is good enough.

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