##egorizing and evaluating economic outcomes. for instance, people are known to make notional mental accounts, i. e., accounts for education of children or savings, etc. even within investment accounts, there is a safe account designed to provide for the “ rainy days ” and one account that is typically the risk taking account designed to make money grow faster. however, theoretically, speaking money should be fungible across accounts because money in one account is as good as money in some other account. in practice, however, money is not found to be fungible across accounts. for instance, fall in value of investment from the safe account causes more pain than an equivalent fall in value in the other risk taking accounts. another interesting example popularly quoted is that due to risk aversion trait, people tend to hold on to loss making stocks and sell profit making stocks. in effect, people try to reduce loss and hence end up keeping loss making stocks for longer. bracketing 14. another issue of mental accounting is the concept of broad and narrow bracketing. many of us here may have noticed the getting a taxi on a rainy day is particularly difficult. one would think that there would be more people willing to travel by taxis on a rainy day than on a non - rainy day, thereby giving taxi drivers incentive to work more and, hence, earn more. however, it is possible that taxi drivers focus on the income from a day, i. e., the concept of narrow bracketing but not on the income over a longer period of time, i. e., the concept of broad bracketing. on rainy days, the bis central bankers ’ speeches income for the narrow bracketing is achieved more easily as the targeted earnings are achieved for the day early. hence, many taxi drives take rest earlier than usual, thereby aggravating the problem of finding taxis on rainy days and also depriving them of higher earnings on such days. emotions and expectations in economic decision making 15. most theories in economics focus on debates without the involvement of any emotions. i am sure you will agree with me that many of the decisions that we take are based on or influenced by our emotions. besides, there is also evidence to prove that people are influenced by their current tastes and habits when predicting futures tastes. individuals in the framework of mainstream economics are said to know the entire time path of the costs and benefits of their actions. in the event that when they do something that may not be completely rational, say

but on the different approaches that groups of countries have used to develop them. selfinsurance by way of reserve accumulation may be the safest way to protect oneself from global shocks from the viewpoint of individual countries. but, beyond some threshold levels of magnitude, it begins to generate externalities. to return to a point that was made earlier in the context of the east asian crisis of the late 1990s, the effective choice made by countries affected or threatened by that crisis to build up self insurance capacity was both a response to perceived inadequacies in the collective safety nets available at the time and a contributory factor to some of the imbalances that have been associated with the global transmission of the recent crisis. the analytical debate on this issue will go on, but the practical implication for many countries is to decide on their acceptable mix of insurance options within the overall consideration of doing no harm to other countries. even while collective options, such as those that have recently been introduced by the international monetary fund become more accommodating of individual country requirements, the benefits of self - insurance that many countries experienced first - hand during the recent crisis are difficult to deny. meanwhile, the perceived link between the building up of individual safety nets and global imbalances makes this issue a dividing line within the group. another example of a dividing line is financial regulation. it is now generally accepted that a significant contributory factor to the recent crisis was the opportunity that the existing regulatory and supervision framework in some advanced economies provided for highly risky investments to be made. however, even as this was happening, there are several countries in the group whose regulatory frameworks did not provide such opportunities and whose financial systems emerged from the crisis relatively unscathed. notably, there seems to be a significant correlation across countries between the degree of damage that domestic financial systems suffered and the speed and robustness of their recoveries. however, there is little question that there is a strong and inexorable process of global financial integration, which, with all the risks it entails, does have large potential benefits for all countries concerned. one important requirement for realizing these benefits is a set of common regulatory principles, standards and practices across countries. these are necessary to ensure that capital flows across the world based on genuine consideration of fundamental returns and risks and not on arbitrage between different regulatory environments. certainly in theory, this should not be the cause of any division ; there is a clear common and shared interest in the outcome. in practice,