Sustainable Business Coordination: A Vedic Solution to the Endemic Crisis of Trust and Coordination

Abstract

Coordination failure has assumed great significance in both academic literature and real business world. The last global financial crisis can be perceived as a system wide failure of trust and ethics. From a general theoretical stand point this is a large scale failure of the highly cherished ‘invisible hand’ doctrine since Adam Smith. Though there has been considerable degree of study on welfare generating coordination among business players they have failed to generate sustainable solutions, since they are fundamentally based on neoclassical philosophy of selfish utility maximisation. Under information asymmetry, and various other market frictions selfish utility maximisation gives way to problems like moral hazard, this in the end is nothing but a problem of break down of trust and ethical coordination. In this paper we attempt to build a sustainable model of ethical coordination based on the sanatan philosophy of Vedanta, namely, ‘sarbang khalvedam brahma’, or since the same absolute truth embodies every one of us (which we have forgotten due to sheer ignorance or illusion of selfish utility maximisation dictum), we have the potential to exhibit absolute ethical coordination. In the world of business this can be translated as actions based on a more comprehensive utility formulation, which makes the players, incorporate their own pay offs as well as the pay off differences with the others. For manifesting the ideology we here develop a simple game theoretic model, where in a simple two-player game scenario starting with a more comprehensive utility formulation (after Fehr and Schimmt, 1999, and behavioural game theory in general) a sustainable ethical coordination will be achieved, which will be stable. The model developed here is practicable rather an abstract mathematical model, since the main aim is an easy implementation of the model in real life scenario. Overall the authors believe that this work in attempting to unify Vedic philosophy and mainstream economics will contribute to the literature of coordination in general, which is much needed, and also inspire a new strand of literature to come forth.