Venezuela Crisis, JNU and Lal Salam

Venezuela has huge reserves of one of best natural resource in world- Oil. Rising prices of oil resulted in huge cash flows for Venezuela. The then President of Venezuela Hugo Chavez decided to follow the socialistic model of economy. He decided to spend this money on social welfare, the money was supposed to be distributed among poor.

“I have always said, heard, that it would not be strange that there had been civilization on Mars, but maybe capitalism arrived there, imperialism arrived and finished off the planet”

-Hugo Chavez

As committed socialist he was also against capitalism. He decided get rid of private enterprise, the power of bureaucracy went up and those opposing him were labelled as rightist and agents of capitalism and US. He used popular leftist methods like control of production and control of prices.

All this made him very popular.

In faraway India, in one of the universities called Jawaharlal Nehru University, Chavaz’s success was something worth celebrating. One of the student called Sini Minsu considered herself to be “leftist”. Minsu got married to one of the PhD student of same university called Siju, who was also a “leftist”.

“Chavez had put an end to a corrupt economic and political elite, and had focused the government’s attention on the poor.”

-Siju, student of JNU for last 10 years

Siju and Sini wrote some powerful “leftist” and “anti-capitalist” songs. They also choreographed a “anti-capitalist” dance. They also used to have equally powerful debated on “communalism”. Students like Kanhaiyya Kumar and Shahela Rashid sing them even today.

They decided to do research on Chavez. They wrote entire thesis based facts given in one book called “Chávez, Venezuela and the New Latin America” written by Aleida Guevara, daughter of Che Guevara and supporter of Chavez.

“Poverty was declining dramatically under Chavez”

-Sini Minsu, unemployed mother of two children

Sini and Siju decided to invite Chavez to India and address JNU students. “Comrade Chavez” was given red salute “Lal Salam”.

After oil prices started falling, the socialist economy started facing problems. With private enterprise on decline, the bureaucrats took over running of economy. Bureaucrats were incompetent and corrupt. Shortage of funds for social welfare along with corruption and controlled economy resulted in poverty, hyperinflation, food shortage and riots.

“We need to reduce extreme consumption to achieve a point of equilibrium between supply and a fair price. I trust in the hardworking majority of this country.”

-Nicolas Maduro

But Chavez and his successor Nicolás Maduro blamed all problems on capitalist and called anti-government protesters as agents of US. With no solution in sight, people continue to suffer poverty and hunger. Ironically, this absurd way of running of economy by Maduro is hailed by leftist all over the world.

Last heard Sini and Siju, currently jobless have decided to migrate to Venezuela.

 

 

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Luigi Pirandello, Late Mattia Pascal, Midlife Crisis

“For the moment (and God knows how much it pains me), I have died already twice, but the first time was a mistake, and the second—well, you may read for yourself . . .”

Luigi Pirandello, Forward to The Late Mattia Pascal

Italian novelist Luigi Pirandello has written novel about an Italian youth called Mattia Pascal. Mattia loses his fortune to a person who is given authority to execute will by his mother. His marriage with Romilda Pescatore is a failure, he also dislikes his mother in law Signora Marianna Dondi-Pescatore.

He wants to escape from married life. He finally escapes to Monte Carlo and make some fortune through gambling. Fortunately for him, his wife and mother in law identify a corpse as Mattia. So Mattia Pascal is now officially dead.

“Alone! Alone! My own master! Having to account for nothing, to no one! I could go where I pleased. To Venice? Yes to Venice! Florence? Florence! I felt so drunk with freedom that I was afraid I would almost go mad, that I couldn’t bear it for long.”

-The Late Mattia Pascal

Mattia enjoys his new freedom under name Adriano Meis. Mattia now lives a life which every person in mid-life crisis wants- new start with new identity and freedom from spouse and mother in law.

Strangely, after some time Mattia does not like his freedom, he wants his old life and identity back, so he kills his new identity and come back to his native place.

“I had already seen how my freedom, which at the beginning seemed without limitation, was indeed limited. I realized that it could better have been called solitude and boredom, and that it sentenced me to a terrible punishment—my own company. What sort of man was I then? And what kind of life was mine? As long as I was content to remain shut up in myself and watch others live, I could prolong the illusion that I myself was alive…. The life which seemed to stretch ahead of me, free, free, free was only a mirage and could never become real except superficially.”

-The Late Mattia Pascal

Some experts attribute this fear of freedom to political views of Luigi, who distrusted democracy. He was supporter of Mussolini.

“‘But the real cause of all our sufferings, of this sadness of ours – do you know what it is? Democracy, my dear man. Yes, democracy; that is, the government of the majority. Because when power is in the hands of a single man, this man knows he is one and must make many happy; but when the many govern, they only think of themselves happy and the result is the most absurd and hateful of tyrannies.”

-The Late Mattia Pascal

Luigi was son of a rich merchant. He was married to a rich lady called Antonietta Portulano. Like Mattia he lost his fortune and was forced to live a lower class life. He had troubled relation with his wife, who had become mentally unstable due of shock of losing fortune.

Some of his novels are The Turn and The Excluded Woman. One of his most famous play is Six Characters in Search of an Author. He won Noble Prize for literature in 1934.

 

 

Richard Thaler, Winner’s curse and Nudge

“The economics training the students receive provides enormous insights into the behavior of Econs, but at the expense of losing common-sense intuition about human nature and social interactions. Graduates no longer realize that they live in a world populated by Humans.”

― Richard Thaler

Economist Richard Thaler in one of his articles quotes an interesting problem.

There are two companies A and B. Company A wants to acquire Company B. Company B is working on major oil exploration project. If they find oil the value of company will go up and its share price will be $ 100, but if no oil is found its share value is $0.

So, value of Company B fluctuates between $0 to $100 per share. While Company A is not aware of price of Company B, Company B is aware of its price. Also, once Company A acquires Company B, the value of combined entity will go up by 50%

Question is how much should Company A should pay for Company B. Catch is the acquisition has to be done before the results of exploration are known. Also, Company B will accept bid only if it is equal or more than what it is worth.

Game Theory assumes that all player are rational thinkers and will act rationally when they bid for company i.e. factors associated with winner’s curse like aggressive bidding, hubris etc. will be absent.

Winner’s curse occurs when bidder with incomplete information bids in auction and after winning finds that he has overpaid.

“MBA students are not the only ones overconfident about their abilities. The “above average” effect is pervasive. Ninety percent of all drivers think they are above average behind the wheel,”

― Richard H. Thaler, Nudge: Improving Decisions About Health, Wealth, and Happiness

When this experiment was conducted, most of the students bid between $ 50 to $75 per share. Their logic was the price fluctuates between 0 to 100, so most likely price would be average i.e. 50. Post-acquisition it will go up by another 50%, i.e. 50 +25 =75.

Now assume A makes bid of amount X and it accepted by B. It means B is not worth more than amount X, let us assume that correct price is average price i.e. X/2. Post-acquisition its value will go up by 50% i.e. X/4, so value now is X/2 +X/4 = 3X/4.

Now 3X/4 is less than X. So rational person should not bid at all, because any bid he makes he will face winner’s curse. Yet most of the students wanted to bid amount between 50-75.

So, we do not always think rationally. To highlight not so rational thinking of humans, Thaler introduces concept of “Nudge”.

Nudge theory says that says that people, rather than being forced, can be encouraged and influenced to pursue or desist from certain actions through nudges.

“The combination of loss aversion with mindless choosing implies that if an option is designated as the “default,” it will attract a large market share. Default options thus act as powerful nudges.”

― Richard H. Thaler, Nudge: Improving Decisions About Health, Wealth, and Happiness

Interesting example of this is Organ Donation Policy. In Spain all citizens are automatically registered (by default) for organ donation, unless they specifically mention they do not wish to donate organs. While in Britain or India a person has to fill a form to express his desire to donate organs. Since humans are not fully rational and may not always fill form, Spain is world leader in organ donation, while India with much larger population lags in organ donation.

India should register all citizens for organ donation, they should also be given option to opt out. Or like citizens of Illinois drivers should be encouraged to fill up organ donation form when they opt for driving licence renewal.

Richard Thaler won Noble Prize for Economics in 2017.

 

 

 

 

 

Organisation Culture, Risk Taking and Hindsight Bias

“Daniel Kahneman used to say, “The way to become a General in the Israeli army was to be overconfident and lucky”. You do two stupid things that work out and you are a hero. In the US, the way to become a CEO is to be overconfident, tall and good-looking. That is why I ended up as an academic!”

-Richard Thaler, Noble Prize winner  for Economics ,2017

Richard Thaler is a professor at Chicago Booth and has worked with Daniel Kahneman.

Thaler had praised Narendra Modi for demonetization. He won Noble Prize for Economics this year.

He give an interesting example on organisational culture, expectations of CEO and risk taking.

I was teaching a group of executives from a publishing company. Each of them ran a particular publication, like a magazine or a newspaper. The CEO was there too.

I said, “Suppose, there is an investment, wherein there is a 50% chance it returns $2 million and 50% chance you lose $1 million. Would you make this investment?”. Three guys out of 22 said yes.

Then, I asked the CEO, “What would you like?”. He said, “I would like everybody to do (the investment)”.

I told him, “You have a problem. You have created an organisation where people are afraid to take risks.” Then, I asked one of them why they wouldn’t do it. And he said that if it worked he might get a pat on the back, maybe a small bonus; but if it didn’t work, he could get fired. That is not a good gamble.

He also talks about hindsight bias. He explains hindsight bias  an idea that you always know what is going to happen and this contributes to overconfidence because people do not remember how often they have been wrong.

They remember thinking all along for ex.decade ago no one thought that an African-American would get elected as president, before a woman. No one thought that, but people remember thinking it.

In one of his assignment he asks every team member, including the leader, to write down their views before a decision. That way one will avoid situations where people come back after things have gone wrong, saying they knew it wouldn’t work out.

Meena Kaushik, Doms of Kashi and Qualitative Techniques

“Qualitative research is more indicative of consumer trends and can always be corroborated with quantitative studies, so my first job was to make clients see that”

-Meena Kaushik

Meena Kaushik was economist who developed interest in sociology. She did doctorate under Dr. Veena Das a sociologist. Her subject was study of Doms of Varanasi.

Doms are one of the lowest castes in Hindu caste hierarchy.  Their job is to burn dead bodies. It is believed that if you are cremated at one of the ghats of Varanasi by holy fire then you get “moksha” i.e. freedom from cycles of rebirths. Doms are custodians of holy fire.

It is believed that one of their ancestor – Kallu Dom had King Harishchandra has his apprentice. So loyal was King Harishchandra to his master that he demanded fee for cremation of his son from his wife.

Meena Das studied the concept of “hot” and “cold” in Dom’s terminology. Hot or heat was connected with life while cold was connected with death.

“The moment I began studying social anthropology, I knew that this is exactly what I wanted to do”

-Meena Kaushik

Study of Doms gave Meena an idea of using research methods of social anthropology for corporates.

It was not an easy task. Corporates are comfortable with quantitative research, use of qualitative methods was looked with bit of suspicion.

“It was believed that only housewives and women who have nothing better to do will get into this type of research — the men do the numbers; the serious stuff and the women do the softer part.”

-Meena Kaushik

While qualitative methods of research like diary accounts, open-ended questionnaires, documents, participant observation, ethnography etc. has it own advantages like giving insights which get missed in quantitative methods, it also has limitation. One of the limitation is perceived lack of reliability and validity.

Meena want ahead and started company with her two colleagues Meena Vasudeva (a linguist) and Srilekha Agarwal (a psychologist).

The organisation Quantum Consumer Solutions managed to sell idea to large corporates like Unilever.

They are now working on concept of ‘Imagineering’ (imagination-engineering) which aggregates many thought disciplines – research, ethnography, semiotics, market data, retail analysis, consumer trends, psycho-analysis, domain experts, media imprinting, web ethnography and what-if ideations.

 

 

Franz Kafka, Kafkaesque and The Metamorphosis

Kafkaesque-of, relating to, or suggestive of Franz Kafka or his writings; especially : having a nightmarishly complex, bizarre, or illogical quality, ex.  Kafkaesque bureaucratic delays

-Merriam Webster Dictionary

Franz Kafka was a German novelist. His stories are full of bureaucracy, bizarre or surrealistic experiences. He died due to tuberculosis at young age of 40 years. Few of his novels got published during his life time, his work gained popularity after his death.

His novels talk about surrealistic experiences ex. a person becoming insect (The Metamorphosis), a person punished for crime about which he himself is not aware (The Trial) or land surveyor struggling with bureaucracy (The Castle).

Work of Kafka resulted in word- Kafkaesque- which is now part of English vocabulary.

“You don’t give up, you don’t lie down and die. What you do is struggle against this with all of your equipment, with whatever you have. But of course, you don’t stand a chance. That’s Kafkaesque.”

-Frederick R. Karl, biographer of Franz Kafka

The Metamorphosis is story of travelling salesman called Gregor Samsa, who one day suddenly gets converted to a insect. His family depends on his earnings. His metamorphosis now deprives family of earnings. His father hates Gregor, while his sister Grete is initially sympathetic to him. His mother wants to meet him, but passes out when she sees him in insect form. Gregor tries his best to live life inspite of handicap.

“As Gregor Samsa awoke one morning from uneasy dreams he found himself transformed in his bed into a gigantic insect.”

― Franz Kafka, The Metamorphosis

One day his father throws apples at him and he is wounded by one of the apples. Gradually his sister also gets tried of looking after him and plans with her father to get rid of Gregor. Disappointed with attitude of his family members , Gregor dies. After his death everyone is relieved and now they start looking for a boy to marry Grete.

“He had always believed that his father had not been able to save a penny from the business, at least his father had never told him anything to the contrary, and Gregor, for his part, had never asked him any questions. In those days Gregor’s sole concern had been to do everything in his power to make the family forget as quickly as possible the business disaster which had plunged everyone into a state of total despair”

― Franz Kafka, The Metamorphosis

Numerous films were made on this novel.