Author: SK

Reminded of the Tied Test in Chennai

I started watching the ongoing Test match just after tea, with the score at 210/2 or something. And the resemblances with *that* Test match in Chennai in 1986 were striking.

1. Australia declared twice in both games. In both games they declared after losing 7 wickets in the first innings and 5 wickets in the second.

2. Overnight declaration on day 4, leaving India to score at approximately 4 an over on the last day

3. Good finger spinners – Lyon here, Bright and Matthews there.

4. Three hundreds for Australia in the first innings – Boon, Border and Jones there; Clarke, Smith and Warner here

Ok there was no Virat Kohli like innings but it seems like he’s combining the roles of Sunil Gavaskar (who scored 90) and Ravi Shastri (who led the final charge with 48*) here. Let’s see how it goes.

Posted with India at 299/6

Environmentalism and the Discount Rate

Alex Epstein, in his new book “The Moral Case for Fossil Fuels” has a fantastic quote (HT: Bryan Caplan). Epstein writes:

It is only thanks to cheap, plentiful, reliable energy that we live in an environment where the water we drink and the food we eat will not make us sick and where we can cope with the often hostile climate of Mother Nature. Energy is what we need to build sturdy homes, to purify water, to produce huge amounts of fresh food, to generate heat and air-conditioning, to irrigate deserts, to dry malaria-infested swamps, to build hospitals, and to manufacture pharmaceuticals, among many other things. And those of us who enjoy exploring the rest of nature should never forget that energy is what enables us to explore to our heart’s content, which preindustrial people didn’t have the time, wealth, energy, or technology to do.

Or, as Caplan puts it in his annotation,

Epstein’s second key claim is normative: Human well-being is the one fundamentally morally valuable thing.  Unspoiled nature is only great insofar as mankind enjoys it:

This allows us to characterise environmentalism and other conservationist movements through one simple factor – the Discount Rate. Let me explain.

Essentially, let us assume that we are optimising for aggregate human well-being. So we are optimising for the aggregate of the well-being of all humans today, all humans tomorrow, 10 years from now, 100 years from now and so forth. Now, if we try to optimise for short term well-being beyond a point (extracting too much oil, for example, or burning too much fossil fuel or cutting down too many trees), the well-being of future generations gets affected in a negative manner. If we are more conservative (and conservationist) now, future generations will get to enjoy greater well-being.

So, looking at the problem from the assumption that we want to “maximise aggregate human well-being”, the problem boils down to one “simple” tradeoff between well-being of human beings today and well-being of human beings at a later point in time. And it is precisely for answering questions on such inter-temporal tradeoffs that the world of economics and finance introduced the concept of a “discount rate”!

Finance assumes that rational human beings like to consume today compared to tomorrow, but only up to a point – you don’t want to consume so much today that there is nothing left to consume tomorrow. This leads us to indifference curves between today’s and tomorrow’s consumption, and if we add to this the resource constraint, we get the “discount rate” (the actual derivation is beyond the scope of this blog post).

The discount rate essentially gives us a tool to compare consumption today to consumption at a point of time in the future and make a decision on which one is more valuable. The higher the discount rate, the greater importance we give today’s consumption vis-a-vis tomorrow’s. A lower discount rate gives greater weight to tomorrow’s consumption compared to today’s.

So coming back to conservationism, the question finally boils down to “what is our discount rate”, or to track back one step “how do we value today’s well-being vis-a-vis well being at a point of time in the future”. If you assume a high discount rate, that means you give more importance to today’s well-being. A discount rate of zero gives equal importance of well-being today compared to well-being a few generations down the line. The discount rate in this case can even be negative – where you give greater importance to the well-being of humans of a future generation than to current well-being!

So the debate on fossil fuel consumption and carbon emissions and suchlike can be characterised by this one factor – what is our discount rate? And it is a disagreement on this that leads to most debates on this topic. Conservationists usually have a very low (or even negative discount rate), and they tend to play up the risks to well-being of future generation humans. The opposite side works with a much higher discount rate and argues that we should not ignore the well-being of current generations vis-a-vis the future. And the battle rages on.

Startup salary survey

I think I’ve come up with what I think is a really cool metric to value the tradeoff between your salary at a startup and the equity stake that you are given. For lack of a better name, I call this “multiple of foregone income”:

Let’s say that your “market salary” is $ 100,000 (pulling this number out of thin air), and since you are joining an early stage company which 1. cannot afford your market salary and 2. wants you to have some skin in the game, let’s say that you agree for $80,000. Now, your “foregone income” is $80,000 per year since that is the cut you are taking from what you think is your “market income”.

Let’s say the company is worth 10 million dollars (as per the latest round of funding before you join, assuming there has been one) and they give you a 1% stake (which amounts to $100,000), then the “multiple of foregone income” is 5 years ($100,000/$20,000 per year). If the company gives you equity that is worth $200,000, then your “multiple of foregone income” is 10 years.

Now I’m trying to figure out what the “normal” range of this multiple is. For this purpose I’ve created this form that I request you to fill out. I’m not asking for any personal details, the survey is completely anonymous and it will only take a minute of your time.

Thanks in advance! In return for your participation in the survey, I’ll publish aggregated results on the measure!

Targeting government transfers

Bryan Caplan, quoting from Greg Mankiw, puts out some very interesting numbers on government transfers to households in the United States.

Source: Econlog

As Caplan puts it, this table shows a pattern “neither liberals nor conservatives will expect”. Some points to be noted:

1. government transfers per household to the top quintile is much more than to the bottom quintile. While the former pay taxes and the latter don’t, this is simply bizarre and shows how ill-targeted transfers in the US are

2. The bottom 60% of households in the United States pays negative tax! The “middle quintile” pays taxes but gets transfers from the government of twice the amount.

3. The net taxes paid by the 4th quintile is negligible ($700 per household). So effectively in the US, only the top 20% pays tax.

I wonder if it is possible to get such data for India, and if we can, what it will look like. If we manage to tack on all subsidies to the “transfers” thing (food, fuel, etc.) it should present a very interesting picture. My guess is that the “effective tax base” in India will be much lower than that of the US.

Any data sources that can help us construct one such table for India?

Uber and the narrative bias

Following the alleged rape of a Delhi woman by a cab driver who she’d engaged via the Uber app, the Delhi government has banned Uber. Union home minister rajnath Singh has issued a notification to other state governments to do the same though union transport minister Nitin Gadkari has rightly called it a silly idea.

Irrespective of whether the service gets banned, fewer people are likely to use it. A survey conducted by Mint newspaper has shown that nearly half the people surveyed will not use an Uber following the incident (the survey doesn’t mention how many of those surveyed are existing users of Uber).

About a year back, two buses of the Volvo make (one travelling from Bangalore to Hyderabad and the other from Bangalore to Pune) caught fire, resulting in passenger deaths. While the government of Karnataka mercifully didn’t ban Volvo buses (instead simply subjecting them to safety checks and insisting on emergency exits), there was a large backlash from the public who eschewed travel by Volvos in favour of travel by other means of transport.

In 2001, following the 9/11 attacks, Americans eschewed air travel in favour of driving. Gerd Gigerenzer, a specialist in risk, has estimated that 1595 additional people died in the year following 9/11 on account of driving rather than taking flights.

The question that arises is what those current users of Uber who don’t want to use the service any more are going to do – surely they must resort to alternate means of transport to commute? The question they need to ask themselves is If the new chosen means of transport is safer than Uber!

People abandoning Uber in droves following last weekend’s incident is due to what I can the “narrative bias”. Last weekend’s incident has introduced the narrative that Uber is not necessarily safe – at least it is not as safe as people assumed it to be prior to the incident. And this narrative is likely to lead to people reacting, and in a direction that is not necessarily better for them!

So if people abandon Uber, or if it gets banned (the proposal is to ban other app based cab services too ), what is the alternative, and is it safer than Uber? Extremely unlikely, If the answer is auto rickshaws for example. We might as well end up in a situation like what happened on the highways in the US after 9/11.

News by definition is spectacular and spectacular incidents are much more likely to be reported than unspectacular ones (a favourite example I use is – how many times do we see a headline that says ” Ashok Leyland bus catches fire. Passengers dead “? The fact that we seldom see such headlines doesn’t mean that Ashok Leyland buses never catch fire). This, however, doesn’t mean that policymaking, too, be based on spectacular events only.

Any regulation, and decisions by people, should be based on rational expectations and not be biased by narratives and the spectacular. There is always pressure on the policymaker to ” do something “. This however doesn’t mean that anything will do. Decisions need to be based on reason and not narratives!

PostScript: I’ve written this post sitting in the back of an Uber taxi in Bangalore

Tim Harford on Christmas Cards

Tim Harford has a wonderful post out on the concept of Christmas cards. An extract:

But perhaps the Christmas card also serves other purposes. Consider the exchange, “How do you do?”, “How do you do?” This is phatic communication. It conveys no detailed information but it acknowledges others and implies that there is nothing much to report. “I’m OK, and you’re OK, and lines of communication are open if that changes.”

A Facebook “poke” could achieve the same thing at much lower cost. But perhaps the expense and the hassle is part of the point. If someone invites you for dinner and you say “thank you” as you leave, you may still wish to follow up with a thank-you note to show that you have enough invested in the relationship to take the trouble. If relationships weren’t hard work, they would not be relationships.

This is related to why when I greet people on occasions such as birthdays, anniversaries, etc. I make sure I do so over a mode of communication which opens up channels for further communication. So I either call (calling on birthdays is a bit dicey though since birthday boys/girls are flooded with calls – except if they’re me of course), or send an email or a one-to-one message using SMS or WhatsApp.

Any other means of communication makes it hard for further lines of communication to be open (think of someone politely typing “thank you” into a hundred “happy birthday” posts on their facebook wall), so it’s not worth the effort. And wishing on a WhatsApp group only results in everyone else on the group chiming in with a “happy birthday” and doesn’t lead to any conversation at all!

Coming back to Harford, his post also has some interesting fundaes on Dunbar’s Number. Read the whole thing.

PS: I’ve redacted my post on “performance art greetings”. Upon a second reading after I’d published it, I realised it was offensive towards certain people who I quite like and who I have no intention of offending. So I decided to take it down.

The cross-selling epidemic

Cross-selling is the phenomenon where you try to get more value out of your existing customers by selling them other things. And from the looks of it it is reaching epidemic proportions in India.

Yesterday a guy came up to me at the gym and asked me to try out some “power yoga” group exercise classes. I told him I wasn’t interested, and he continued to talk (I was on the treadmill so couldn’t run away). Of course my membership includes any group classes so I don’t have to pay more to do “power yoga” but the economics are not the same from this guy’s perspective!

Then for the last two weeks my gym (Gold’s Gym in Jayanagar) has been full of advertisements for protein supplements. And today some of their salespeople had even set up shop inside the gym hawking their stuff. From conversations I overhear in the locker room I know that several other members of the gym regularly take such supplements but the kind of advertising within the gym was way too intrusive!

Later today I had gone to visit a dermatologist (who I found via Practo) for a rash I have on my hand. The doctor seemed least interested in checking me and more interested in putting me through a battery of blood tests (which were done in the lab attached to the clinic). I don’t know why I went along but after becoming poorer by a thousand and three hundred rupees I figured that the tests included liver function and thyroid function test! Why a dermatologist would need such tests I don’t know! Anyway I’ll just pick up the reports tomorrow and run! Oh and when I was walking out the receptionist helpfully pointed out that I could buy the prescribed medicines at the little pharmacy also in the clinic! I refused an walked out!

A few months back I’d gone to my ophthalmologist for a routine checkup. After having got my eyes tested I asked him to check for my power on contact lenses also. He said he’ll do so if and only if I were to buy the lenses from his clinic! Since I’d found those lenses to be of poor quality the last time I’d got them, I scooted. Oh, and this guy has been my regular ophthalmologist for over twenty years!

This brazen cross-sell seems so suboptimal that it possibly drives away customers (but from what I hear, if every doctor indulges in such practices there isn’t much choice anyway!). I wouldn’t have minded paying an additional sum (over and above what I’d paid for my generic eye test) to get my eyes tested for contact lens power also. But this option (which would’ve worked out more simply for both of us) wasn’t available! Bizarre, I tell you!

Practo and rating systems

The lack of a rating system means Practo is unlikely to take off like other similar platforms

So yesterday I found a dermatologist via Practo, a website that provides listing services for doctors in India. I visited him today and have been thoroughly disappointed with the quality of service (he subjected me to a random battery of blood tests – to be done in his own lab; and seemed more intent on cross-selling moisturising liquid soap rather than looking at the rash on my hand). Hoping to leave a bad review I went back to the Practo website but there seems to be no such mechanism.

This is not surprising since doctors won’t want bad reviews about them to be public information. In the medical profession, reputational risk is massive and if bad word gets around about you, your career is doomed. Thus even if Practo were to implement a rating system, any doctors who were to get bad ratings (even the best doctors have off-days and that can lead to nasty ratings) would want to delist from the service for such ratings would do them much harm. This would in turn affect Practo’s business (since the more the doctors listed the more the searches and appointments), so they don’t have a rating system.

The question is if the lack of a rating system is going to hinder Practo’s growth as a platform. One of the reasons I would go to a website like Practo is when I don’t know any reliable doctors of the specialisation that I’m looking for. Now, Practo puts out some “objective” statistics about every doctor on its website – like their qualifications, number of years of experience and for some, the number of people who clicked through (like the doctor I went to today was a “most clicked” doctor, whatever that means), but none of them are really correlated with quality.

And healthcare is a sector where as Sangeet Paul Chaudary of Platform Thinking puts it, “sampling costs are high”. To quote him:

There are scenarios where sampling costs can be so high as to discourage sampling. Healthcare, for example, has extremely high sampling costs. Going to the wrong doctor could cost you your life. In such cases, some form of expert or editorial discretion needs to add the first layer of input to a curation system.

So the lack of a rating system means that Practo will end up at best as a directory listing service rather than as a recommendation service. Every time people find a “sub-optimal” doctor via Practo, their faith in the “platform” goes down and they become less likely to use the platform in the future for recommendation and curation. I expect Practo to reach the asymptotic state as a software platform for doctors to manage their appointments, where you can go to request an appointment after you’ve decided which doctor you want to visit!

Potential investors would do well to keep this in mind.

Update

Today I got an SMS from Practo asking me if I was happy with my experience. I voted by giving a missed call to one of the two given numbers. I don’t know how they’ll use it, though. The page only says how many upvotes each doctor got (for my search it was all in the low single digits), so is again of little use to the user.

Why app based taxi services should not be banned

The move towards banning Uber and other app-based taxi services is devoid of logic on several counts

Writing during the Takshashila Hudson conference on India’s growth I had argued that an easy way to increase the level of business activity in the country, and thus GDP was by means of reducing transaction costs. Transaction costs are costs borne by buyers of a good or Service which don’t accrue to the seller.

The thing with transaction costs is that they introduce friction in the market – the cost ends up reducing both the market clearing price (as it accrues to the seller) and the market clearing quantity. And transaction costs are usually to no ones gain and thus reducing them is a quick and pareto optimal method of boosting GDP.

In this regard, the government must encourage all means that result in reduction of transaction costs. For example better road and rail network significantly reduce the transaction cost of moving goods and people. Removal of interstate taxes on goods and services results in more optimal setups of warehouses and plants.

Similarly apps such as Uber play an important role in reducing transaction costs in the local taxi market. By reducing the distance and time to be traveled by the driver, and by reducing the amount of the the passenger has to wait for the cab, these services significantly reduce the cost of local transport and benefit drive and users alike.

Thus moves such as banning such services are utterly brainless and devoid of logic. Moreover such moves will dampen investor sentiment in India and kill off any positive vibes that have been generated ever since the current government came to power.

I hope better logic prevails and the government focuses on improving law and order (a public good that can further reduce transaction costs) rather than knee jerk actions like banning taxi services which seek to reduce transaction costs.

Writing can be hard

There are certain pieces that are a breeze to write – you start writing, the thoughts flow, the words flow, your fingers do the needful and before you know it you’ve written a thousand words. Once you’ve published you’re feeling all good and high and kicked to take on your next task for the day.

But then there’s writing that can drain you. For example I just wrote a piece on my policy blog. It took forty minutes to write. I kept hitting backspace and cancelling out sentences. It was extremely laboured. And having written that I’m feeling all completely drained out. This blog post on the other hand is unlikely to have that effect.

I realise that there are two kinds of pieces that I write – the first are “flow pieces” – where I do the thinking as I write. I start writing only with an initial sketch, or paragraph, or opening line. And then I build the piece linearly thinking as I write along. These pieces are a breeze and a pleasure to write. And it is incredible the number of insights I stumble upon while writing such pieces.

On the other hand you have “planned pieces” – where you know exactly what you want to communicate and how, and you only have to implement it and put it all together while you’re writing. The problem with such writing is that you would have imagined certain sentences at different points in time while thinking of the ideas and now you try and fit all those sentences into a coherent piece. And that leads to a lot of jigsaw-fitting and labouring and backspacing. It’s hell!

For a while I wanted to write Op-Eds, but I’ve now simply given up on those. It requires me to write in an impersonal formal voice which is something I find extremely hard to summon. And such pieces are more likely than not planned pieces, and writing them can be extremely draining. I’d rather write when I want to, building pieces as I please, and publishing them as blog posts! The effort to write Op-Eds is simply not worth it!

Andrew Gelman has a nice piece on why academic writing is bad. Basically two points – writing is hard, and academic pieces are not selected based on their quality of writing. So the quality of writing in such pieces is far inferior to say writing in a newspaper!