Priors and posteriors

There is a fundamental difference between version 1.0 of any thing and any subsequent version. In the version 1.0, you usually don’t need to give any reasons for your choices. The focus in that case would be in getting the version ready, and you can get away with whatever assumptions you want to feel like. Nobody will question you because first of all they want to see your product out, and not delay it with “class participation”. The prior thus gets established.

Now, for any subsequent version, if you suggest a change, it will be evaluated against what is already there. You need to do a detailed scientific analysis into the switching costs and switching benefits, and make a compelling enough case that the change should be made. Even when it is a trivial change, you can expect it to come under a lot of scrutiny, since now there is a “prior”, a “default” which people can fall back on if they don’t like what you suggest.

People and products are resistant to change. Inertia exists. So if you want to make a mark, make sure you’re there at version 1.0. Else you’ll get caught in infintely painful bureaucratic hassles. And given the role of version 1.0 into how a product pans out (in the sense that most of the assumptions made there never really get challenged) I think the successful products are those that got something right initially, which made better assumptions than the others.

Addition to the Model Makers Oath

Paul Wilmott and Emanuel Derman, in an article in Business Week a couple of years back (at the height of the financial crisis) came up with a model-makers oath. It goes:

• I will remember that I didn’t make the world and that it doesn’t satisfy my equations.

• Though I will use models boldly to estimate value, I will not be overly impressed by mathematics.

• I will never sacrifice reality for elegance without explaining why I have done so. Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights.

• I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension.

While I like this, and try to abide by it, I want to add another point to the oath:

As a quant, it is part of my responsibility that my fellow-quants don’t misuse quantitative models in finance and bring disrepute to my profession. It is my responsibility that I’ll put in my best efforts to be on the lookout for deviant behavour on the part of other quants, and try my best to ensure that they too adhere to these principles.

Go read the full article in the link above (by Wilmott and Derman). It’s a great read. And coming back to the additional point I’ve suggested here, I’m not sure I’ve drafted it concisely enough. Help in editing and making it more concise and precise is welcome.

 

In Perpetual Transition

This post has nothing to do with Ravi Karthik’s blog. It has everything to do with Bangalore’s roads. I can’t recall a single instance in time in the last 15 years when all roads in Bangalore have been in “normal state”. Maybe ever since the KR Market flyover started, there has been one part of the city or the other that has been dug up. And the digging is only increasing. Earlier it would be a handful of places in the city that were dug up. Now, it is tough to find two points over 5 km apart such that you don’t have to take a diversion of some sort to travel between them.

The optimistic among us think that things will become better as soon as these projects get completed. However, what we forget is that there is a small but powerful section of society that survives on the city being in transition. Road-builders, bridge-builders, road-diggers, road-fillers, and all these sundry people make their living based on the premise that the city will be in perpetual transition. And given how critical income from such activities is for their survival, they resort to lobbying and paying “rents” to relevant people in the government to ensure their cash flows continue.

The problem here is one of a small concentrated set of big winners, and a large uncoordinated distributed set of small losers. And the small set of winners can successfully get together and lobby and have things their way, because the other set is too disjointed to do anything about it.

The other (and in my opinion, the bigger) problem is that thanks to lobbying, the government has a natural disposition to spend more than to spend less. And all the spending comes from taxpayer money. So you have the road projects in Bangalore that you think you don’t need. You have the free TVs and Mixies and whatnot in Tamil Nadu. And you have rice and wheat given to the (supposed) poor at rock-bottom prices. And where does the money for all this come from? Your taxes!

I hope sooner rather than later people realize that the only solution to corruption is less government. The problem, however, is that the government has no incentive to reduce its own size – for in that case the kickbacks and  rents that it (to be precise, people who are part of government) can potentially extract come down. You might institute acts like FRBM (fiscal responsibility and budget management, which seeks to put a cap on government spending) but with such a cap in space, what is the guarantee that the government will actually spend that limited money on what is necessary, and not what gives rents for its officers and employees?

Political parties may have different ideologies, and may appear to fight about every little thing. But this is one thing they agree on – that the size of the government be large – that way they all get to (in turns) have a share of the (rental) pie. This equilibrium is stable and I don’t know how we can snap out of this. And till then, our taxes will continue to flow out. And the cities will be in perpetual transition.

Sergei Bubka and Academia

There is this famous story that says that the Soviet government promised pole vaulter Sergei Bubka some huge sum of money “every time he broke the world record”. Being rather smart, Bubka would break the world record each time by one centimeter (the least count for pole vault measurement), utilizing the fact that the nature of the event (where you set the bar and try to clear it, where success in each attempt is binary) to his advantage.

The thing with academia is that ‘paper count’ matters. And it appears that the quality of papers cannot be objectively measured and so the quality of the journals in which they are published are taken as proxy. And I hear that for decisions like getting a PhD, getting tenure, reputation in the community, etc. there is some sort of informal “paper count” that one needs to clear. You don’t progress until you’ve published a certain “number of papers”.

What this does is to incentivize academics to publish more. The degree of “delta improvement” shown in a particular paper over it’s predecessor (assuming each paper can be seen as an improvement over one particular previously known result) doesn’t matter as much as the number of improvements thus shown. Hence, every time the academic notices a small epsilon improvement, he finds it significant – it gets him a paper! The actual practical utility of this improvement be damned.

This is all fine in academia where one doesn’t need to bother about lowly trivialties such as “practical utility”. But it does start to matter when the academic migrates to industry, and there is no shortage of people doing this movement. Now, suddenly, what he needs to think about it practical utility. But that doesn’t come naturally to him. The academic strives for delta improvements. And each time there is a delta improvement he finds it significant – after all, that is what he has been trained to do during his long stint writing papers.

I must confirm I’m not saying here that ex-academics strive only for delta improvements, but just that they find each delta improvement significant, irrespective of the magnitude of the delta. In that way, they are different from Bubka.

But take that out and there is no difference. Both are incentivized by the number of delta improvements they make, rather than their magnitude. In the first case the Soviet Government ended up transferring more than what was perhaps necessary to Bubka. Similar flawed incentives can lead to corporations losing a lot of money.

PS: I must admit I’m generalizing. Of course there exist studmax creatures like Cat, who refuse to publish unless they have something really significant (he told me of one case where he refused to add his name to a paper since he “didn’t want to be known for that work” or something like that). But the vast majority gets its doctorates and tenures by delta publishing, so I guess I’m allowed to generalize.

Libertarianism and rejection of authority

Ok so this is yet another of those self-reflective posts, where I try and rationalize why I’m the way I am. And in the process concoct a fancy theory.

I’m part of this secret society most of whose members are libertarian. I must in fact credit this society from changing my ideology from one that was broadly conservative to broadly libertarian (notice that my economic ideology hasn’t changed, only the social bit has). One thing common among most members of this society is that they are the kind of people who don’t bow to authority. They can be described as confrontationalist, or maverick,  or non-conformist. And most of them are libertarian.

I must mention that for purposes of this post, I define libertarianism as a “belief in free markets and free minds”.

In The God Delusion, Richard Dawkins writes that one of the things that makes people religious is the tendency to listen to “superiors”, “elders”, etc. He argues that this is consistent with natural selection – that back in those days where we were a “hunting ape”, if we were the type that didn’t listen to our parents, there was a greater danger that we’d fall off trees or got eaten up by lions. So us human beings are “naturally conditioned” to listen to “elders”, “superiors”, etc. Effectively, we are conditioned to take orders. Dawkins talks about how this makes us religious, but that is not relevant here.

So we grow up having this “elderly authority” at home. The “elderly authority” commands us and guides us and gives instructions, and in return provides us protection from the outside world. Soon we grow up, and don’t need that protection any more, so we don’t need to take instructions any more (if you look at taking instructions from parents as the “cost” of the protection they offer you). But then we are conditioned to taking instructions, and being controlled, and it is tough for most of us to outgrow this conditioning.

And so some people look to “society” to provide the instructions, and control you, and tell you what to do and what not to do. They end up as conservatives. Some other people, look to the government (remember that today’s “government” is a replacement for yesterday’s “king”, who was supposed to be “divine”) for instructions and control. They end up being “liberals” (quotes because traditionally liberals supported free markets; it’s only recently they’ve taken a socialist turn). It is quite interesting that a lot of “liberal” people, who profess their rejection of authority, think it is ok for the government to tell them who to do business with, and at what price.

And then there are these really masochistic people who look to both “society” and “government” to put controls on you. Think Swadeshi Jagran Manch and similar institutions.

And so what about people who actually reject the need to have a “protector” once they grow up? They don’t want to take instructions from anyone, and in return they are willing to forego protection – apart from asking from the government protection in terms of defence, foreign policy and upholding of law. Given that very few people reject authority (Dawkins’ concept), it’s very few people that end up as libertarians.

PS: Is it a coincidence that so many very good libertarian bloggers (Caplan, Tabarrok, Hanson, Cowen) are at the little-known George Mason University, and not at one of the “top-ranked” universities?

PS2: I think large corporations are not free-market in any sense. Leave aside crony capitalism. Corporations, by definition, are internally deeply socialist. I guess I’ll save that for another post.

 

Making BRTS work

(yet another post that is a few days late, but what the hell)

In the recently delivered Karnataka State Budget, the government has budgeted funds for developing a Bus Rapid Transit System (BRTS) in Bangalore, in order to supplement the Metro and help ease the city’s traffic woes. The problem is that it’s a small amount that’s been released and the budget states “for providing BRTS between Hebbal and Silk Board”.

Commentators (including some traffic experts like MN Sreehari (not able to find the Deccan Herald link on this topic) ) have criticized the move, claiming it is going to once again choke the outer ring roads which have now been set free because of the efforts to make it signal-free. So the commentators have used this as an argument against the BRTS.

On the contrary, I argue that we need more, and not less, BRTS. The whole purpose of an integrated urban rapid-transport system is to encourage people to leave their cars at home and instead use public transport. And for that to happen, really good quality public transport has to be available in all areas (with autorickshaws providing last-mile service). Else there is no real incentive for people to abandon their cars.

The problem with initiatives like the Metro is that it takes way too long to construct. The cost involved in terms of intermediate inconvenience and lead time are enormous. Which is a major point in favour of systems such as the BRTS. So what needs to be done is that the BRTS needs to be introduced on several routes simultaneously, thus bringing a larger area of the city under the integrated public transport system.

The network effects here are huge, and the more the portion of the city that is served by high-quality public transport, the more the incentive for people to not use their cars. On the contrary, introduction of BRTS along one or two lines benefits few and causes inconvenience to a really large portion of the population (all users of the BRTSed routes).

We have already seen in Delhi the impact of a badly-implemented BRT scheme (along one road in South Delhi, if I’m not wrong; deeply unpopular and resented). I’m surprised the guys in Bangalore haven’t learnt from that.

The Jairaj Model

So finally here is the follow-up to the Union Square Park post. Basically most parks in Bangalore follow what I term as the Jairaj model. Even a number of parks that are older than 10 years old have been remodeled using this model in the last few years.

K Jairaj became the commissioner of the BBMP around the turn of the millennium. The story goes that his parents, who live in Banashankari 2nd Stage, complained to him that they had no place for their daily evening walks. And so Jairaj takes this piece of barren BBMP land (on 24th cross, close to the BDA complex) and converts it into a beautiful park. So the park provides for walking paths, lots of shrubs and flowering plants and a small play area for children. Trust me, it’s really beautiful.

This was soon followed by the development of the Hanumanthanagar park by then-corporator later-mayor K Chandrasekhar. It again followed a similar model – and given its greater area included fancies like a musical fountain (if I’m not wrong). Again a big hit among the residents, especially the middle-aged and elderly who now had a nice place for their morning and evening walks.

The trend was set. Following the success of these two parks, all small parks in Bangalore started to be remodeled based on these two. Trust me, they are all really good looking and most are quite well maintained. But it remains that the primary purpose of most of these parks is to provide a venue for middle-aged and elderly to go for morning and evening walks, and a small area for children with slides and swings, and little else.

Normally we take this for granted and wonder what else a park needs to do. But if you visit some of the better parks abroad (I’m taking the example of the tiny Union Square Park here) you’ll know what you are missing out on. Parks are now gated and shuttered, and don’t let people in during the day time (which is good in the way that it provides time for maintenance). And they are unidimensional, which is sad.

And I’m told that there is now a major battle in several areas between youth and middle-aged, with respect to proposals for playgrounds to be converted to parks.

And these parks are strictly “walkers parks” and not “runners parks”. Not so long-ago I used to go to the nearby Krishna Rao park for a run every morning. I gave up because of the traffic jam inside the park. Narrow pathways on which aunties and uncles would walk abreast in large groups, and so it became more of an obstacle race than a leisurely morning run.

The Problem with Resorts

A part of our honeymoon not so long ago was spent at the Taj Exotica in Bentota, Sri Lanka. We stayed there for a bit over a day and a half, and that was supposed to be the most “honeymoony” part of our honeymoon, with the rest of the time being spent essentially roaming and seeing different things in different parts of Sri Lanka. Before we went, I thought I’d set aside very little time for this “honeymoony place” but in the final analysis it turned out I’d allocated the optimum time for it.

So as we sit down to plan for a mid-year vacation, here are some of the problems that we found with resorts – which make us skeptical about spending an entire vacation in a resort kind of place. All this is based on a single data point – our recent visit to Bentota:

  • Food: We got bored of the food in less than a day. I’m vegetarian, which ruled out the seafood restaurants at the resort. Room service menu was extremely limited and one meal bored us of the buffet. We ended up eating consecutive dinners at the same Chinese restaurant at the resort which shows how bored we were of the food
  • Lack of buzz: We went to the bar to grab a quick drink on the way to dinner, and there were hardly any people there. There was no life there and it was too quiet for our liking. Then, on the way back from dinner we thought we’ll hit the disc, and found we were the only people there. A complete put off
  • On the other hand, when we went to the pool for a swim, it turned out there were way too many people there. There were some large gangs of tourists, and they made quite a noise, which wasn’t all that fun. Yeah, I know I’m cribbing about two contradictory things here, but that’s the way it is.
  • Adding to the contradiction, a private beach and all is  quite fine but again it’s boring to go there when there is little activity there. Yeah there were a few people there but there was something about the place which bored us quickly enough for us to return.
  • General lack of activity: Yeah, I know that the purpose of going to a resort is to just chill but after a while the lack of activity can get a bit disconcerting, and makes you want to get away.

But in general, the biggest problem was the food. If you aren’t really fond of buffets, and there are no good options near the resort, you are likely to tire of the food quite quickly, which can be a big pain. At least if you were to get authentic local food you could manage. But sanitized 5-star buffets for over a day? Thanks

Rajat Gupta’s affiliations

Why the fuck does every single article that talks about this describe insider trader Rajat Gupta as a “former Goldman director”? Why not ex-McKinsey CEO? Or current P&G Board Member? And especially given that his insider trading was partly at Goldman’s expense?

Media is crazy

Punjabi Muslims

So earlier today I was reading this profile of a Harvard professor that Chan had shared on Google Reader, and I came across this name called Iqbal Dhaliwal. The name immediately rang a bell, and I realized I’d come across this name long long ago in the Competition Success Review (yes, I admit I used to read that ) when he topped the civil services exam.

So one of my hobbies is to try find out about a person’s origins and ethnicity given his/her name. Like I once figured that this colleague is of Danish descent because his surname ends with -sen while the more common spelling of that name is -son. And so I was trying to figure out where  Iqbal Dhaliwal came from. It was clear from the first name that he’s Muslim. And the last name, I thought, sounded Punjabi.

And then my thought process went something like this:

First name Muslim, last name Punjabi-sounding… So is he a Punjabi Muslim? But then, I don’t know any Punjabi Muslims. Do there exist any Punjabi Muslims at all? Hey, wait a minute, I remember reading somewhere that the majority of people in Pakistan speak Punjabi. So there must exist Punjabi Muslims. But I don’t know any.. I don’t know any Punjabi Muslims but there are lots of them in Pakistan. Yeah, I don’t know any because all of them are in Pakistan. Yes, all of them are in Pakistan, most of them at least!

I know Kannadiga Muslims, Bengali Muslims, Gujarati Muslims, Kashmiri Muslims and Muslims from UP. But I don’t know any Punjabi Muslims. Because there are no Punjabi Muslims in India. Because ALL of them went to Pakistan. Tells you how much of an impact partition had in the Punjab,  compared to anywhere else in India.