Tag: counterparty

Arranged Scissors 9 – Cost Benefit Analysis

Neha, also known as MotherJane, writes in her blog:

…I do not believe in love. Partners offer solutions to everyday issues like running a house, satisfying needs and filling in the blanks. However they come at a cost – often too high to bother. Still we go ahead and do the trade – its just what we do. In our lives friends become the people we talk and listen to, partners become people we are forced to talk and listen to, so that we can have everything else they offer. If you think about it, your relationship is already transactional. If calling it love makes easier on your conscience, I won’t hold you back.

I was trying to figure out how it all fits in with the arranged scissors process. And every time the answer came out that the Arranged Scissors process is fairly irrational.Mainly because of the short time for decision. A few basic checks are made, obvious misfits are checked for, and things get “done”.

The biggest cost of getting married (which Neha doesn’t mention) is the opportunity cost of the option of getting married to any of the other women in this world apart from your wife. Divorce is messy and expensive (in more ways than one), and hence once you have hitched yourself to someone, this opportunity cost immediately kicks in.

Later in her post, Neha talks about the “friends-with-benefits” model, but the problem with that is that it doesn’t help propagate your genes. It is tough to raise kids in that kind of an environment, and considering that the purpose of life is to procreate (this is the general case; i konw you may be an exception so don’t shout at me for this) the friends-with-benefits model is not stable. The reason the world has settled down into a model of bilateral commitment is to optimize the costs and benefits of propagating genes.

So if you want to propagate your genes (again, I’m not sure if you want to. If you don’t, I’d recommend you to settle down with the FWB model – but then it’s easier to find one stable counterparty rather than several FWBs, so you’d rather get married) you need to get into a bilateral commitment deal. And these deals are mutually exclusive so you need to realize that when you get into one, you will be foregoing the option of getting into any other.

There are several other costs and benefits when it comes to the marriage thing – there will be lifestyle changes, you get “tied down”, you need to take on responsibility, share duties and all that, but in my humble  (and unmarried) opinion, the biggest cost is the opportunity cost.

I say this quite often (and this reminds me, I have a paper to write – which I’ve postponed for nine months now) but I think outside of the financial world, option value is generally underrated (even in finance options are more often than not undervalued since the most common pricing formula ignores fat tails). And in settling for a Common Minimum Programme in the arranged marriage market, people severely underestimate the value of the option value of the rest of the world.

So the next time you want to propose to someone, or want to answer “the question” in the affirmative, make sure you do the following:

  • Make a list of all the people in the world belonging to the opposite sex (gays feel free to generalize this)
  • Evaluate the option of marrying them. Your job will be quite easy because with respect to most people, either you don’t want to marry them or you know that the chance of them marrying you is so infinitesimally small that the option value is negligible
  • I’m sure there will be a number of peopl ewho you prefer to the person you are proposing to/saying yes to. If you think there is a nonzero chance of them saying yes to you, ask them. Rejection is cheaper than a lifetime of guilt
  • Once all the options have been evaluated, and an additional buffer term added to account for all the people you don’t know yet, you know the full value of the opportunity cost. Then add up the other costs and benefits, and then make your decision.

Typically to know the other costs and benefits of the person that you are currently evaluating, you need to know them rather well. Yes, you can draw a sample and estimate the population based on that, but the cost of a type 1 error (error of commission) is very high. So make sure you collect enough data. To collect enough data, make sure you give yourself enough time.

Ok now I don’t know the point of this post. I don’t even konw if it fits into the arranged scissors series, but I think I’ll let it stay. Changing the title is too messy. I think I wrote this to put fundaes about opportunity cost. Maybe I had something else in mind when I thought up this post, but then subsequently forgot the contents and remembered only the outline. In any case, I’ll stop here. Before that I’ll tell you for one last time that you need to keep track of option value, and opportunity cost.

Arranged Scissors 8: Culture fit with parents

That you are in the arranged marriage process means that your parents now have full veto power over whom you marry. Given that you don’t generally want them to veto someone whom you have liked, the most common protocol as I understand is for parents to evaluate the counterparty first, and the “candidate” to get only the people who have passed the parental filter. Then the “candidates” proceed, and maybe meet, and maybe talk, and maybe flirt and maybe decide to get married.

Hypothesis: The chance of your success in the arranged marriage market is directly proportional to the the culture fit that you have wtih your parents.

Explanation: Given that parents have veto power in the process, and given the general protocol that most people follow (which I have described in the first para above; however, it can be shown that this result is independent of the protocol), there are two levels of “culture fit” that an interested counterparty has to pass. First, she has to pass the candidate’s parents’ culture fit test. Only after she has passed the test does she come in contact with the candidate (in most cases, not literally).

Then, she will have to pass the candidate’s culture fit test. By the symmetry argument, there are two more such tests (girl’s parents’ filter for boy and girl’s filter for boy). And then in the arranged marriage setting, people tend to evaluate their “beegaru” (don’t think english has a nice phrase for this – basically kids’ parents-in-law). So you have the boy’s parents evaluating the girl’s parents for culture fit, and vice versa.

So right at the beginning, the arranged marriage process has six layers of culture fit. And even if all these tests are passed, one gets only to the level of the CMP. (given that very few filter down to this level, i suppose a lot of people put NED at this stage and settle for the CMP).

Without loss of generality, let us now ignore the process of boy’s parents evaluating girl’s parents and vice versa (the problem is complex enough without this). So there are basically four evaluations, made by two pairs of evaluators (let us consider parents as one entity – they might have difference in opinion between each other occasionally but to the world they display a united front). Now for each side it comes down to the correlation of expectations between the side’s pair of evaluators.

The higher the “culture fit” you possess with your parents, the higher the chance that you will agree with them with regard to a particular counterparty’s culture fit. And this chance of agreement about culture fit of counterparty is directly proportional to the chance of getting married through the arranged marriage process (basically this culture fit thing can be assumed to be independent of all other processes that go into the arranged marriage decision; so take out all of those and the relationship is linear). Hence proved.

Now what if you are very different from your parents? It is very unlikely that you will approve of anyone that they will approve of, and vice versa. In such a situation it is going to be very hard for you to find someone through the arranged marriage process, and you are well advised to look outside (of course the problem of convincing parents doesn’t go away, but their veto power does).

So the moral of the story is that you should enter the arranged marriage market only if you possess a reasonable degree of culture fit with your parents.

(i have this other theory that in every family, there is a knee-jerk generation – one whose “culture” is markedly different compared to that of its previous generation. and after each knee-jerk, cultural differences between this generation and the following few generations will be low. maybe i’ll elaborate on it some other time)

Arranged Scissors 1 – The Common Minimum Programme

Arranged Scissors 2

Arranged Scissors 3 – Due Diligence

Arranged Scissors 4 – Dear Cesare

Arranged Scissors 5 – Finding the Right Exchange

Arranged Scissors 6: Due Diligence Networks

Arranged Scissors 7: Foreign boys

Arranged Scissors 5 – Finding the Right Exchange

If you look at my IIMB grade card, one subject stands out. It is one of the two Cs that I have on the card, and the other was in a “dead rubber” (5th/6th term where grades didn’t matter for placements). This C was in introductory marketing management. Where the major compoenent was a group project called the application exercise (ap-ex). I frequently crib that I did badly in that project because four out of six people in my group did no work, or even negative work (and this is true). Digging deeper, however, I think the more fundamental issue was that the two of us who worked didn’t really know what we were doing. We failed to understand the concept of STP till a few years after the project was over.

STP is one of the most fundamental concepts in marketing. It stands for Segmentation, Targeting and Positioning. I quickly appreciated Positioning, but took a long time in trying to figure out the difference between segmentation and targeting. In my defence, they are highly inter-related concepts, and unless you look at it from the point of view of social sciences (where each unique point fetches you one mark in the board exam) it is not intuitive that they are separate concepts.

So you segment the “population” based on various axes. Taking these axes in conjunction, you end up “segmenting” the population into a large number of hypercubes. Then you do the “targeting”. Find the set of hypercubes that you want to sell your product to (in the context this post is about, sell yourself to). And so once you have found your “target segment” or set of “target segments” you “position yourself” and go out to sell. And then you need to figure out the “4 Ps” of marketing. Product (fixed here – it’s you). Price (irrelevant if you don’t plan to take dowry). Forgot one P. The other is Place (where you will sell).

The arranged marriage market can be broadly be divided into two – OTC and exchanges. OTC (over the counter) is the case where you have a mutual acquaintance setting you up with a counterparty. The only difference here between arranged and normal scissors is that in the arranged case, it is your parents who are set up with the counterparty’s parents rather you getting set up directly. Since it is a mutual acquaintance doing the setting up, the counterparty is at max two degrees away, and this makes the due diligence process a lot easier. Also, you have one interested third party who will keep nudging you and pushing hte process back and forth and generally catalyzing it. So people in general prefer it. Historically, there were no formal exchanges (apart from say a few “well known village elders”). Most transactions were OTC.

One problem in financial OTC markets is counterparty risk (which is what has prompted the US government to prop up AIG) but this is not a unique problem with OTC arranged marriage market – counterparty risk will always be there irrespective of the method in which the relationship was formed. Apart from providing counterparty protection, one important role that financial exchanges play is to improve liquidity in the market. The number of transactions that happen in the exchange ensure that the market is efficient and prices are fair. Liquidity is an important asset in the arranged marriage exchanges also.

The problem that I’m trying to describe in this post is about segmenting the exchanges based on their most popular commodity types. I don’t have reall live examples of this, but then for each product you will want to go to a different exchange. For example (this example may not be factually correct) both the Chicago Board of Trade (CBoT) and Chicago Mercantile Exchange (CME) trade in both corn futures and cattle futures. However, the volume of corn futures that are traded on CBoT is significantly larger than the volume of corn futures traded on the CME. And the volume of cattle futures traded on the CME might be siginicantly larger than the corresponding volume in CBoT.

So if you want to buy cattle futures, you are better off going to the CME rather than the CBoT since the former has significantly greater liquidity in this product, and thus you are assured of getting a “fairer” price. Similarly, to buy corn you should rather go to CBoT than CME. I suppose you get the drift. Now, the same is true with the arranged marriage market also. If you want to get listed on an exchange, you will need to make sure that you get listed on the right exchange – the exchange where you are most likely to find people belonging to your target segment.

To take an example, if you think you want a Tamil-speaking spouse, you are significantly better off listing on tamilmatrimony.com rather than listing on telugumatrimony.com, right? Of course this is just a simplistic example which I have presented because the segmentation and difference in markets is clear. Things in the real world are not so easy.

There are various kinds of marriage exchanges around. In fact, this has been a flourishing profession for a large number of years, and even the recent boom in louvvu marriages has done nothing to stem the flow of this market. You will have every swamiji in every mutt who will want to perform social service by opening a marriage exchange. Then, you have a few offline for-profit exchanges. Some of them work on a per-deal basis. Others charge you for listing, since it is tough for them to track the relationships that they’ve managed to create. Then, this is one business which has clearly survived the dotcom bust of 2001-02. The fact that this business is flourishing can be seen on the left sidebar of this page where I suppose a large number of them will be advertising. In fact, I encourage you to click through them since that will result in precious adsense revenue for me.

There is nothing wrong in carpet bombing, but that comes at a price. Notwithstanding the listing fees (which are usually nominal), you will have to deal with a significantly large number of “obviously misfit” CVs and bump them off. Especially if you live far away from the exchanges and have someone else broking for you, you don’t want to burden them too much, right? So the problem is in doing your segmentation and targeting. And then researching the exchanges to find which exchange has most liquidity for products belonging to both your segment as well as your target segment. And get listed on them ratehr than wasting precious time, energy and money listing on exchanges that are unlikely to be useful.

Since I began this (extremely long) post with marketing fundaes, I should complete it with some more (which is irrelevant to the rest of this post). A standard process for advertising is AIDA (Awareness-Interest-Desire-Action). Typically for a relationship to “happen”, you need a minimum of D from at least one of the parties, and a minimum of I from the other party. The normal arranged marriage process, however, assumes that an I-I is a sufficient condition for a sufficient lifelong relationship, and don’t give enough time and space for people to check if D is there. Hence the disasters. Hence the tilt towards the CMPs.

Arranged Scissors 1 – The Common Minimum Programme

Arranged Scissors 2

Arranged Scissors 3 – Due Diligence

Arranged Scissors 4 – Dear Cesare

Arranged Scissors 3 – Due Diligence

One of the most important parts of the arranged marriage process is due diligence. This is done at various levels.  First there is the parental due diligence – and the first thing that is done is to check if the counterparty’s parents and other close relatives are financially sound. Then there is a check run on the counterparty’s siblings and cousins – to make sure that moral fibre is of the highest quality. And last but not the least, there is personal DD, which is the most interesting.

Of particular interest is the counterparty’s past affairs. This wasn’t much in the limelight till about 10 years back when there was a case where a girl got her arranged fiance murdered since she wanted to marry her boyfriend. After that, people who had so far been in denial regarding people’s boyfriends and girlfriends woke up to the fact that they needed to check if the other party was single as claimed. Nowadays, people go great lengths in order to check this.

Last month I received a call from my friend who told me that one of his friends was “in the market” and was in the process of checking out an acquaintance of mine. So this friend asked me to do a background check on this acquaintance. And I called up one friend who called up another friend who confirmed that this girl was indeed very “decent” (at least that was the message I got- considering that there were two channels of communication before me, I don’t know what the actual message was) and I propagaed it (I promise I didn’t distort it).

Then, there is this uncle who is well-connected. Ok I’m digressing a bit – this is not about arranged marriage, but since we are on the topic of due diligence, this example deserves merit. So this uncle who is well connected wanted to do a background check on his daughter’s boyfriend. Not knowing any other common link, he did what he knew well – pulled strings. The boy used to work for a fairly large IT company and my uncle managed to get in touch with the boy’s HR director and got confidential character files pulled out in order to confirm that his daughter had indeed chosen a decent guy.

One other reason why due diligence may have in fact become easier is because now people post considerable amount of information online. A combination of orkut, facebook, linked-in, blog and twitter profiles is enough to determine enough about a person’s character, I think. And most people (at least in the market segment that I’m in) will have at least one of these. So all you need to do is to find someone who has access to this person’s orkut/facebook profiles and you are through. In fact, I’m planning to add my facebook, twitter, blog and linkedin links to my email signature when I write “expression of interest”/”expression of contact” mails (more about those mails in another post), thus saving the counterparty valuable time and money she might have otherwise spent on due diligence.

The problem with such widespread due diligence is that you need to keep people who you don’t like in your good books. Becauase due diligence works on a “no second chance” principle. Most people collect data from a number of sources. And if at least one of those sources says “indecent” then jai only. Death only are there for inherently unpopular people like me (i’ve recently discovered that I’m a hard person to like; and it takes people considerable effort to start liking me). The fact that I’ve one time or the other ended up pissing off at least half my extended family makes me wonder if I should exit this market and go back to the old-fashioned way of trying to find someone for myself by myself. That much said, I think I’ve applied enough maska on extended family members who I think are well-connected.

I think if this whole due diligence process gets documented well, then it could make for some interesting social network analysis. How does someone try to find someone who might know you? What is the average number of steps that one needs to follow in order to find someone who knows this counterparty? What kind of people are likely to be more involved in writing due diligence reports – people who are very well connected or the quiet types? Does an increased online presence have any effect on the amount of due diligence that various counterparties do?

I don’t know how one can find good data for this.

Earlier:

Arranged Scissors 1 – The Common Minimum Programme

Arranged Scissors 2