Bangalore Mirror

Of film critics and their love for Bajrangi Bhaijaan

bajrangi bhaijaan
One of my favourite armchair theories is built around film critics and Salman Khan—the more the critics hate a Salman Khan movie, the more money the movie tends to make. It doesn’t work all the time, but it works often enough to at least be categorised as an armchair theory.

The superstar’s movies get regularly panned by film critics, and yet they end up making a lot of money. Now that doesn’t mean that the critics are wrong about what they think of Salman’s movies. They are actually quite trashy. An apt comparison are the movies that Amitabh Bachchan starred in the 1980s. Movies like Nastik, Mahaan, Pukar, Desh Premee, Mard, Coolie, Geraftaar, Jadugar and Toofan.

Most of these movies made a lot of money nevertheless they are completely unwatchable now, unless you are a die-hard fan to whom the quality of the movie doesn’t really matter. Bachchan’s bubble finally burst with Gangaa Jamunaa Saraswati, which I think is the trashiest film ever made.

Khan’s bubble is still going strong and it was rather surprising that critics liked his latest film Bajrangi Bhaijaan. And these are not the trade critics whose reviews depend on what kind of business the movie they are reviewing is likely to do. These are critics who are genuinely in love with cinema. And they seem to have liked Bajrangi Bhaijaan and the movie has received a spate of ratings of 3 out of five stars.

So what were these guys smoking? How come so many film critics had nice things to say about a Salman Khan movie? Why have things changed this time around? The answer might perhaps lie in what economists call the contrast effect. Comparison comes naturally to human beings especially when they are making a decision. In such a situation, a particular option can be made to be look better by comparing it with something which is similar, but at the same time a worse alternative. This is known as the ‘contrast effect’.

As Barry Schwartz writes in The Paradox of Choice—Why More is Less: “If a person comes right out of a sauna and jumps into a swimming pool, the water in the pool feels really cold, because of the contrast between the water temperature and the temperature in the sauna. Jumping into the same pool after having just come indoors on a sub-zero winter day will produce sensations of warmth.”

This is the contrast effect and it best explains why film critics have fallen in love with Salman’s latest movie. How is that? Look at the movies Salman has starred in the recent past: Jai Ho, Kick, Dabanng 2, Bodyguard etc. Each one of these movies was pretty trashy. In comparison, Bajrangi Bhaijaan is a slightly better movie with some sort of a storyline and very good performances by the child artist Harshali Malhotra(who the audience has fallen in love with) and as well as Nawazuddin Siddiqui.

Hence, this contrast effect between the earlier movies of Salman and Bajrangi Bhaijaan has led to good reviews. In fact, a similar contrast effect was at work when Ek Tha Tiger had released in 2012. The movie was better than some of Salman’s earlier releases like Veer, Ready, London Dreams etc. And the critics had similarly given it good ratings.

There is another learning here. Bajrangi Bhaijaan has been breaking box-office records. As I write this, the movie has already made close to Rs 200 crore on the Indian box-office. Over and above Salman’s fans who watch every movie of his, however trashy it might be, the non-fans have also been streaming into the theatres because of the good reviews that the movie has universally received.

And what this tells us is that if Salman stars in even half decent movies they are likely to earn much more money than the trash that he chooses to star in. Hope he is reading this.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])

The column originally appeared in the Bangalore Mirror on July 29, 2015

Why companies fire employees

boss
Vivek Kaul

In the aftermath of the financial crisis that started in September 2008, after the investment bank Lehman Brothers went bust, the news regarding companies firing employees in order to cut costs, is regularly published in the media. The global information technology firms have fired a lot of people over the last few years in order to stay competitive.
In an economic environment where business is dull, the companies try to maintain profit levels by cutting costs. There are various ways in which this is done. An organisation I worked for in the past tried to cut costs by getting rid of toilet paper in the restrooms. This move was met with immediate protests and sometime later the status quo was restored.
Jokes apart, a major way in which companies cut costs is by firing employees. This is a painful process which typically leads to people working at the middle and lower levels suddenly finding themselves without a job. Normally, those at the top levels of management as well as those who work in the HR department, carry on with their jobs.
What makes the situation worse is the fact that people who are fired are in no way prepared for it and are told one fine day that they would no longer be needed. In this day and age when almost everybody has EMIs to pay and the joint family system has completely broken down in cities (in the Indian context), it is a very difficult situation to be in.
What I have always wondered is why do companies fire employees? Why don’t they reduce salaries across the board and ensure that everyone has a job. In fact, those at the upper levels should forego more, given that they are more responsible for the good or bad performance of the company. Those at the middle and junior levels typically do what they are told to. Further, cutting salaries across the board can’t be very difficult to implement, I guess.
I have put this question to a few HR people I happen to know. The answer I typically get from them is that when the economy is not doing very well, it is a good time to get rid of the “deadwood” (essentially employees who are not very productive) and make the company leaner. This I guess is a part of the answer but not a complete answer to my question.
To get a complete answer we need to know a little about a famous American economist Irving Fisher. In the latter part of his career, Fisher had turned into an entrepreneur and hence, ended up employing people.
One of the interesting things that he did was to index the salaries of his employees to the rate of inflation. So if inflation went up salaries went up as well and vice versa. As Sylvia Nasar writes in Grand Pursuit—The Story of Economic Genius: “He [i.e. Fisher] was probably the first employer to ever grant an explicit, annual, automatic “cost of living” adjustment.”
Nevertheless, Fisher’s experience with this experiment wasn’t very smooth. As long as the salaries were going up his employees were fine with the situation. But the moment salaries started to fall the employees resented it.
As Fisher would later recount in Stable Money—A History of the Movement: “As long as cost of living was getting higher…employees welcomed the swelling contents of their…pay envelopes…But as soon as cost of living fell they resented the “reduction” in their wages.”
The point being that employees do not like salaries being cut and it typically leads to a lot of resentment. Hence, it is just easier for organisations to fire people, rather than cut salaries across the board.
As Richard Thaler writes in Misbehaving—The Making of Behavioural Economics: “Cutting wage makes workers so angry that firms find it better to keep pay levels fixed and just lay off surplus employees(who are not around to complain).”
This behavioural problem essentially leads to people being fired.
(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])

The column originally appeared in the Bangalore Mirror on July 22, 2015

Uber’s surge pricing shouldn’t just be about ‘good’ economics

uber

Vivek Kaul

The two most basic laws in economics are the law of demand and the law of supply. The law of demand basically states that all other factors being equal the price and the quantity demanded of any good or service are inversely proportional to each other. The law of supply states that an increase in price results in the increase of the quantity of the good or service supplied.

These two laws are the heart of the business model of Uber. The price of the taxi-service goes up when the demand is higher i.e. more people want to use Uber cabs in an area than the number of cabs available at that point of time. The company calls this “surge pricing”.

On the face of it this pricing practice sounds normal. It is often compared to airline ticket prices where the prices during weekends, summers, festivals and end/beginning of the year tend to be higher because the demand is higher. Along similar lines Uber prices go up when the demand is higher. Nevertheless, the comparison is not so straightforward.

When the demand is high, the price charged by Uber starts to go up. There have been cases when the price has gone up many times the normal price charged by the company. A December 2014 article in the Time magazine puts the highest multiple ever recorded at 50 times the normal price. This happened in Stockholm, Sweden.

When terrorists took over a café in Sydney in December 2014, the price went up four times its normal rate. A similar thing happened in Toronto, last month, during a massive subway disruption in the city.

The company has a standard explanation for this—the law of supply is at work. Travis Kalanick, the CEO of Uber explained it on his Facebook page once: “We do not own cars nor do we employ drivers…Higher prices are required in order to get cars on the road and keep them on the road during the busiest times. This maximizes the number of trips and minimizes the number of people stranded.”

How good is this argument? As Richard Thaler writes in Mishbehaving: The Making of Behavioural Economics: “You can’t just decide on the spur of the moment to become an Uber driver, and even existing drivers who are either at home relaxing or at work on another job have limited ability to jump in their cars and drive when a temporary surge is announced.”

Further, “one indication of the limits on the extent to which supply of drivers can respond quickly is the very fact that we have seen multiples as high as ten”, writes Thaler. If drivers were actually responding to surge pricing quickly that wouldn’t have been the case.

Research carried out by Nicholas Diakopoulos of the University of Maryland (which was published in the Washington Post) suggested that: “surge pricing doesn’t seem to bring more drivers out on the roads”. What it does instead is that pushes drivers already on the road towards areas with higher surge pricing.

Also, in most cities which have taxi-cabs people are used to paying a fixed rate. Uber is trying to challenge that notion. The trouble is that while it is doing that it ends up with a lot of bad PR, during tough situations(like terrorists entering a city, weather disasters, transport strikes/disruptions) when the surge pricing tends to kick in. While “surge pricing” follows economic theory, what the company needs to realise is that they are charging the consumer more, when he or she is in a spot of bother anyway.

So what should they do? Thaler has the answer: “This insensitivity to the norms of fairness could be particularly costly to the company…Why create enemies in order to increase profits a few days in a year?…I would suggest that they simply cap surges to something like a multiple of three times the usual fare.”
Now that sounds like a sensible thing to do.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column appeared in the Bangalore Mirror on July 8, 2015

Money lessons from Uber


When it comes to technology I am a slow adopter. I got an email account only after most of my friends already had one. I started using Facebook and Twitter after these two social media websites had already taken off big time. Further, its been less than a year since I got a smart phone and given that I have only recently started using the app-based Uber taxi service.

For those who have used Uber will know that the company primarily offers three levels of taxi service. Its most basic service is uberGO. This is followed by uberX in the mid-range and UberBLACK in the top-range.

Further, the company does not take cash payments. In order to use Uber, you first need to create a wallet account with Paytm, transfer money into it from a bank account and then link it to the Uber app on your smart phone. The cost of the travel is deducted against the money in the Paytm account.

After using the Uber service, you don’t pay paper money or cash to the company. As mentioned earlier, the payment is deducted directly from the Paytm account. Hence, in that sense the situation is similar to when you buy something using a credit card or debit card.

And this is where things get interesting. Research shows that when people use their credit/debit cards they are likely to end up spending more in comparison to when they use cash, simply because there is no pain of purchase, as is the case when using cash.

Gary Belsky and Thomas Gilovich explain this phenomenon beautifully in Why Smart People Make Big Money Mistakes and How to Correct Them: “Credit card dollars are cheapened because there is seemingly no loss at the moment at the purchase, at least on a visceral level. Think of it this way: If you have $100 cash in your pocket and you pay $50 for a toaster, you experience the purchase as cutting your pocket money in half. If you charge that toaster though, you don’t experience the same loss of buying power that your wallet of $50 brings.”

The same stands true about using a debit card as well or for that matter a wallet account like Paytm, to purchase things. “In fact, the money we charge on plastic is devalued because it seems as if we’re not actually spending anything when we use cards. Sort of like Monopoly money,” the authors add.

Hence, as people don’t feel the pain of spending money, they are likely to spend more. “You may be surprised to learn that…you not only increase your chances of spending to begin with, you also increase the likelihood that you will pay more when you spend than you would if you were paying cash,”Belky and Gilovich write.

So how is all this linked to Uber? The area that I live in central Mumbai, uberGo, which works out cheaper than even a kaali-peeli taxi and is air-conditioned, is not so easy to get. On days I don’t find an uberGo I end up using an uberX which is more expensive than a kaali-peeli. And on a couple of occasions I have also ended up using UberBLACK, which is significantly more expensive than a kaali-peeli taxi.

The reason for this is straight forward. Since I don’t have to pay Uber in cash, I don’t feel the pain of paying and end up using a service which is more expensive than a kaali-peeli. In fact, since I am paying using a smartphone the pain of payment is even lower than when using a credit or a debit card, given that payment through a smart phone using a wallet is one more step removed from cash than a credit or a debit card.

This also explains why almost every e-commerce site wants you to shop using an app and not from their website. Since you may pay using a smartphone through a mobile wallet account, there is chance that you will end up spending more money.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])

The column originally appeared in the Bangalore Mirror on June 17, 2015 

Why bosses suck

Around ten days back, I met a cousin who is doing her MBA from a premier business school in the country. She has just finished her summer training and was rather disappointed with her boss (aren’t we all?).

My cousin, of course, goes back to her MBA course and hence, does not need to deal with her now former boss, on a daily basis. But everybody is not as lucky. In fact, time and again research has shown that “people quit their bosses and not their jobs”.

And the tragedy is that most organisations do not address this issue at all. Also, if you are honest enough to highlight this fact in your exit interview, chances are you won’t get hired back by the company in the days to come, if a such situation arises at all.

So the question to ask is why do bosses suck? Many years back, Laurence J. Peter came up with the Peter’s Principle, which essentially states that every person rises to his or her level of incompetence in an organisational hierarchy. So good software coders do not always make for good project managers, once they are promoted. Good teachers do not make for good principals. Good breaking news reporters do not make for good editors. And good batsmen do not always make for a great captain.

This happens primarily because individuals get promoted up the hierarchy on the basis of how good they are at their current job. But once they have been promoted the skill-set required to handle their next job maybe totally different. And they may not have that skill-set at all. This lack of competence creates a problem for those who report to them.

What this means is that everyone is not suited for being promoted up the hierarchy. Nevertheless, people need to be promoted. As Dan Ariely, an Israeli American professor of psychology and behavioural economics, writes in his new book Irrationally Yours: “[The] feeling of progress is very important to our well-being and it provides gratification, self-esteem, and recognition from our peers.” And this feeling of progress comes when people are promoted.

One way companies have tried to tackle the “feeling of progress” is by creating more layers in the hierarchy, where an individual gets promoted, gets a new designation, perhaps more money, but is essentially doing the same thing.

As Ariely puts it: “Widespread recognition of the need for progress explains why so many companies have invented titles and intermediate positions for management types (officer executive,… vice president, senior vice president, deputy CEO, etc.)…Companies want their employees to feel that they are making progress and moving ahead even when these steps are not very meaningful…Most companies across all positions, have a list of titles that give all employees the feeling that we are moving ahead on this treadmill.”

The trouble is that this game of “inventing titles” has not done anything to solve the basic problem of individuals rising to their level of incompetence in a hierarchy. In fact, research shows that incompetent bosses know that they are “incompetent” and this makes them aggressive and a “pain in the ass” for the individuals who report to them.

As Nathanael J. Fast and Serena Chen write in a research paper titled When the Boss Feels Inadequate: “A lack of perceived personal competence may foster aggression among the powerful. We base this idea on the notion that power increases the degree to which individuals feel that they need to be competent—both in order to hold onto their power and to fulfil the demands and expectations that come with their high-power roles.”

The researchers further state that: “Power holders who perceive themselves as personally incompetent might display aggression.” And that’s why bosses continue and will continue to suck. Further, organisations not do anything about it.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])

The column originally appeared on Bangalore Mirror on June 10, 2015