Easynomics

In the media, if it bleeds, it leads

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I am a big fan of the British-American writer Bill Bryson. And I think it’s unfair that he tends to get categorised as a travel writer. He is much more than that, though it is very difficult to categorise him. His latest book is called The Road to Little Dribbling—More Notes From a Small Island. In this book, one of the things that Bryson talks about is the uniquely British phenomenon of attacks by cows on human beings, making national news.

As he writes: “In America, cow trampling would never make the national news other than in highly exceptional circumstances. If, let’s say, Dick Cheney was trampled to death by cows (and we can always dream), that would be national news.” But the same is clearly not true about Great Britan.

“In Britain if a single cow tramples a walker anywhere in the country, it will almost certainly make national headlines,” writes Bryson.
Cow attacks on human beings are pretty rare. But the surfeit of news in the British media about cow attacks, leads the British to believe that cow attacks are very common in Britain. This belief comes from reading about the attacks in the media at regular points of time.

Economists and psychologists refer to this tendency as an availability bias. As Leonard Mlodinow writes in The Drunkard’s Walk—How Randomness Rules Our Lives: “In reconstructing the past, we give unwarranted importance to memories that are most vivid and hence most available for retrieval. The nasty thing about the availability bias is that it insidiously distorts our views of the word by distorting our perception of past events and our environment.”

Air-crashes are an excellent example of this. As Jason Zweig writes in The Devil’s Financial Dictionary: “Flying is among the safest ways to travel, but on the rare occasions when an airplane does crash, the fireball on the runway is broadcast worldwide and burned into the brain of everyone who sees it.”

This leads people to believe that airplane travel is unsafe. But what they don’t realise is that the media does not report about the thousands of planes that land safely every day all over the world. It also does not report the many car crashes that happen all over the world every day, unless a celebrity is involved.

The same logic works in case of a stock market. Every big fall is reported on the front pages of newspapers and by the other media. As Zweig writes: “Market crashes are rare, too, but the spectacular damage they cause is also seared into the collective unconscious. That leads many investors to miss out on the gains stocks can generate during the surprisingly long periods between crashes.” Like safe airplane landings, the media does not report the small gains (or losses) that add up, over a period of time.

Further, the advent of cable TV has brought war into our drawing rooms. But is the world more unsafe that it was let’s say 70 years back or 100 years back or may be even 500 years back? The feeling that the world has become more unsafe than it was in the past, is another excellent example of the availability bias.

As Steven Pinker writes in an essay titled A History of Violence: “Several historians have suggested that there has been an increase in the number of recorded wars across the centuries to the present, but, as political scientist James Payne has noted, this may show only that “the Associated Press is a more comprehensive source of information about battles around the world than were sixteenth century monks.” Associated Press is a wire news agency, which reports from all over the world.

This is not to suggest that the world is a totally safe place and that wars have come to an end. Nevertheless, things are not as bad as they seem to be.
To conclude, dear reader, when you are reading a newspaper or a digital publication, it is always worth remembering that old saying in journalism: “If it bleeds, it leads.”

(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 dated December 2, 2015

Mr Modi, govts can’t do everything

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Various Indian governments over the years have tried to run many businesses but have been unsuccessful at doing the same. In fact, the trend continues even now, despite the fact that one of the key promises made by Narendra Modi in the run up to the Lok Sabha elections last year was “minimum government maximum governance”. But this promise like a few others now seems to have taken a backseat, around eighteen months after Modi was sworn in as the prime minister of the country.

Like the previous governments, the Modi government also wants to do many things. But is that possible? As veteran journalist TN Ninan writes in The Turn of the Tortoise—The Challenge and Promise of India’s Future: “Governments have tried to do great many things, from running watch and scooter factories to making shoes—all unsuccessfully. They continue to try and run airlines, telecom companies, hotels and banks—all of which have found it difficult to compete with private competitors, losing ground to the latter when they come on the scene.”

There is a fundamental problem in the government trying to run businesses. The economist Friedrich Hayek called it the knowledge problem. He explained it in a seminal article called The Use of Knowledge in Society which was published in the September 1945 issue of the American Economic Review.
In this article Hayek wrote: “The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.”

Hayek further wrote: “The economic problem of society…is a problem of the utilization of knowledge which is not given to anyone in its totality.”

What does this mean in simple English in the context of governments usually being bad at business? The knowledge required to run a business successfully is dispersed among many individuals and not concentrated with a central authority like a government. As Matt Ridely writes in The Evolution of Everything: “The knowledge required to organise human society is bafflingly voluminous. It cannot be held in a single human head”.

This is a basic point that governments tend to forget when they decide to be present in all kinds of businesses, like is the case in India. And whenever this happens, businesses lose money and need to be subsidised by the government.

Take the case of Mahanagar Telephone Nigam Ltd which offers internet and telephone services in Mumbai and Delhi. For the financial year ending March 31, 2015, the company’s income was at Rs 3,400 crore. Its expenditure on the other hand stood at a much higher Rs 5,284 crore.

Or take the case of the government owned airline Air India. The company has accumulated losses of Rs 20,000 crore. Every year, we hear that the airline is planning to turn profitable over the next few years and gets more money from the government in the process.

More than the money losses, these companies are distractions for the government. They get more government attention than they deserve and in the process other more important things tend to get ignored.

As Ninan writes: “There is too little of government attention paid to core areas like law and order, education and health—too few judges, too few teachers who teach, too few hospital beds; also too few trade negotiators and too few policemen, especially those with proper training. It should be obvious that there are many things that the state does inadequately or badly, and many tasks that the state has needlessly taken on itself.”

The tragedy is that no Indian politician seems to believe in focussing on the few important things and leaving out the rest. And this includes Narendra Modi as well. His promise of “minimum government and maximum governance,” like a few other things that he had promised, is turning out to be an electoral jumla at the very best.

(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 Nov 18, 2015

Why everybody loves credit cards

credit cardRecently I went looking for a new Wi-Fi data card. I quickly decided on what I wanted, and put up the necessary papers required. When I was ready to pay using a debit card, I was told that there would be a 2% charge if I decided to pay using either a credit or a debit card.

This came as a surprise. The merchant clearly was still living in the 1990s.

The merchants used to charge extra on a card payment when credit and debit cards were just getting started in India in the late nineties. This continued in the early noughties as well. This was because banks charged the merchants every time a card holder used a credit or a debit card to make a payment. And merchants did not want to pay that money out of their own pockets.

Over a period of time as cards became popular this changed and no extra payments needed to be made if one decided to pay using a credit or a debit card. What brought about this change? Other than the fact that cards became ubiquitous, with people not wanting to carry cash around everywhere, merchants also realised something else.

And what was that? People end up spending more when they use cards.

This is primarily because cards take out the pain one feels while spending paper money, totally out of the equation. As Nobel Prize winning economists George Akerlof and Robert Shiller write in their book Phishing for Phools—The Economics of Manipulation and Deception: “One of the bases of credit card’s magic is that most of us think that we buy only what we need(or want).” Nevertheless “there is circumstantial evidence that people with credit cards spend more.”

In fact, psychologist Richard Feinberg carried out a series of very interesting experiments to show that just the presence of a credit card as a cue, leads to people spending more. In one of these experiments, people were shown various items on a screen, one at a time, and were asked how much would they pay for each one of them.

As Akerlof and Shiller write about the experiment: “In the presence of a credit card in the corner on the screen…subjects were willing to spend more.”  For a toaster, they were willing to pay $67.33, in the presence of a credit card cue. When there was no credit card in the corner of the screen, they were willing to pay only $21.50. The numbers for a tent were $28.42 in the presence of a credit card and $7.58 in the absence of one.

In fact, this discrepancy was seen in case for all the items that were flashed on the screen. Further, in the presence of a credit card, the decision to buy at a higher price was made much faster.

Given these reasons, it is hardly surprising that merchants have taken to cards, like a fish takes to water. And they are happy to accept cards these days, even if that means paying a fee to the bank, every time they accept a card payment. They have realised that people spend more when they use cards, and this benefits them.

This brings me to another question. Why don’t merchants offer discounts to those paying cash, given that there are no extra costs that they need to pay? As Akerlof and Shiller write: “If people are unknowingly spending more because they are paying by credit card, it would be ill-advised for…the local supermarket to remind their customers that they might, well, get a discount for paying by cash.” What is true for a local supermarket is true for other merchants as well.

This explains why everyone loves credit cards. The customer can spend more money than he has. The merchants can sell more, which is something that the merchant I mention at the beginning of this column, needs to realise. And the bank can collect exorbitant interest on the money that is spent.

The column originally appeared in the Bangalore Mirror on October 28, 2015

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

 

Why Chitrahaar was fun and music channels are not

DDMore than two decades back in 1992, Bruce Springsteen wrote and sang a song called 57 Channels (And Nothin’ On). Ironically, 1992 was also around the time when cable TV first started to spread across India. It was in 1992 that I first heard the Springsteen song on MTV and wondered what did he really mean by it?

How could more TV channels be a bad thing? But then we were coming out of an India which just had one television channel. And we thought that more TV channels would be better than just one. It was an era when the choice of TV watching was limited to a single channel, Doordarshan. Okay, there was DD Metro as well, but only in the bigger cities.

But now 23 years later I can safely say that I am bored with too much TV.

Monopoly was when Delhi Doordarshan used to broadcast Chitrahaar twice a week at 8pm on Wednesdays and Fridays. For the uninitiated Chitrahaar was a 30 minute programme on Doordarshan that played Hindi film songs. I used to look forward to it and have great fun even if “nanha munha raahi desh ka sipahi hoon,” from the movie Son of India, was played for the umpteenth time.

Perfect competition is when there are so many music channels broadcasting a Chitrahaar every minute and I really cannot watch any of these channels for more than two minutes.

Perfect competition is essentially the opposite of a monopoly. In this scenario there are many players selling a product or a service and none of them is big enough to dominate the market.

And given this, the consumer has choice, like he has while watching music on TV these days. There many music channels playing music all through the day. But why isn’t it as enjoyable as it used to be?

The answer perhaps lies in “more” choice. As Sheena Iyengar writes in The Art of Choosing: “When the options are few, we can be happy with what we choose since we are confident that it is the best possible choice for us.” So, when Doordarshan was the only channel available it was a no-brainer to watch Chitrahaar playing at 8pm twice a week than watch Krishi Darshan which played an hour earlier on weekdays.

Now with so many music channels there is choice. And that makes things difficult. As Iyengar writes: “When the options are practically infinite, though, we believe that the perfect choice for us must be out there somewhere and that it’s our responsibility to find it. Choosing can then become a lose-lose situation.”

And this leads to a situation where despite so many TV channels people keep switching channels in the hope of finding something better to watch. As Iyengar writes: “If we make a choice quickly without fully exploring the available options, we’ll regret potentially missing out on something better; if we do exhaustively consider all the options, we’ll expend more effort(which won’t necessarily improve the quality of our final choice), and if we discover good options, we may regret we can’t choose them all.”

It would be simplistic to say here that more choice is bad. But beyond a certain point choice does start to hurt. As Barry Schwartz writes in The Paradox of Choice: “Part of the downside of abundant choice is that each new option adds to the list of trade-offs, and trade-offs have psychological consequences. The necessity of making trade-offs alters how we feel about the decisions we face: more important, it affects the level of satisfaction we experience from decisions we ultimately make.”

These days I seem to be spending more time changing TV channels in the hope of being able to listen to a better song. Time I moved to YouTube and heard just the songs I want to, instead of changing channels all the time. As Iyengar puts it: “The more specific one’s preferences, the easier the choosing task becomes.”

Guess, there is a lesson in it.

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

The column originally appeared in the Bangalore Mirror on October 21, 2015

 

Aarushi Talwar and the myth of common sense

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I saw the movie Talvar on the day it was released. The movie is based on the Aarushi Talwar murder case. The names of the lead characters in the movie have been changed, with Aarushi Talwar becoming Shruti Tandon.

But as the movie unfolds, anyone who has followed the murder case closely would know that there is nothing fictional about it. Vishal Bhardwaj’s script is based on solid research. The movie tries to show two sides of the story, with a portrayal which suggests that Aarushi’s parents, Nupur and Rajesh Talwar, got a raw deal, and they got caught up in the rigmarole of the Indian police and justice system.

Along with Talvar if you have happened to read journalist Avirook Sen’s book Aarushi, you will come to the same conclusion.

Given this, the question here is why almost everyone was convinced for a long time (and some still are) that the parents killed Aarushi, and it was a case of honour killing. In fact, while coming out of the cinema theatre, I overheard two women talking and one of them was telling the other, that the filmmaker must have taken money to show a sympathetic portrayal of Aarushi’s parents. This logic has also been offered to me by a few journalist friends.

Why are people so convinced that the parents murdered Aarushi? I think their common sense is at work. One reason offered is that Nupur Talwar did not cry when she was interviewed by NDTV. Which mother would not have cried if she was giving an interview after her daughter’s murder? This question is often put forward as a reason to explain that the parents murdered Aarushi.

Nevertheless, as TV journalist Sonia Singh, who interviewed Nupur Talwar, recently wrote in a column: “I want to shout this from the rooftops. Nupur Talwar cried; in fact, she cried copiously! Her mistake – she did it off camera; my mistake – I didn’t keep the cameras rolling to record what I felt was a private moment of heartbreak.”

So Nupur Talwar did cry. It’s just that people never came to know about it.

While trying to explain things to themselves most people tend to use what they call “common sense”. Nevertheless there are problems with this approach. As Duncan J. Watts writes in Everything is Obvious—Once You Know the Answer: “Because we only try to explain things that strike us as sufficiently interesting, our explanations account for a tiny fraction even of the things that do happen. The result is that what appear to us to be causal explanations are in fact just stories…Nevertheless, because these stories have the form of causal explanations, we treat them as if they have predictive power.”

A similar phenomenon has been at play in the Aarushi murder case. Another reason offered in favour of why parents killed Aarushi is that how could the parents not hear anything while their daughter was being murdered in the next room. The parents said that the AC in their room was making too much noise and hence, they could not hear anything. This was later tested and found to be true (there is a long scene in the movie as well).

But this sort of reasoning is beyond our common sense. As Duncan writes: “The basic problem is that whenever people get together in groups…they interact with one another, sharing information, spreading rumours, passing along recommendations…learning from each other’s perspectives and generally influencing each other about what is good and bad, cheap and expensive, right and wrong.”

So people were convinced that the Talwars were guilty and the story spread. As Duncan writes: “The net result is that common sense is wonderful at making sense of the world, but not necessarily understanding it.”

And that is something worth thinking about.

The column originally appeared in the Bangalore Mirror on Oct 14, 2015

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