On Being Positive – Do You Have Your Bullshit Receptors On?

Be positive.

My friends have told me to be positive.

My extended family has asked me to be positive.

Unknown people on the social media have suggested the same.

Because in their heads they feel that being positive will drive us out of the rut and all the troubles that we currently find ourselves in.

Of course, it’s not as simple as that. It never is. 

Dear Reader, have you ever wondered why the be positive messages started going around on WhatsApp, Twitter, Instagram, LinkedIn and what not, last month, right in the middle of the worst phase of the second wave of the covid pandemic? People were dying. People were not getting oxygen, beds or medicines for that matter, and in the middle of all this man made chaos, friends and family, were sending WhatsApp messages promoting the idea of being positive. 

Well, if you are like the people who have been asking me and others to be positive, you clearly didn’t think about it. This is simply because you were busy being positive and didn’t bother to figure out why this bullshit of being positive came up right when it did and not before or after.

The Nobel Prize winning psychologist Daniel Kahneman along with Olivier Sibony and Cass Sunstein, have got a possible answer for this in the book Noise—A Flaw in Human Judgement.

As they write:

“Sure enough, some people are more receptive than others to bullshit. They can be impressed by “seemingly impressive assertions that are presented as true and meaningful but are actually vacuous.””

The word vacuous means empty or mindless. From religious gurus to corporate gurus to religious gurus morphing as corporate gurus (yes there is a category like that as well), follow this formula with great success. Doing this involves use of phrases and sentences which sound profound when heard, but mean nothing, if you sit and think about it.

As Kahneman, Sibony and Sunstein write:

“Gordon Pennycook and colleagues have conducted many studies of people’s reactions to meaningless, pseudo-profound statements generated by assembling randomly selected nouns and verbs from the sayings of popular gurus into grammatically correct sentences, such as “Wholeness quiets infinite phenomena” or “Hidden meaning transforms unparalleled abstract beauty.” The propensity to agree with such statements is a trait known as bullshit receptivity.”

In order to make the population at large receptive of bullshit, it is important that they are in a good mood. While  doing this would have been very difficult earlier, now with cheap internet and rock-bottom mobile phone rates, and many smart phones going around, people can be bombarded endlessly with messages of being positive. It doesn’t cost anything except a few message writers, who are available dime a dozen.

As the authors point out:

“Inducing good moods makes people more receptive to bullshit and more gullible in general; they are less apt to detect deception or identify misleading information.”

And this is where the entire idea of being positive which has been promoted so extensively over the last one month, comes in.

The idea is to make sure that people are in a good mood and hence, more receptive to misleading explanations around why there is shortage of vaccines, why the government was caught totally unprepared for the second wave and why the government is not be blamed for all this. And it needs to be given the benefit of doubt.

Recently I was told by someone that the vaccine shortage is primarily because of journalists (yes, journalists). They wrote columns questioning the efficacy of the vaccines. This led to a situation where many people did not vaccinate between January and March, before the second wave broke out, as they thought the vaccines are not safe.

Given that enough people were not getting themselves vaccinated, the government ended up exporting six crore doses. Hence, now there is a shortage, and the government can’t be blamed for it, because journalists questioned vaccine efficacy. This is one argument going around among the be positive crowd.

There are many ways of puncturing this argument but let me use the simplest one. The current government has no interest in listening to journalists or anyone else who does not conform to their way of things. So why would they listen to them on just this issue? The more important question is why the government did not bother to order enough vaccines in advance, like governments of so many countries did.

The government didn’t do this simply because it got caught in its own rhetoric of India having successfully beaten the covid pandemic. The trouble with government propaganda is that sometimes the governments end up believing in it and the citizens have to bear its cost, which they currently clearly are, though many of them are busy being positive. 

It is important to keep in mind what Carl Bergstrom and Jevin West write in Calling Bullshit – The Art of Scepticism in a Data Driven World:

“Human language is immensely expressive, in the sense that we can combine words in a vast number of ways to convey different ideas… This is a good skill to have when trying to communicate efficiently—and it’s equally useful when using communication to manipulate another person’s beliefs or actions. That’s the thing about communication. It’s a two-edged sword.”

The entire be positive campaign (can’t think of a better word to describe it), is what the American philosopher Harry Frankfurt called a deliberate misrepresentation in his book On Bullshit.  And this deliberate misrepresentation has been carried out to ensure that there are no scratches on the teflon coating surrounding the government. 

To conclude, be positive in 2021 is basically what acche din aane waale hain was in 2014. They are two sides of the same coin. They were both designed to mislead. 

The Delusional Optimism of India’s Real Estate Companies

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Daniel Kahneman, the Nobel Prize winning psychologist, in his brilliant book, Thinking, Fast and Slow, writes: “One of the benefits of an optimistic temperament is that it encourages persistence in the face of obstacles…[The] confidence [of the entrepreneurs] in their future success sustains a positive mood that helps them obtain resources from others, raise the morale of their employees, and enhance their prospects of prevailing. When action is needed, optimism, even of the mildly delusional variety, may be a good thing.”

This optimism of an extreme delusional variety has been visible among India’s real estate entrepreneurs. For the last five to six years, they have been saying that a recovery in the sector is just around the corner, and the fact that it hasn’t happened yet is because the Reserve Bank of India (RBI) refuses to play ball by cutting interest rates, adequately.
Rajeev Talwar, the Chief Executive of DLF, recently told the Business Standard: “We are in a new economic cycle… When demand picks up, it will take everybody by surprise.”

Niranjan Hiranandani, chairman of Hiranandani group, told the same newspaper: “Any depression will not last long.”

Isn’t a period of five to six years a long enough time?

A report by Crisil Research points out that the absorption of new homes (i.e. sales) in in top 10 cities (Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai Metropolitan Region (MMR), National Capital Region (NCR) and Pune) has fallen by 8 per cent per year on an average in the last six years.

What does this mean? It means that if real estate builders sold 100 new homes in India’s top 10 cities in 2010, in 2016, they managed to sell only 63. In absolute terms, this is a fall of 37 per cent. And Mr Hiranandani is talking about any depression not lasting long. I guess six years is a long enough time.

In fact, things haven’t looked good even in the last three months. As per real estate research firm, PropEquity, housing sales stood at 22,699 units during the period July to September 2017, in eight key cities. The sales had stood at 34,809 units during the period April to June 2017. This means a collapse of close to 35 per cent in a period of just three months.

The eight key cities are Gurgaon, Noida, Mumbai, Kolkata, Pune, Hyderabad, Bengaluru and Chennai.

What are the reasons for this collapse? As I have been saying over and over again, real estate prices in India, are beyond what most people can afford and unless this anomaly is corrected, sales will continue to remain sluggish.

Over and above this, real estate companies have really worked hard to break whatever little trust the prospective buyers had in them, by not delivering homes on time.

Further, investors are no longer the driving force in the market, given the sluggish returns in the sector. For a real estate investment to be a viable proposition, after taking in the costs and the risk involved, it should be generating a return of at least 10 per cent per year. And this hasn’t happened for a while.

The overall economy continues to remain sluggish. Take a look at Figure 1, which plots the growth of the non-government part of the GDP, which forms around 90 per cent of the Indian economy.

non govt GDP growth

Source: Centre for Monitoring Indian Economy.

The growth of the non-government part of the economy has fallen from well over 9 per cent to a little over 4 per cent in a period of 18 months between January 2016 and June 2017. This also means that incomes are not going up at the same pace as they were in the past. And given this, it is but natural people are going slow on buying a new home, which is the biggest financial commitment that they make in their lives. During a time when the rental yield (annual rent divided by market price of a home) is around 2 per cent, this makes immense financial sense.

The fear of job losses in the IT industry has also had an impact. The state of the IT industry has a major impact on real estate sales in cities like Pune, Hyderabad and Bengaluru.

In this scenario, the real estate builders have been offering discounts in order to get prospective buyers interested. As Crisil Research points out: “Pressure on residential real estate prices across top 10 cities was clearly visible during H1 2017 [January to June 2017]. While several developers offered upfront per square feet discounts, a few large developers bundled financing schemes and reduced interest schemes to offer ‘all inclusive house prices’. Home buyers, in many cases, were also offered indirect benefits such as reduced floor charges or premium location charges. Taking into account these aspects, the effective price correction was 5-10%.”

But even this 5-10 per cent correction isn’t enough to pull buyers in. This basically means that home prices continue to remain expensive. As I have often said in the past, home sales will revive as and when home prices become affordable, which is currently not the case. For home prices to become affordable builders need to cut prices from current levels. Given that a majority of them are in no mood to do so, it basically means that home sales will remain sluggish in the years to come.

Crisil Research expects that “in the next 12-18 months, prices are likely to remain stable at current levels on account of weak demand and moderation in new supply additions.” This basically means that instead of a price correction, the real estate sector in India is seeing a time correction. If prices remain stable over the years, they lose value once adjusted for inflation and in the process, they might become affordable.
Keep watching this space.

The article originally appeared on Equitymaster on October 16, 2017.

What You See is All There is?

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One story that constantly get splashed across Mumbai tabloids (the city I live in) is that of chain snatching. Almost all such newsreports give a feeling that the city is no longer as safe as it used to be.

But is this true? As Daniel Levitin writes in A Field Guide to Lies and Statistics: “We assume newspaper space given to crime reporting is a measure of crime rate. Or that the amount of newspaper coverage given over to different causes of death correlates to risk. But assumptions like this are unwise.”

Psychologist Daniel Kahneman calls this phenomenon “what you see is all there is” or WYSIATI. As he writes in Thinking, Fast and Slow: “The confidence that individuals have in their beliefs depends mostly on the quality of the story they can tell about what they see, even if they see little. We often fail to allow for the possibility that evidence that should be critical to our judgement is missing—what we see is all there is.”

Hence, what we believe in tends to get decided by what we see, and in the process, we tend to ignore the evidence that we should be really looking for. Take the case of the chain snatching in Mumbai that I talk at the beginning of the column. Any standalone chain snatching incident on its own should not lead us to draw broader conclusions. Nevertheless, that is precisely what we do, concluding that the city is more unsafe than it was in the past.

The data that we should basically be looking at is: Whether the number of chain snatching incidents has gone up than in comparison to the past? And if that is the case, then it is fair to draw the conclusion that the city is more unsafe than in comparison to the past, at least on the chain snatching front.

But this is a data point that most media reports on chain snatching tend to miss out on. A recent newsreport points out that the number of chain snatching incidents reported to the police in Mumbai, has fallen from 1,954 in 2012 to 445 in 2016. Also, the proportion of cases where a detection has been made has increased from 36.7 per cent in 2012 to 55.1 per cent in 2016. This means that a greater portion of the chain snatching crimes have been solved.

As per these figures, Mumbai is safer on the chain snatching front than it was in the past. But given that these data points rarely get reported that is not the impression that people have of the city. As Levitin writes: “Cognitive psychologist Paul Slovic showed that people dramatically overweight the relative risks of things that receive media attention. And part of the calculus for whether something receives media attention is whether or not it makes a good story. A death by drowning is more dramatic, more sudden, and perhaps more preventable than death by stomach cancer—all elements that make for a good, though tragic, tale.”

Given this, drowning deaths tend to get reported more than deaths by stomach cancer. This  leads people to erroneously believe that they are more common, which is not the case. As Levitin writes: “About five times more people die each year of stomach cancer than of unintentional drowning… Misunderstandings of risk can lead us to ignore or discount evidence we could use to protect ourselves.”

And that brings us back to the original question, is what you see really in the media all there is? Now that is something worth thinking about.

The column originally appeared in the Bangalore Mirror on February 15, 2017

 

 

The Denominator Neglect

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Among other things, schools teach Mathematics very badly, leading to a situation where most adults don’t understand the practical applications of even fifth standard Mathematics and pay for it in the process.

One such mistake that we make is known as the denominator neglect. As Thomas Gilovich and Less Ross write in The Wisest One in the Room—How You Can Benefit from Social Psychology’s Most Powerful Insights: “The effects of strategically choosing the right scale (i.e. the right denominator) can be dramatic. In one study, respondents judged a disease that kills 1,200 out of every 10,000 afflicted individuals to be more dangerous than one that’s twice as lethal, killing 24 out of every 100.”

This didn’t make any sense. The second disease was clearly more lethal given that chances were that it would kill twice the number of afflicted people than the first one would. But people still found the first disease more dangerous because the number 1,200 is much bigger than the number 24. In the process, they had totally neglected the denominator and made a blunder in arriving at the conclusion that they did.

In fact, a well-known experiment will make the point even clearer. In this experiment participants are given a choice to draw a red marble, out of two urns and win a prize. The first urn contains 10 marbles of which one is red. The second urn contains 100 marbles, of which 8 are red. It doesn’t take rocket science to figure out that the chances of drawing a red marble and in the process winning a prize are higher in case of the first urn. The probability of winning in the first case is 10 per cent and in the second case 8 per cent.

Nevertheless, as Daniel Kahneman writes in Thinking, Fast and Slow: “About 30-40% of student s[basically participants in the experiment]  choose the urn with the larger number of winning marbles, rather than the urn that provides a better chance of winning…Vivid imagery contributes to denominator neglect…When I think of the small urn, I see a single red marble…When I think of the larger urn, I see eight winning marbles.”

And that is how denominator neglect works. In fact, that also explains why different ways of talking about risk vary so much. As Kahenman writes: “You read that “a vaccine that protects children from a fatal disease carries a 0.001% risk of permanent disability”. The risk appears small. Now consider another description of the same risk: “One of 100,000 vaccinated children will be permanently disabled.” The second statement does something to your mind that the first does not: it calls up the image of an individual child who is permanently disabled by the vaccine; the 99,999 safely vaccinated children have faded into the background.”

That is how things work. The larger point is that people concentrate on absolute values in most cases and don’t take the denominator into account. This also explains why people are more likely to spend in a stronger currency than a weaker one. As Gilovich and Ross write: “People are more likely to buy expensive brand-name products when they are priced in a strong currency like the British pound that results in a relatively small price tag (318 pounds for an Apple iPad with retinal display) than when priced in a weak currency like the Mexican peso that results in a relatively large price tag(6,395 pesos for the same iPad).”

This also explains why many Indians buy gadgets when they go abroad. Of course, in many cases, the goods bought abroad are actually cheaper but in many other cases they simply appear cheaper because they are priced in a much stronger currency.

And this is how our lack of understanding of middle-school maths hurts in the decisions that we make in our daily lives.

The column originally appeared in the Bangalore Mirror on September 28, 2016

The Sunk Cost of Air India

Air_India_001

There are somethings one never expects a minister to say. Hence, the civil aviation minister Ashok Gajapathi Raju’s recent statement on Air India, came in as a pleasant surprise. The minister told the Press Trust of India: “It is a nice airline. I like Air India but I can’t commit taxpayers’ money for eternity. That is not done.”

This is a huge thing for the civil aviation minister to say. If you take Air India out of the civil aviation ministry (by either shutting it down or selling it off) there isn’t much that remains. Having made this statement, Raju hedged it by saying: “Let’s wish and hope that it (Air India) flies high. I am not against the public sector and I am not for only public sector at all costs. Public sector has a role and private sector has a role. Let them work in competition.”

To be honest, I have also liked Air India, on occasions I have travelled in it, as long as it has taken off on time. The leg space is better than the low cost carriers. The seats are more comfortable and the food is hot. Nevertheless, this is no excuse to keep the airline going.

As I have mentioned in the past, between 2010-2011 and 2015-2016, the airline made total losses of Rs 34,689.7 crore. That is quite a lot of money. Further, the airline also has a debt of Rs 51,367 crore, of which Rs 22,574 crore are outstanding aircraft loans. (As the minister of state for civil aviation Mahesh Sharma told the Parliament in March 2016).

A major part of the debt has helped the airline meet its expenditure, given that it doesn’t earn enough to meet its expenditure. Lenders keep lending to a perennially loss making Air India because ultimately they are lending to the government. And there is no safer lending than lending to the government, at least in theory.

Over and above the debt that airline took on, up until March 2016, the government had already poured Rs 22,280 crore into Air India, to keep it going. A further equity infusion of Rs 1,713 crore has been approved for the current financial year. Hence, a lot of public money is being spent to keep the airline going. What these numbers tell us is that the current government and the ones before it, have been basically in favour of public sector at all costs.

The civil aviation minister Raju further said: “Its (Air India) books are so bad. I don’t think that even if it is offered, anybody would come for it.” What the minister was basically saying is that nobody in their right mind will buy Air India in its current state. But is this good enough a reason to keep the airline going? That seems to be the case, given that there has been absolutely no talk of shutting it down.

Behavioural economists have a term for a situation like this—they call it the sunk cost fallacy. As Daniel Kahneman, the Nobel Prize winning psychologist, writes in Thinking, Fast and Slow: “A rational decision maker is interested only in the future consequences of current investments. Justifying earlier mistakes is not among the…concerns. The decision to invest additional resources in a losing account when better investments are available, is known as sunk-cost fallacy, a costly mistake that is observed in decisions large and small.”

Kahneman gives the hypothetical example of a company that has already spent $50 million on a project. As he writes: “The project is now behind schedule and the forecasts of its ultimate returns are less favourable than at the initial planning stage. An additional investment of $60 million is required to give the project a chance. An alternative proposal is to invest the same amount in a new project that currently looks likely to bring higher returns. What will the company do? All too often a company afflicted by sunk costs…[throws] good money after bad rather than accepting the humiliation of closing the account of a costly failure.”

This escalation of commitment is visible in many areas including war as well. As Richard Thaler writes in Misbehaving—The Making of Behavioural Economics: “Many people believe that the United States continued its futile war in Vietnam because we had invested too much to quit…Every thousand lives lost and every billion dollars spent made it more difficult to declare defeat and move on.”

This escalation of commitment is a major reason which has led to the government keeping   Air India going over the last few years, despite the mounting losses. No minister or the government for that matter, wants to admit defeat and talk about shutting down the airline.

As Kahneman writes in the context of the example we saw above: “Cancelling the project will leave a permanent stain on the executive’s record, and his personal interests are perhaps best served by gambling further with the organisation’s resources in the hope of recouping the original investment—or at least to postpone the day of reckoning.”

This logic applies to the civil aviation minister as well as the government (and not just the current one). No government wants to admit defeat and shutdown the airline. This, in a situation, when the government isn’t exactly flush with money and there are other important sectors, like education, health as well as physical infrastructure, that need more money.

Further, the airline continues to lose money and in a scenario where the Indian Railways is in a mess and needs a lot of money to be revived. If there is only so much money going around, shouldn’t that money be going to the Railways, instead of an airline?

I guess that is a no-brainer. But then no-brainers aren’t always so easy to process.

The column originally appeared in the Vivek Kaul Diary on Equitymaster on June 14, 2016