Propaganda 101: What the Indian Right has learnt from Big Tobacco

The Indian economy as measured by the gross domestic product (GDP) contracted by 23.9% during April to June 2020 in comparison to the same period in 2019. This contraction was huge.

But soon journalists, economists, corporate honchos and analysts, who are close to the current dispensation, started telling us that, so what if India has contracted by 23.9%, the American economy contracted by 32% during the same period. The point being that if India was in trouble, America was in bigger trouble. How did this lessen our trouble they didn’t bother to explain.

There was an even bigger problem with the 32% American contraction figure. It was wrong, when compared to India’s 23.9% contraction. The way India calculates GDP contraction (or growth for that matter) and the way America does it, are different.

So, what was the American contraction if we used the Indian method? It was 9.1% year on year and not 32% as was being suggested. (For those interested in the fifth- standard maths behind this, I suggest you Google it. It has been explained by multiple people, including me).

Also, none of the people who sincerely believed that the American economy had contracted by 32%, bothered to sit back and think the negative impact this would have had on the world at large.

Data from the World Bank suggests that in 2019, the American GDP (real GDP adjusted for inflation), had stood at $18.3 trillion.
This was around 21.7% or somewhere between a fourth and a fifth of the global GDP. Now imagine the American economy contracting by a third (which is what a 32% contraction almost means) year on year. This would have led the world into a second Great Depression.

America is the world’s largest source of consumer demand. If that demand contracts by a third, the global economy would have been in an even worse situation than it currently is. This simple thought did not occur to anyone who went around town telling people that the American economy had contracted by 32% and hence, had done much worse than the Indian economy. Or maybe it did occur to them, and they simply chose to ignore it.

The Indian GDP numbers for April to June were declared on August 31. This was almost four weeks back. The social media is still buzzing with this issue.

Do the people who spread the story of the US economy contracting by 32% to counter the Indian economy’s contraction of 23.9%, not understand basic fifth standard maths? Because a simple understanding of fifth standard maths would have told them very clearly that the US economy had contracted by 9.1%, if the contraction is calculated in the Indian way.

Obviously, this bunch of people is a smart lot and I don’t think there is any problem with their understanding of fifth standard maths. So, what were they up to then? They were basically borrowing a simple idea first used by Big Tobacco Companies in the 1950s.

In the early 1950s, research which linked the smoking of cigarettes to incidence of lung cancer, started to come out. Big Tobacco Companies met at the Plaza Hotel in New York, just before Christmas in 1953. Scientific research which was being published was making them look very bad. And they had to do something about it.

What did they do? As Tim Harford writes in How to Make the World Add Up: Ten Rules for Thinking Differently About Numbers: “They muddied the waters. They questioned the existing research; they called for more research; they funded research into other things they might persuade the media to get excited about, such as sick building syndrome or mad cow disease. They manufactured doubt. A secret industry memo later reminded insiders that ‘doubt is our product’.”

How did muddying the waters help Big Tobacco? It basically created confusion in the minds of smokers. Was the research linking smoking to lung cancer, right? Was there enough evidence of it? Aren’t correlation and causation two different things? These were the questions that the smokers were suddenly asking themselves.

As Harford writes: “Smokers liked smoking, were physically dependent on nicotine, and wanted to keep smoking if they could. A situation where smokers shrugged and said to themselves. ‘I can’t figure out all these confusing claims’ was a situation that suited the tobacco industry well.”

Big tobacco wasn’t trying to tell smokers that smoking was safe. They weren’t so blatant about it. All they were trying to do was to ‘create doubt about the statistical evidence that showed they were dangerous’.

The muddying of waters to create doubt has been a standard part of propaganda since then. It’s propaganda 101. As Harford summarises it: “Their answer [that of Big Tobacco companies] was – alas – quite brilliant, and set the standard for propaganda ever since.”

Something very similar happened in case of the Indian economy contracting by 23.9%, as well. The fact that the Indian economy contracted by close to a fourth, was something that the sympathisers couldn’t deny. It was official government data. And of course, that this contraction was bad for the average Indian, couldn’t be denied either.

But the waters could be muddied by getting the American angle in. The message was that so what if the Indian economy has contracted and Indians are suffering, the Americans are suffering more.

The sad part of all this is that many educated Indians fells for this spin. But that’s the thing with propaganda, even the educated fall for it.

This piece originally appeared in the Deccan Herald on September 27, 2020. 

Who Will Break the Google Monopoly?

google

I first discovered the internet nearly two decades back. It was an era when the internet speed was slow and the charges were extremely high. One could end up paying as much as Rs 120 per hour at an internet café. In fact, the first few times I logged on to the web, I wondered what was the fuss all about.

It is worth remembering here that I am talking about an era when even the humble sms was yet to make an appearance and the mobile phone rates were extremely expensive, with one having to pay for both incoming as well as outgoing calls. It was also an era when people largely surfed the internet from internet cafes. Of course, all that has now moved to the smart phone and home WiFi connections.

After a few sessions at internet cafés, I was told that there are websites known as search engines which allow you to search for stuff on the internet. One such website was called Ask Jeeves and there were others like Lycos and Alta Vista. While, all this sounded interesting, rarely did these websites throw up what one was searching for.

As Tim Harford writes in Fifty Things That Made the Modern Economy: “In 1998… if you typed ‘cars’ into Lycos—then a leading search engine—you’d get a results page filled with porn websites. Why? Owners of porn websites inserted many mentions of popular search terms like ‘cars’, perhaps in tiny text, or in white on white background. The Lycos algorithm saw many mentions of ‘cars’, and concluded that the page would be interesting to someone searching for ‘cars’.” It was easy to game the system. This is something that I personally experienced when I first started to use the internet regularly in 1999.

And then came Larry Page and Sergey Brin with Google. Their original idea was not come up with a search engine at all. In fact, they were trying to do something different. They were trying to build a system in order to measure how much credibility a research paper had. In academia, a research paper published in an academic journal is said to have credibility, if it is cited by other research papers. It has even more credibility if it is cited by research papers which are themselves cited many times by other research papers.

This led to the basic idea behind the Google search engine. As Harford writes: “Page and Brin realised that when you looked at a page on the nascent World Wide Web, you had no way of knowing which other pages linked to it. Web links are analogous to academic citations. If they could find a way to analyse all the links on the web, they could rank the credibility of each page in any given subject.”

And this idea essentially led to Google throwing up relevant search results unlike other search engines. The irony is that Page and Brin were not really sure of the potential of what they had built. As Duncan J Watts writes in Everything is Obvious – Once You Know the Answer, “In the late 1990s the founders of Google, Sergey Brin and Larry Page, tried to sell their company for $1.6 million.” The story goes that the buyer thought that Brin and Page were asking for too high a price and decided not to go ahead with the deal.

Thankfully, they didn’t. And now they are in a position where they have a natural monopoly. Why? As Harford writes: “Among the best ways to improve the usefulness of search results is to analyse which links were ultimately clicked by people who previously performed the same search, as well as what the user has searched for before. Google has far more of that than anyone else. That suggests it may continue to shape our access to knowledge for generations to come.”

The column originally appeared on August 16, 2017 in the Bangalore Mirror.

India’s real estate market is being run by crooks

Vivek Kaul

The real estate sector remains down in the dumps. Nevertheless, insiders(the builders, the real estate consultants, the housing finance companies etc.) would like us to believe that “acche din” will be here for the sector pretty soon and hence, we should be investing in it.

In a recent report JLL India, a real estate consultant, pointed out that: “Many home buyers as well as investors have been speculating about the movement of residential property prices in Mumbai…The market’s readings indicate that that it will start moving up later this year. An average price appreciation of around 6% is expected by the end of Q4 2015. Mumbai’s residential property market will start seeing a lot of buying activity in around six months, with buyers taking advantage of prevailing market conditions to get good deals. The increased market activity is expected to continue next year too.”

What the report does not point out is the fact that the Mumbai Metropolitan Region has an unsold inventory of homes of close to 46 months or 192.27 million square feet. This data was released by Liases Foras, another real estate consultancy, sometime back. What it means is that if homes continues to sell at the current rate it would take around 46 months for the current stock to sell out. A healthy market maintains an inventory of eight to 12 months.

JLL India may have its own estimates of unsold inventory but they can’t be significantly different from that of Liases Foras. And if there is so much ready supply available, how can real estate prices go up?

This is just one example of research reports that real estate consultants keep coming up with where the conclusion is that “real estate prices will continue to go up”. For them it makes sense to do this simply because they make more money if the real estate sector is doing well, given that there are more deals to execute and more commission to be made in the process. And if the real estate sector is not doing well then they need to tell the world at large that it will start to do well, soon. These positive reports are splashed across the media, given that real estate companies are huge advertisers and a healthy real estate sector is a boon for the media.

The trouble is that the real estate sector in India has a huge information asymmetry, or something that the Nobel Prize winning economist George Akerlof referred to as a “market for lemons”. In a 1970 research paper titled The Market for “Lemons”: Quality Uncertainty and the Market Mechanism, Akerlof talked about four kinds of cars: “There are new cars and used cars. There are good cars and bad cars (which in America are known as “lemons”). A new car may be a good car or a lemon, and of course the same is true of used cars.”

Akerlof then went on to explain why trying to sell a lemon is very difficult. In an essay titled Writing the “The Market for ‘Lemons'”, Akerlof wrote: “I knew that a major reason as to why people preferred to purchase new cars rather than used cars was their suspicion of the motives of the sellers of used cars.” Long story short—a buyer will not buy without proof of the used car being in good shape and the seller did not have the proof.


And this led to the market for second-hand cars not working well. Tim Harford explains this phenomenon very well in his book The Undercover Economist: “Anyone who has ever tried to buy a second-hand car will appreciate that Akerlof was on to something. The market doesn’t work nearly as well as it should; second-hand cards tend to be cheap and of poor quality. Sellers with good cars want to hold out for a good price, but because they cannot prove that a good car is really a peach, they cannot get that price and prefer to keep the car for themselves. You might expect that the sellers would benefit from inside information, but in fact there are no winners: smart buyers simply don’t show up to play a rigged game.”

Hence, the market for second-hand cars has huge information asymmetry—one side has much more information(the seller) than the other(the buyer). And given that the market does not work well.
The real estate market in India is a tad like that. The insiders have all the information and there is no way to verify if the information they are putting out is correct. Take the case of something as simple as the prevailing price trend in a given locality.

There is no publicly available information. All you can do is ask the broker operating in that area and more often than not, he will tell you that “prices are on their way up”. If you are able to figure out a price, there is no way of figuring out whether there are deals happening at that price.

Hence, the system as it currently stands is totally rigged against the buyer. Even when the buyer buys an under-construction property there is no way of figuring out if the builder will deliver everything that he has promised at the time of the sale. There are regular cases of builders promising to build a swimming pool, taking money for it and then not building it. Then there are cases of parking lots being sold even though that is not allowed. In the recent past, builders have disappeared after taking on money and not completing the project.

As Nate Silver writes in The Signal and the Noise –The Art and the Science of Prediction: “In a market plagued by asymmetries of information, the quality of goods will decrease and the market will be dominated by crooked sellers and gullible and desperate buyers.” And that is precisely what is happening in India.

In fact, the real estate market in India currently is like the stock market used to be in the 80s and the 90s. India’s biggest exchange the Bombay Stock Exchange(BSE) was run by and for brokers. Other stock exchanges operating in different cities ran along similar lines. Small investors investing in the market were regularly taken for a ride.

The Securities Exchange Board of India was given statutory powers in 1992. And it took time to crack the whip. The National Stock Exchange started operations in November 1994 and gradually took away business from the broker dominated BSE. The BSE has been trying to play catchup since then.

The real estate business in India needs to be cleaned up along similar lines. The Real Estate (Regulation and Development) Bill, 2013, envisages setting up of a real estate regulator in each state. The builders need to be registered with the regulator and at the same time disclose essential details about the projects. These provisions if and when implemented are likely to reduce the information asymmetry which plagues the sector. But till then “caveat-emptor” will continue to prevail.

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

The column originally appeared on DailyO on May 25, 2015

Number tricks

rupee

The main page of one of India’s largest e-commerce websites advertises an array of products which can be bought from it. It is interesting to see the prices of a large number of products being sold. As I write this in early August there is a bag being sold for Rs 399, an LED television for Rs 12,299, an insect repellent for Rs 199, a telephone for Rs 14,899, a pair of sunglasses for Rs 1399, a watch for Rs 999 and so on. There are many books also being sold at prices of Rs 299, Rs 399 and Rs 499 respectively.
There is a clear effort to sell products at a price which ends with the digits 99. Hence, the LED television does not cost Rs 12,300 but Rs 12,299. And the watch does not cost Rs 1,000 but Rs 999. This is the e-commerce avatar of what is basically an age-old marketing trick.
The original explanation for this trick was that it was a technique used by retailers to deter theft by their cashiers, before computers had made an appearance in retail. If something was priced at $1, the cashier could simply put the money into his pocket, when the consumer paid for it. But if the same product was priced at $0.99, it was unlikely that the consumer would offer the exact amount to pay for the product. He was likely to pay $1. Hence, the cashier would have to open the till to repay one cent to the consumer and the moment he did that, the chances of him recording the sale and not pocketing one dollar, went up. But this explanation sounds too good to be true in this day and age.
As Tim Harford the author of such wonderful books like
The Undercover Economist asks in a column “Cunning. That’s not really why product prices end in 99p[pence], though, is it?” Probably not – perhaps it once was, but in a world of credit cards, e-commerce and self-checkout, the story does not really fit. We need to look for a psychological explanation,” Harford goes onto write.
The real reason behind products being sold at prices ending in 99, lies in the fact that most people read from left to right and because of that the first digit of the price registers the most on the human mind. This is referred to as the left-digit effect. As Alex Bellos writes in his new book
Alex Through the Looking Glass “When we read a number, we are influenced by the leftmost digit than we are by the rightmost since that is the order we read, and process, them. The number 799 feels significantly less than 800 because we see the former as 7-something and the latter as 8-something.”
Due to this reason since the 19th century shopkeepers have chosen prices ending in 9 and hence tried to create the impression that a product is cheaper than it actually is. “Surveys show that anything between a third and two-thirds of all retail prices now end in 9,” writes Bellos. In fact, controlled experiments carried out by economists have shown that when prices end in 99, sales tend to go up.
As Bellos points out “In 2008, researchers at the University of Southern Brittany[in France] monitored a local pizza restaurant that was serving five types of pizza at €8 each. When one of the pizzas was reduced in price to €7.99, its share of sales rose from a third of the total to a half. Dropping, the price by one cent, an insignificant amount in monetary terms, was enough to influence customers decisions dramatically.”
In fact, just ensuring that the price of a product ends with the digit 9 leads to better sales. Eric Anderson and Duncan Simester explain this very well in a Harvard Business Review article titled
Mind Your Pricing Cues published in September 2003. As they write “Response to this pricing cue is remarkable. You’d generally expect demand for an item to go down as the price goes up. Yet in our study involving women’s clothing catalog, we were able to increase demand by a third by raising the price of a dress from $34 to $39. By comparison, changing the price from $34 to $44 yielded no difference in demand.”
E-commerce, which is the newest kid on the block when it comes to retail business, has been using this age-old trick very well. Interestingly, researchers also point out that pricing a product ending with digits 9/99 acts in the same way as a sale sign and tells consumers that they are getting a good deal. “Some retailers do reserve prices that end in 9 for their discounted items. For instance, J. Crew and Ralph Lauren generally use 00-cent endings on regularly priced merchandise and 99-cent endings on discounted items,” write Anderson and Simester.
Even Bellos makes a similar point in his book. As he writes “An up market restaurant, for example, would never dream of pricing a main course at, say, £22.99. Nor would you trust a therapist who charged £ 59.99 a session. The prices would be £23 and £60, which feel both classier and more honest.”
An e-commerce website trying to sell everything under the sun, doesn’t need to be classy. It’s unique selling proposition is based on giving the consumer a better deal than he is likely to get if he were to buy the same product from a local shop. Hence, it makes tremendous sense for e-commerce websites to price products ending with digits 99 and give the consumer a sense that he is getting a better deal.
To conclude, there is another number trick that the e-commerce websites can use to drive up their sales. Researchers at the Cornell University tested a very interesting idea at a Cafe in Hyde Park, New York. They found that consumers tend to spend more when the currency sign was left out of the menu. Hence, consumers were quicker to spend money when the price was listed as 10 rather than $10. By doing this they were able to increase sales by 8%. By leaving out the dollar sign, the researchers ensured that the “price of paying” response wasn’t triggered while paying and hence, the consumers ended up paying more.
This is something that e-commerce websites in India can easily test by doing a controlled experiment. Prices without the rupee sign can be offered to one set of customers. And prices with the rupee sign can be offered to another set of customers. The results can then be checked out to see if there is any increase in sales.

The article originally appeared in the Sep 2014 edition of Mutual Fund insight magazine.

(Vivek Kaul is the author of Easy Money: Evolution of the Global Financial System to the Great Bubble Burst. He can be reached at [email protected])

Retail discount ‘sales’: Why high prices and big discounts go hand in hand

discount-10Vivek Kaul
The sale season is currently on. If you are the kind who likes to frequent malls on weekends (or even weekdays for that matter) you might have realised by now that discounts are on offer, almost everywhere.
The question is why do retail stores do this? As Tim Harford writes in 
The Undercover Economist “We’re all so used to seeing a store-wide sale with hundreds of items reduced in price that we don’t pause and ask ourselves why on earth shops do this. When you think hard about it, it becomes quite a puzzling way of setting prices.”
And why is that? “The effect of a sale is to lower the average price a store charges. But why knock 30 percent off many of your prices twice a year, when you could knock 5 percent off year around? Varying prices is a lot of hassle for stores because they need to change their labels and their advertising, so why does it make sense for them to go to the trouble of mixing things up?,” asks Harford.
There are multiple reasons for the same. As Harford writes “One explanation is that sales are an effective form of self targeting. If some customers shop around for a good deal and some customers do not, it’s best for stores to have either high prices to prise cash from loyal(or lazy) customers, or kow prices to win business from the bargain-hunters. Middle-of-the-road prices are not good: not high enough to exploit loyal customers, not low enough to attract bargain-hunters.”
Also, if the firm were to offer a fixed discount (say 5%) all through the year, it wouldn’t be regarded as a discount by consumers at all. This would happen simply because consumers would not have anything to compare a regular discount of 5% with. A regular discount of 5% compared with a regular discount of 5%, essentially implies no discount at all.
For any bargain to look like a bargain what economists call the “anchoring effect” needs to come into play. As John Allen Paulos writes in 
A Mathematician Plays the Stock Market “Most of us suffer from a common psychological failing. We credit and easily become attached to any number we hear. This tendency is called “anchoring effect”.”
The normal price of any product is the “price” a consumer is anchored to. As Barry Schwartz writes in 
The Paradox of Choice: Why More is Less “The original ticket price becomes an anchor against which the sale price is compared.”
This comparison tells the bargain hunters that a bargain is available and encourages them to get their credit cards out. Interestingly, research shows that people end up spending much more when they use their credit cards than when they spend cash.
Gary Belsky and Thomas Gilovich point this out 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.”
“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. Given this, when people do not feel the pain of spending money, they are likely to spend more. “You may be surprised to learn that by using credit cards, 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.
This benefits the retailer offering the discount. What he loses out on by offering a discount on the product, he more than makes up for through an increase in volumes.
Of course, there are other reasons like trying to get rid of inventory, before a new season comes on. If the retailer has not been able to sell too many jackets during the winter season, he might try to offload it at a discount before the summer season comes on, instead of holding it back till the next winter season. High end designer stores face the risk of styles going out of fashion. Hence, they need to get rid of their inventory pretty quickly. But this doesn’t really hold for everyone (Think about this: how many of us wear clothes that are radically different in style when compared to last year?).
Hence, retailers essentially have sales to get the anchoring effect going, which, in turn, encourages people to get their credit cards out, and spend more money than they normally would. To conclude, here is a tip to avoid the crowds during the sale season. One day before the sale opens, go the store and check out what you want to buy. If you are buying clothes, figure out what you like and check out whether they fit. Visit the store again the next day, and simply pick up the clothes you liked (to the condition that they are on discount). This will ensure you may not have to spend time standing in a queue before the trial room, waiting for your turn.
The article originally appeared on www.firstbiz.com on February 5, 2014

(Vivek Kaul is a writer. He tweets @kaul_vivek)