Behavioral Science

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Behavioural Economics, as we all know deals with the hidden motives and debunk the classic economic theory, the premises being each individual/rational human being tries to maximise its reward. So, how does it plays any important role in public policy? Surely, you have heard about nudging people in taking a right decision, thats again is a subset of behavioural economics. Essentially, removing jargon, worldwide every one, starting from Android/ios games maker, software developers, marketers, economist to policy makers are exploiting our vulnerability. Indirectly controlling our behaviours and instincts. If you know, even Facebook or Google Analytics does the same thing but not in so subtle way. Based on our post, they can influence our behaviour by manipulating our actions, by presenting us with alternatives chosen by them. The list can go endless…

 

All this means, we do not have free Will.

 

What if, by an executive order, government get right to use the behaviour science in public policy. This is what US government has done. Though, intentions are noble, finally, its execution power is with bureaucrats. Just think of a situation, when your religion, political, social, economical, welfare choices are guided by Behavioural Science.

 

Does it sound scary. Okay, Check This.

 

Even, otherwise, its interesting to know, how US Government Function, even look at the beauty of drafting.

Nandan Nilekani Speech on Banking Disruption at Tie

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Recently Mr. Nandan Nilekani gave a speech on disruption happening in Banking Sector or more particularly Financial Services. Its bit long, but anyone interested in understanding emerging patterns or how technology, new payment banks, small bank and digital economy will shape the Indian Banking in coming years, its a exhilarating watch.

 

 

Avoiding Stupidity is easier than Seeking Brilliance

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Conventional wisdom teaches us to focus on our Core Competence. Doing your best, sharpening your skill, and Always play to Win. But what if , winning also depends upon NOT LOOSING. It makes the entire thinking upside down. How would we Win, if we don’t try to Win. Simply by not loosing.

 

In a classic book by Mr. Simon Ramo –

 

Extraordinary Tennis for the Ordinary Tennis Player.

 

This concept was described at length in the context of the Equity market returns generated by so called professional investment advisor, and why investing is no more a Winners Game. The article was published by Charles Ellis.ellis_charles_the_losers_game_1975

 

He had outlined Strategy : To put it simply,

 

Simon Ramo identified the crucial difference between a Winner’s Game and a Loser’s Game in his excellent book on playing strategy, Extraordinary Tennis for the Ordinary Tennis Player. Over a period of many years, he observed that tennis was not one game but two. One game of tennis is played by professionals and a very few gifted amateurs; the other is played by all the rest of us.

Although players in both games use the same equipment, dress, rules and scoring, and conform to the same etiquette and customs, the basic natures of their two games are almost entirely different. After extensive scientific and statistical analysis, Dr. Ramo summed it up this way: Professionals win points, amateurs lose points. Professional tennis players stroke the ball with strong, well aimed shots, through long and often exciting rallies, until one player is able to drive the ball just beyond the reach of his opponent. Errors are seldom made by these splendid players.

Expert tennis is what I call a Winner’s Game because the ultimate outcome is determined by the actions of the winner. Victory is due to winning more points than the opponent wins – not, as we shall see in a moment, simply to getting a higher score than the opponent, but getting that higher score by winning points.

Amateur tennis, Ramo found, is almost entirely different. Brilliant shots, long and exciting rallies and seemingly miraculous recoveries are few and far between. On the other hand, the ball is fairly often hit into the net or out of bounds, and double faults at service are not uncommon. The amateur duffer seldom beats his opponent, but he beats himself all the time. The victor in this game of tennis gets a higher score than the opponent, but he gets that higher score because his opponent is losing even more points.

As a scientist and statistician, Dr. Ramo gathered data to test his hypothesis. And he did it in a very clever way. Instead of keeping conventional game scores – “Love,” “Fifteen All.” “Thirty- Fifteen.” etc. – Ramo simply counted points won versus points lost. And here is what he found. In expert tennis, about 80 per cent of the points are won; in amateur tennis, about 80 per cent of the points are lost. In other words, professional tennis is a Winner’s Game – the final outcome is determined by the activities of the winner – and amateur tennis is a Loser’s Game – the final outcome is determined by the activities of the loser. The two games are, in their fundamental characteristic, not at all the same. They are opposites.

From this discovery of the two kinds of tennis, Dr. Ramo builds a complete strategy by which ordinary tennis players can win games, sets and matches again and again by following the simple stratagem of losing less, and letting the opponent defeat himself.

 

To understand the concept, I suggest you read the entire article.

As Charlie Mungar, puts it, we must know our circle of competence. We should also not try to be clever, or one should not speak beyond his level of knowledge. To know, whether you are professional or amateur, is the key. Confidence is good, but overconfidence gets you killed at times. Its a great advice, only, if we admit that we are not professional at everything. We have limitation of knowledge, expertise, exposure and above all skills.

Courtesy : Farnam Street Blog.

Quote to Ponder

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“A great many people think they are thinking when they are merely rearranging their prejudices…” William James

 

Our thinking is crowded by our past, we do not have free spirit because we are controlled by our emotions and expectation. And we do not have free thinking, unless we remove Bias & Prejudice.

 

Do you agree. If you say, Yes, I say you are Biased, if you say No, I say you are prejudiced. LOL.

 

On serious note. You want to test yourself. Just try and see, how your kids learn. If you could learn and remember just like them, you are free of bias, but if not, and your like me, its time to declutter the mind.