Economics and Rationality

I find it a bit disturbing how basic economics assumes that our decisions are always rational. If you aren't disturbed, think bubbles and the 2008 recession - there's no room for these possibilities in basic economics because of the rationality assumption. And yet they happened, and the 2008 recession rocked the economy of the world. Some countries are still dusting their pants off to this day. And yet, all the smartest people in the world, from Greenspan to the White House just didn't see it coming. After all, that Lehman CEO, being such a rational guy, knew exactly what he was doing, didn't he?

Disturbed yet?

Let's examine the entrepreneur - literally the engine of today's economy. He/she does wonderful stuff, creating innovative businesses that outperform the competition, which in turn creates more demand, which turns the crank of the entire economy. But from a rationality point of view, has the entrepreneur got it together? Well, if rationality means being able to weigh risk, I'd say no. Doesn't he know how many startups fail, how much capital gets wiped out, how many hours of work get ruined? Failed entrepreneurs can become the laughing stock of the entire industry. The risks are just too damn high. From a rationality point of view, an entrepreneur is insane, ignoring the risks, completely willing to fail. And yet, the economy would be nowhere without entrepreneurs. That's the truth.

I personally believe people are driven as much, if not more, by their insecurities as they are by rationality. Most of the time, insecurities align with actions that lead to economic growth. One person may buy a new car just because their neighbor did. Another person might work day and night to start up a new business because he grew up in unfortunate circumstances. I'm generalizing, but remember, insecurities can drive people to murder and countries to war, so we're talking about powerful stuff here. Insecurities and the emotional baggage they carry color our rationality much more than we are conscious of.

When our insecurities don't align with economic growth, we get screwed. When the hot shot banker decides to give housing credit to a family that's financially underwater just because he gets a fat check and pat on the head from his seniors, we get screwed. When the CEO privately encourages accounting tricks to inflate earnings because he can't stand to face failure, we get screwed.

And so on.

I know there are emerging behavioral branches of economics - I just hope these come to the forefront well before the next great recession.

The Marissa Mayer Debacle

There's been so much outrage recently about Marissa Mayer and her decision to force Yahoo employees to work from home. I haven't heard anybody say that she made the right call. However, I think the decision really has to be viewed in the context of the company and its competitors.

I'm in the technology business too, and you don't need to be tech-savvy to realize that it's a super fast-changing landscape. No taking it slow here, companies have to out-innovate each other or be forever relegated to the sidelines. Yahoo's main competitor, Google, is constantly creating new products and has expanded its offering exponentially in the last few years, from Android to Google Maps.

In this landscape, you really need collaboration to innovate. This is not an opinion, it's a fact. Every company that has made leaps in innovation has relied on intense collaboration. Apple instantly comes to mind - Steve Jobs used to roam the halls of Apple just to get a chance to talk to somebody and come up with a new idea.

The second aspect is that it's very hard to collaborate when you're working remotely. Skype just doesn't replace walking by somebody's cube and hashing out an idea on a whiteboard. Remote offices face this problem all the time, and no amount of video conferencing is a viable replacement.

Therefore, if Yahoo really wants to be considered a serious competitor to Google, it needs to be on its game 100%. It needs to innovate, and for innovation, you need collaboration, and for collaboration, people have to be in the same place at the same time. That's the only way the sum of their efforts will far exceed their individual efforts. You can't be super-comfortable and super-creative at the same time.

So, to cut to the chase, I think Marissa Mayer made exactly the right call. And I also think that people who don't see this don't really understand how cut-throat the tech world is.

What Makes a Great Leader

A great leader does not need to assert his leadership. Others follow him of their own volition. Such a leader is not perpetually high-status. Leadership should not primarily be about always winning an argument and imposing one’s will. If that’s the goal, the leader might gain authority, but never respect. The ultimate goal should be bigger. A better product. The world’s best company. Deeper knowledge. Aesthetics. And so on.

A great leader can come down in status to talk to the lowest person in the pecking order (keeping his status just a little bit higher, of course). While a leader can create a sense of awe and authority by being perpetually high-status, I think this is damaging in the long run. Steve Jobs (RIP) sent out company-wide emails and signed his name off like he was everybody’s best bud. He wasn't – but can you imagine an insecure person doing that?

Ultimately, the leader’s merit is the quality of his leadership, not how high-brow he is. It’s in how logically persuasive he is and how much he believes in himself. A leader must have a vision that’s 20/20 clear about how to go about thing. If the leader believes in himself, others will follow suit. People love to be led, after all, by someone who knows what he’s doing.

Therefore leaders have the over-logic. They can think beyond the curve. They do not fall prey to herd mentality and have that feeling in their gut that tells them they’re right. They’re willing to put everything on the line for that feeling, including reputation, self-respect and money.

And Steve Jobs, you were all the above and so much more. May you rest in peace.

Cause and Effect

The more I think about it, the more I realize that playing mental chess of cause and effect can potentially be very destructive. We're hard-wired to do it, that much is for sure. Our minds silently chug away, attributing causes to the events that ripple through our lives. The process is instinctive, but it can be very irrational also - sometimes, it might be outright idiotic if you sit down to think about it.

A form of the irrationality of cause and effect is superstition. I walk under a ladder and I think I'm going to have bad luck. Then something bad does wind up happening - even if it's a week later, I immediately attribute it to the damn ladder. In my mind, that connection works, it's perfect, it fits. Except that it's completely irrational and makes no sense whatsoever.

Superstition is just one example - in our everyday lives, there are much more mundane examples of the cause and effect illusion in play. Everyone is under their own unique spell under this illusion. I think there's nothing 'wrong' with this - it's as normal as anything else. The only point at which one should force rationalization to take over is when the effect gives one either an extreme high or an extreme low. If a hot girl winks at me, I could attribute this to a cause: that she's madly in love with me. I could be in ecstacy for days on end, planning our future together. Before things get this out of hand, I have to enforce the rationality that a) I've never even met the girl before and b) it was mighty windy that day and she probably had something in her eye.

If I weren't feeling lazy right now, I could make a similar example for the low. But hopefully, you get my drift. The example I gave is pretty silly, but I think if you look closely, you might see examples in your life where the cause and effect reflex is not so silly. Hell, it might even be a bit dire. Maybe you'll decide it's time you've gotten tired of playing by it's irrational rules, and that it's time for some plain, clean rationality.

Good for you if you do.

Fades Away...

After much thought, Aadil and I've decided to unleash a song we once made to the world.

So here it is. Listen to it, do, and leave your comments.

[Edit: Aadil proposed an easier link. Here it is.]

http://www.yourfilehost.com/media.php?cat=audio&file=Fades_Away.mp3

Alternate mirror:

http://w19.easy-share.com/1903113998.html

Song Name: Fades Away
Artists: Aadil Farook,Hasnain Akram,Salman Yasin,Sarmad Ghafoor
Composition: Aadil & Hasnain
Poetry:Aadil
Vocals:Salman Yasin
Lead Guitars:Sarmad Ghafoor
Production,Mixing,Mastering:Sarmad Ghafoor
Ideas (Musical&Production):Aadil

LYRICS

seen a warrior’s burst of rage
seen a martyr’s life outgrow his age
seen vile in great men
seen beauty in false women
seen rivals of a genius
seen tyrants hailed among us
seen the envy of a friend
seen love draw its own end

Seen a rainbow fade when it should stay
seen a summer wait for the next may
seen a leave wither from its youth
seen weathers play with our moods

seen a victim plead for his right
seen a culprit with his last lie
seen guilty hands turn to pray
seen aggression overwhelmed by grace

But the world just doesn’t run on grace
In the crowd, you’re just another face
when you’re gone, you dont ever leave a trace

seen faith take hold of our reason
seen wisdom go out of season
seen hatred for a chosen prophet
seen sacrifices with regret

seen ironies turn to the truth
seen lies bearing the fruits
seen impact of just a thought
seen actions ending with naught

But the world just doesn’t run on grace
In the crowd, you’re just another face
when you’re gone, you dont ever leave a trace

seen voices live longer than singers
seen a maestro play with bleeding fingers
seen life in a dead man’s painting
seen victors go down fainting

But the world just doesn’t run on grace
In the crowd, you’re just another face
when you’re gone, you dont ever leave a trace

Like a whistle it fades away (Chorus repeat)

History Repeats in Mysterious Ways

The following excerpt is from an article written by Ardeshir Cowasjee in the Dawn newspaper. Cowasjee held Government posts in the Bhutto-era, which brought him in contact with Bhutto. And Zia, after the latter shoved Bhutto aside.

Anyway, I think the following applies pretty damn perfectly to the never-ending Mush situation our country faces.

THE date, Aug 25, 1977; the place, General Headquarters, Rawalpindi; the man in the high chair, President Gen Ziaul Haq, jet black hair heavily pomaded, mascara surrounding his eyes, moustache bristling, confidence oozing from every pore.

Sitting on the opposite side of the table, next to me, was the soft-spoken mild-mannered and ever faithful Gen K.M. Arif, taking notes, gathering up each pearl of wisdom as it gently dropped from the all-powerful lips.

“Mr Kovasji,” as was his interpretation of my name, “what can you do for the ports of Pakistan and its shipping in 70 days?” he asked. “General,” I replied, “what is so sacrosanct about the figure 70? After all, it took Phineas Fogg 80 days to circumnavigate the earth in a balloon. Why only 70?”

Came the answer, pat, convincing, “I have promised the people that I will march back to my barracks in 90 days, 20 days have since passed, so that leaves 70.” I countered, “No, General, you will do nothing of the sort. You will stay on, and on, for as long as you can.” Far from being annoyed, he laughed, “And on what do you base this premise of yours?” History, was my answer and I asked him if he had ever read Captain Sir Basil Henry Liddell Hart’s brief but exceedingly wise book Why Don’t We Learn from History? (first published in 1944). One chapter that I particularly recommended to him is entitled ‘Pattern of Dictatorship’. Zia made a note of the book’s title, I subsequently sent him a copy, and he had it reprinted by the Services Book Club (later, in 1986, his editors chopped and chipped — but it did not change history).

Now, a quote from the relevant chapter: “We learn from history that self-made despotic rulers follow a standard pattern… They claim they want absolute power for only a short time (but ‘find’ subsequently that the time to relinquish it never comes)…

“On gaining power: They soon begin to rid themselves of their chief helpers, ‘discovering’ that those who brought about the new order have suddenly become traitors to it. They suppress criticism on one pretext or another and punish anyone who mentions facts which, however true, are unfavourable to their policy. They enlist religion on their side, if possible, or, if its leaders are not compliant, foster a new kind of religion subservient to their ends. They spend public money lavishly on material works... They manipulate the currency to make the economic position of the state appear better than it is in reality...” and so it goes, to the perfect pattern.

Sounds familiar?

'nuff said.

(Source: http://dawn.com/weekly/cowas/20080127.htm)

The Assassination of a Country's Dreams

They say that a country begins its descent into annihilation once immorality starts spreading like rot from the inside out. Pakistan has been walking this tightrope for decades now, running around in circles like a dog chasing its own tail. I have no intention of recapping history here - all the facts are already well known. I'm only thinking of my own future and the future of my family - what sort of a Pakistan will we see going forward? How much longer will I have to spend justifying whatever is happening in Pakistan to people abroad? My country is a plane crash that should have happened a long long time ago. The fact that it hasn't is a sign of sheer benevolence from the One above. He keeps giving us one more pass, one more chance to checkmate, one more opportunity towards redemption, and we keep throwing it away, chucking it into the fireplace. Sooner or later, He's going to stop giving…

We can't blame it all on our leaders though, can we? Sure, we can make the argument that no leader Pakistan has seen has had enough integrity and vision to carry this country forward. Zia assassinated Bhutto, crippled our chances for democracy through his never-ending martial law, fanned Islamic extremism and took the country literally nowhere. He had no intentions of a new direction either - it was only a bomb in his plane (God bless his soul) that gave the country a different direction.

Not that democracy was much of a new direction - the country's decade of elected leaders didn't give us much either did it? Apart from allegations of corruption, villas in Spain, Swiss bank accounts with the country's laundered money, the country pretty much stood stagnant during those years, rotting like water in a swamp. It took Musharraf's military coup to change the country's direction again.

Isn't it ironic that Pakistan's only hope of progress has been through coups and assassinations?

The fact is that I'm tired of my country's volatility. I'm tired of defending all messed up things our leaders do. And I'm dead tired of the looks I see on the faces of some people after they've read news of us messing up yet again. I hide my country's shortcomings like a father might stow away an illegal child, and yet the more I hide them, the more they seem to assert their presence.

But the fact is that I'm as bad as the rest of the Pakistani population, aren't I? I'm part of the clique of people that are all talk and no action - who love rhetoric but are too lazy to get off their asses. The truth is that nobody can blame it all on leaders - a country's leaders are only as good as its people, after all. This country's problems begin in the psyche of its people. Corruption always spreads from the inside out, whether it be a rotting carcass or a country in the process of decay. And I think symptoms of this are most visible to somebody who comes to this country from abroad - who has seen a different mindset and therefore has a more uninfluenced perspective.

One clear symptom is the Pakistani preclivity for outsmarting each other. While its prevalence differs among social strata, it's nonetheless engrained deep into the common man's psyche. The better man is always one who can outsmart the other, pull a fast one without the other even realizing what happened. That's what happens at the grassroot level, and if you think about it, that's pretty much what's happened with our leaders. If all the rumors of corruption and embezzling funds are even remotely true, our leaders have always put themselves before country, and they've done it in such a way that even to this day, they have a massive following. People came out in flocks to welcome Nawaz Sharif and Benazir, didn't they?

How much better can you get at outsmarting somebody?