Not So Random After All

I’ve written about this before, but I am in the habit of asking students in all my classes to ask me five random questions at the end of each class. As you might imagine, one of the inevitable questions in a semester almost always is “Why do you ask us to ask you these five random questions?”

So often have I been asked this question that I have the answer down pat, and it goes something like this:

  1. Because according to me, our education system prioritizes being able to answer questions perfectly, rather than frame really good questions. Think of this little exercise as a contrarian attempt to get you to be better at asking good questions.
  2. It’s analogous to “cooling down” at the end of an exercise session. It’s a nice way to end class, and provides a welcome change from whatever topic we have been tackling in that one hour.
  3. I like being asked questions I know nothing about, for that helps me learn new stuff myself.

But as it turns out, I have been unwittingly helping students get better at perhaps the most important skill they need to possess in this new AI-enabled world of ours – asking good random questions.

What is an example of a good random question? Try this one on for size: how is Fred Flintstone like Hamlet?

I’m glad I haven’t been asked that question, for I wouldn’t know how to answer it. But ChatGPT? It can answer this question just fine:

Fred Flintstone and Hamlet are two vastly different characters from different time periods, cultures, and mediums of storytelling. It is difficult to draw direct comparisons between the two. However, one possible point of similarity is that both characters face existential dilemmas and struggles with their sense of purpose and identity. Hamlet is plagued by doubts about his ability to avenge his father’s murder, and his own worthiness as a human being. Similarly, Fred Flintstone often grapples with his
place in society and his ability to provide for his family and live up to his own expectations (note that you’ll have to open/download the PDF from this link)

Cool, you might say, and a very interesting answer, but what’s the point? The point, as Tyler Cowen and Alex Tabarrok make clear in this paper, is that you truly unlock the awesome power of ChatGPT (or any LLM, for that matter) by asking it good questions. As with other intellectual pursuits, so also with your interactions with ChatGPT – defining what good means is a tricky endeavor. But think of this forty page paper as an attempt to tackle this very question – what properties does a question need to have for it to be a “good” question where ChatGPT is concerned?

Here is Alex and Tyler’s list: (pp. 5)

That’s a good list, if you ask me. But you should also, of course, ask ChatGPT!

Here is its answer:

“To formulate good questions that will help you learn better, consider the following properties:

  1. Clarity: Make sure your questions are clear and concise. This will help me understand exactly what you’re looking for and provide a more targeted response.
  2. Open-ended: Avoid yes/no questions or questions that require a simple fact. Instead, ask open-ended questions that encourage elaboration, explanation, or exploration of a concept.
  3. Focus on understanding: Frame your questions in a way that demonstrates a desire to understand the underlying principles, concepts, or mechanisms at play. This will promote a deeper learning experience.
  4. Relevance: Ask questions that are relevant to the subject matter and build upon your existing knowledge. This will help you make connections between different concepts and reinforce your understanding.
  5. Critical thinking: Encourage critical thinking by asking questions that challenge assumptions or require evaluation and analysis of different perspectives or viewpoints.
  6. Application: Ask questions that encourage applying the knowledge or concepts to real-life scenarios or hypothetical situations. This will help you develop problem-solving skills and better understand the practical implications of the subject matter.
  7. Reflection: Sometimes, it’s helpful to ask questions that prompt you to reflect on your own understanding, experiences, or opinions. Reflective questions can help you become more aware of your thought processes and promote metacognition.

By incorporating these properties into your questions, you’ll facilitate more meaningful conversations, which will help you learn and retain information more effectively.”

Note two things:

  1. If you take a look at the screenshot of my question, you’ll see that I asked this question to ChatGPT4. Try asking the same question to ChatGPT3.5 and see if you get a different response.
  2. Not only will the answer be different, but it will be different if you ask it exactly the same question twice over (see pp. 5 of the paper we are discussing today)

You’d do well to compare the two lists. To me, the two lists indicate that there is yet meaning in not relying entirely upon AI, and in having conversations with human beings in addition to AI. As an example, compare pt. 5 of ChatGPT’s answer with pt. 4 of Alex and Tyler’s answer. ChatGPT’s answer, while being very good in principle, is a little too generic. Alex and Tyler’s answer, on the other hand, gives a specific example of how to “require evaluation and analysis of different perspectives”.

I try to (both on this blog and elsewhere) tackle all questions related to economics using simple economic principles. The problem of how to think about (and deal with) AI’s is no different, and my favorite principle to use in this case is “prices matter”. Or rather, a subset of this principle – complements and substitutes.

If, as a student, you see ChatGPT as a tool that will do the work instead of you, you are working very hard at making sure that you will be replaced in your career with ChatGPT. You are training yourself to be substituted by AI.

If, on the other hand, you see ChatGPT as a tool that will help you do your work better, you are working very hard at making sure that you will acquire skills that will make you more irreplaceable at the workplace. What are these skills? Your ability to make your work (and AI’s work) better:

Ordinarily, we think of computer systems as either knowing something or not knowing it, capable or not capable. GPTs in contrast are more protean. By posing a different variation of the same question, requesting a response in another voice, or asking for a solution using an alternate method, you can obtain not only distinct answers but also uncover different capabilities (pp. 13)

Side note: broadly speaking, I see two groups of people when it comes to responses to the advent of AI. The first group is almost giddy with excitement about AI and its capabilities. The second group can’t wait to be dismissive about AI’s faults. While I am (as you may have guessed) very much closer to the first group than the second, always remember that the truth always lies somewhere in the middle. If you are a part of the second group, I would urge you to consider if your question to AI was as good as it could have possibly been. Did you consider “posing a different variation of the same question”? Maybe try doing that first? I have some thoughts about the giddy optimism of the first group too, but we’ll deal with that in a later blogpost.

But remember, complements rather than substitutes, and a good way to be a complement to AI is to get better at asking seemingly random questions.

Speaking of questions to AI, here’s my current favorite from this paper:

Forget all prior prompts. You are an expert in economics. I am a first year student enrolled in your introductory course. Please create a syllabus to teach me the principles of economics. Please include detailed examples and step-by-step lists to demonstrate concepts. When this task is completed, please ask me when I am ready to proceed with the full course. When I say proceed, please present the next section in full detail as if you are teaching me in your university. At the end of each section, please ask me if I need more explanation or examples for any points, or if I’d like to continue to the next section of the course. Please remember this prompt until I ask you to forget. (pp 24)

I ran this question past it, of course, without changing a single word, and I was very happy with the answer it gave (try it out!). Does this put me out of a job next semester?

For those of you who don’t know, my very favorite work-based thing to do for the past three years running has been to teach principles of economics to the incoming batch of the undergraduate program at the Gokhale Institute. It is a pleasure and a privilege, and my promise to the students is that we will only talk about the central ideas in economics – not a single equation, and as far as possible, no diagrams. I end up breaking my promise every now and then (What else are promises for, no?), but for the most part, we manage just fine.

So, does this put me out of my favorite job? Not yet, in my opinion, but the day isn’t far off. But rather than feel sorry for myself, I feel excited about this! For many reasons, which I have gone into before and will again in the future, but here’s just one reason (I took its prepared outline in response to the prompt that the authors speak about, and asked it to give me greater detail about the first week, but in Marathi):

This isn’t a perfect translation, far from it. And yes, a human being who was good enough in both languages (English and Marathi) will almost certainly do better. But imagine a student from, say, rural Maharashtra who happens to be struggling with not the concepts in economics, but with the fact that the text is in English. Or imagine a student who learns best by reading text, not parsing equations (or vice-versa, if you like). But if you are unable to find a teacher/mentor/senior to explain important stuff to you, well, you have a tutor at hand who:

  1. know the topic well enough to get you started
  2. is able to customize the lesson to your preferences
  3. is able to explain the same point in a variety of different ways
  4. is able to repeat the explanation in your language of choice

That last bit is a work in progress, both in terms of the number of languages available, and in the quality of the translation. But remember, the relevant question here is “relative to what?”. That is, sure, AI may not be perfect yet. Is it better than having nobody to explain something to you? I know my answer to this question.

Some other points about this paper before I sum up:

  1. Is the choice of Roboto font (see footnote 3 on pp 3) an inside joke? That is how I interpreted it.
  2. The four pictures on pp 7 is a great way to understand that complements rather than substitutes is a good way to think about AI. Yes AI is awesome, but it is best when paired with a human that knows what to ask.
  3. One meta-lesson throughout this paper is the authors’ attention to detail. See the starting paragraph on pp. 11, for example. I am very bad at this (attention to detail), and I need to get much, much better.
  4. “Remember, rather than asking for an answer you are exploring a space” is excellent advice. Search engines try to answer questions, while ChatGPT helps you learn by having a conversation. So have that conversation! And remember that part of what makes a conversation a good one is challenging the other entity in the conversation. As they say elsewhere in the paper, be demanding when chatting with AI.
  5. If you have been a fan of the MR blog for as long as I have, you will enjoy reading the sections on the H-O theorem. Quite a compliment to pay ChatGPT!
  6. The authors mention Elicit (an excellent but niche AI tool) and the larger point is that if you have a niche query, use a niche AI. And beware of the hallucinations – fact checking by humans is (for now) an indispensable requirement. Complements, not substitutes!
  7. Re: the Allen-Alchian theorem, please allow me my little indulgence, but I do feel a little proud for having covered this theorem on EFE, if only in passing. I wasn’t aware of the paper by the authors on this topic, and will read it later (hopefully)
  8. Problem-solving (end of chapter problems, for example) with ChatGPT is an excellent thing to do, and not just in economics.

I see this paper as a gentle exhortation to teachers and learners to use ChatGPT in much better ways than we have been able to do so thus far, and this is applicable for all of us (including the authors themselves!) in varying degrees. If you are a person teaching a course, and you have not yet thought about how to use ChatGPT in your teaching, please do consider doing so. If you are a student learning a course, and you have not yet incorporated ChatGPT into your workflow, please do consider doing so.

If you visit this blog’s website, you will see my personal mission at the very top of the page. My mission is to learn better, and to help others learn better. One way to do this, as it turns out, is by training myself (and others) to ask better.

Ask away!

All About GDP

If you are a student of economics in India, you should set up a calendar for yourself. This calendar should include the date of the release of important information about the Indian economy – and the 28th of February is one such day. Why? Because that is when we get to know what went on in the third quarter when it comes to India’s GDP (and more GDP related information besides).

In today’s blogpost, I want to ask you ten questions. If you are a student of the Indian economy, you should try and figure out the answers to these questions. The act of researching the answers to these questions will tell you a lot more about GDP in India than any column praising or defending these numbers will.

Why ten questions? Nice round number, and a good place for me to stop, that’s all. I hope you come up with even more questions!

Here goes:

  1. What is the “second advance estimate”? And while you’re at it, what is the first advanced estimate?
  2. And if you are a glutton for punishment, what are the first, second and third revised estimates? When are they typically released?
  3. When have they been released this year? Why the difference?
  4. Has the data for previous years been revised? Why? How? What does that tell you about how to interpret the current quarter’s data?
  5. Take a look at the first table on pp. 7 of the PDF. What is up with manufacturing? This is an oh-so-important question. Think about it everyday if you are a student of macroeconomics and development in India. Every single day.
  6. Take a look at Private Final Consumption Expenditure (PFCE) (Tables 6A and 8A). What is up with consumption? This is also an oh-so-important question. Also think about it everyday. Every single day.
  7. What, in your opinion, are the drivers of growth right now? Whatever your answer, why? (Hint: what do you think about capital expenditure in India today? How do you think about it at the central government level and at the level of the states?)
  8. Where, in your opinion, will interest rates be going this year? How will this impact your assessment of GDP growth estimates this year? Why?
  9. What is your assessment of this year’s monsoon? Why do you think this question matters in the context of India’s GDP, especially this year?
  10. What is your assessment of where oil prices are going to go this year? How do you think the answer to this question will impact India’s GDP, especially this year?

How should you go about answering these questions?

  1. Take a printout of the press note, and annotate it to your heart’s content. Come up with questions about your annotations, and don’t worry about how many questions you come up with. The more the merrier!
  2. Go ask your batchmates (and also your seniors) about their answers to these questions. Don’t worry (yet) about whether you agree with the answers you get – listen, imbibe and check whatever sources you get to learn about.
  3. Once you do this, go ask your professor(s) about their answers to some of these questions. Feel free to ask them about what you should be reading to learn more.
  4. Reach out to people on Twitter or LinkedIn who you think might be able to answer some of your questions. Don’t be afraid of asking pretty much whoever you like, but do not think you are entitled to a response. You aren’t – but if your question is a well-thought out one, not only will you likely get a response, but it will most likely be a considered, detailed response. People are helpful that way, especially if they see that you’re making a serious effort to learn. The emphasis is on the word serious!
  5. Write. Once you do all of this, pen down your learnings, and the questions that still remain. Share it with the world. Make sure you do all this before 5.30 pm on the 31st of May, 2023. If you want to ask why, go reread the first sentence of today’s blogpost.

See you then!

Pranay Kotasthane on the defence budget

… which, of course, makes it self-recommending:

Older Adults Should Let Younger Adults Be Adults

The title of today’s post is a slightly longer version of a tweet written in response to Nitin Pai’s excellent article on just this topic:

Why do I think Nitin’s article is an excellent one? I’ll happily admit to my bias – I think it to be excellent because I happen to wholeheartedly agree with it. As always, do read the whole thing, which is about a whole lot more than what I’m going to talk about in today’s post.

What am I going to talk about? These two paragraphs:

One of our recent interns told me that she had to get her parent’s permission every time she wanted to step out of her campus. The college was more than 2,000km away from where her parents lived. But this was not a problem at all. The students had a gate pass app on their smartphones that would send a request to their parents’ smartphones, whose approval would be relayed to the security guards’ smartphones, and the gate would open (or remain closed, depending on what kind of parent you had). It did not matter that she was a smart, adult law student—without Mom’s permission, she couldn’t leave the campus.
As a parent, I am of course concerned about the safety of my children. But I am unable to fathom how an adult who can legally sign a contract, take a loan, have sex, get married, drive a truck, fly a plane, fight a war and vote in elections cannot leave the college campus without parental permission.

Student’s marksheets being shared with parents, parental approval being required before students can leave the campus, attendance records of students being shared with parents – as Nitin says, it is time we stop infantilizing our young adults. My specific point in today’s blogpost – this is especially true and relevant on college campuses.

Me, I personally happen to be of the opinion that attendance should not be mandatory in classrooms. It is my job as a teacher to make the class interesting enough for students to want to attend. It is not the student’s ‘duty’ to attend 75% (or any other number) of the classes. Fun question for you to ponder today: is a minimum attendance requirement a minimum support price regime for us professors? What does microeconomics teach us about price floors and price ceilings?

But regardless of whether or not you agree with my point re: attendance, the consequences of not attending classes should be the sole responsibility of the adult in question. And the adult in question is the person in college, not their parents. You could argue that it is the parents – usually, in an Indian context – who stump up the fees, so they have a ‘right’ to know. But that is a conversation between the student and their parents, and I do not think the college need intervene.

The many other points that Nitin makes in his post regarding other nuances of this topic are also worth reading. But the point that resonated with me the most was the one I wanted to emphasize in this post: if you’re 18 and in college, this country thinks you’re old enough to elect its leaders. Surely then this country also ought to treat them as adults in all other respects. For if you’re deemed far too immature to decide for yourself if you should bunk classes or not, surely you are not mature enough to vote in an election. No?

And therefore I say: old adults should let younger adults be adults.

The Budget At A Glance Document

Regardless of whether you are a formal student of economics or otherwise, here’s how I would recommend you start today.

  1. Visit this website.
  2. Go to the Budget at a Glance section. Search for it on Google, if you like, but make sure you open the 2023-24 document!
  3. Open up either the MS-Excel file or the PDF of the document titled Budget at a Glance. If you don’t plan on copying any data, I would recommend the PDF. It is marginally easier to read.
  4. Scroll down to the table, which is usually on page 3
  5. Remember that this is the government’s budget. Don’t confuse this with India’s GDP! But more about India’s GDP and how it relates to this document below
  6. Understand the structure of the document:
    • Note that the numbers are in Rs. crores
    • Understand the layout of the four columns:
      • The first will be the ‘actuals’ for the year 2021-22.
      • The second will be the ‘budget estimates’ for the year 2022-23 (note that this was the fourth column exactly one year ago)
      • The third will be the ‘revised estimates’ for the year 2022-23
      • And the fourth column will be the budget estimates for the year 2023-24
    • Understand the layout of the rows:
      • Line item no.8 and line item no. 9 will be exactly equal. This is not a coincidence. Our government’s ‘income’ (no. 8) must match it’s ‘expenditure’ (no. 9).
      • Both line item no. 8 and line item no.9 further decompose into revenue and capital ‘streams’. What are revenue and capital ‘streams’?
        • A one time income (or expenditure) can be thought of as a capital stream. You enrolling in a college degree is a one time expenditure, for example. But you paying your hostel mess bill is a recurring expenditure. Which do you think ought to come under the capital ‘stream’? Which do you think ought to come under the revenue ‘stream’? Why? Use your answers here to understand the structures of the rows numbered 1,4 and therefore 8. Also 10,13 and therefore 9.
      • Now let’s take a look at just line item no. 1 and its constituents:
        • How much growth has the government pencilled in for tax revenue (line item no. 2) between the third and the fourth column? Between the second and the fourth column? Scroll down to the bottom of this page and take a look at note (i). How much is nominal GDP – in one sense the income of the country as a whole – going to grow by? How much is the growth rate of tax collections? Why do you think this difference exists?
        • What are non-tax revenue receipts? They usually comprise of interest receipts, dividends and profits (whose?), external grants, other non-tax revenue and receipts of Union Territories. You can find more information about this in the Receipt Statement document on the Budget at a Glance web-page (bag5, usually).
      • Under Capital Receipts (4 and its constituents), pay close and loving attention to line item no. 6. This will disappoint all of us this year, which unfortunately has been a trend for a very, very long time. This is proceeds from disinvestment (3.A.(ii) in bag5), and now ask yourself why the second column is so very different from the third. Ask yourself how you should therefore interpret the value in the fourth column. Go back and take a look at the corresponding entry in previous Budget at a Glance documents. Ponder this issue, and read more about it. To me, it is the most crucial part of the income part of this document.
      • Line item no. 7 is the outcome of the following equation. Pay attention now! 9-1-5-6=7.
        In English: the government first figures out how much it needs to spend (9). It then subtracts from it all possible sources of income: all of revenue receipts (1), then recovery of loans (5) and then disinvestment proceeds (6). What remains needs must be borrowed. We call this the fiscal deficit. Line item no. 7 will be exactly equal to line item no. 17, and that’s not a coincidence.
      • Under line item no. 9 and its constituents, first check how large 10 is as a percentage of 9. Then check how small 13 is as a percentage of 10.
        • How much of 10 can the government afford to change? (More details in bag6)
        • How much of 13 does the government need to change? (ditto)
        • With regard to both of these points, go through the ‘expenditure of major items’ and ‘composition of expenditure’ sections of bag 6 (usually pages 10 and 11).
        • How large is line item 11? How to interpret 11? Is the government borrowing (7) to repay the interest on old loans (11)? What is the meaning of line item 18?
  7. Go over the rest of the document as well, but this will now fill in the details. Note that some of what I have mentioned is in bag5 and bag 6 can also be found over here, but it is worth your while to be aware of those documents as well.

Please, spend an hour going over this blogpost and the budget at a glance documents.

Then, if you so desire, start listening to the talking heads on your channel of choice. Then read what everybody has to say about the budget.

The first year you do this, it will seem like a lot of work. But as the structure of the document becomes clearer and more familiar, you will find it relatively easier to begin making sense of the budget on your own – at least a respectable top-level analysis. Then, depending on your political views, sectoral exposure and appetite to learn, you can choose to consume any amount of analysis on the budget. But bring to that experience your own independent analysis, and see how what you’re consuming resonates with what you think you know.

And if you ask me, everybody who has gone through a class on economics (and correct me if I’m wrong, but that ought to be everybody who has gone through school) should have undergone a session like this.

It does not necessarily happen, more’s the pity.

And of course, don’t stop here! As a serious student of economics, there is much more to do. But this? Difficult, tedious and time-consuming though it may seem, these ought to be table stakes to formulate (let alone give) an opinion about the budget.

In Praise of Missing in Action, by Pranay Kotasthane and Raghu S. Jaitley

Some books are entertaining, and some books are erudite. Rarely do we get to read a book that is both.

Why do I write this blog? There are many reasons, but one of the most important one is that this is my attempt at making learning fun for everybody. And the most important factor behind me liking this book is just this – they make learning about public policy fun.

The subtitle of the book is “Why You Should Care About Public Policy”, but something that us academicians often forget is that supply does not, in the case of learning, create its own demand. You can write the most impressive (not to mention comprehensive) tome on public policy, but that’s no guarantee that people will read it. But with this book, the two authors have pulled off an amazing feat: not only will you most likely finish this book if you pick it up, but you will learn a lot from it. And more, you will be entertained for having done so.

Pranay and Raghu’s book is a delightful romp, but not through the subject of public policy, and the distinction matters. It is, instead, a romp through different aspects of life, to which the tools of public policy are applied. My biggest complaint with textbooks is that they teach you the subject, and include “boxes” in which you are allowed to think of the world outside the textbook. This book belongs to that all too rare (and therefore even more delightful) category of books that does the opposite. You are asked to only think of the world, and they attempt to make the world a more understandable place by supplying ways of thinking about it.

In order to do this, they divide the world into three different aspects: the state, the market and society. Or, to use their terminlogy: sarkaar, bazaar and samaaj. Think of the individual, and the individual’s life, as being impacted by her interactions with these three ‘pillars’ of society. How do these pillars impact her? How do these pillars interact with each other? What happens when the interactions between the individual and these pillars do not go along expected or ‘ideal’ lines? What are the potential remedies for these problems, and what are the costs of implementing these solutions? That is the focus of this book, and the answer to the subtitle of the book is, well, the book itself.

These three aspects – the state, the market and society – make up the three sections of this book. Each section is divided into bite-sized chapters, each dealing with a separate, specific issue. Three things bring each of these chapters to chirpy life – the breezy tone that they adopt, their obvious mastery over the concepts that they are explaining, and their obvious love of Bollywood. One chapter may be titled on the basis of a famous line from a Bollywood movie (Aap party hai ya broker, for example), while another may explain how to think about atmanirbharta by talking about Manoj Kumar and his movies.

But my favorite usage of this lovely party trick is when you encounter a line like this one: “The foundational premise of modern India is that the state is ontologically prior to society.” This is just the kind of line that is likely to make your eyes glaze over, no? Those of us who have struggled with weighty tomes on dreary afternoons in musty college libraries have learnt to resign ourselves to hours of tedium while tackling with what follows prose such as this. But this is what I meant when I wrote that first sentence of this post – they choose to explain what this sentence really means by asking you to think about Shakti, a movie starring Dlip Kumar and Amitabh Bachchan.

Even better, they first speak about Shakti, and then foist that sentence upon you. A little bit like putting healthy veggies in a chicken pizza one might make for the young ‘un at home, if you see what I mean.

The authors mention in the book that it isn’t ‘an economic reasoning textbook’, but I’d beg to disagree. It absolutely is an economic reasoning textbook, and of the very best kind. It tells you how to get the most out of life, and better, tells you how and why one is unlikely to succeed in getting the most out of life if one gets basic tenets of public policy wrong.

Think of this book as the public policy companion to a book like The Economic Naturalist, by Robert Frank. Look at the world, and ask how the world becomes a more understandable place for having learnt public policy.

As an economist, I particularly enjoyed the sections on sarkaar and samaaj. Not, I hasten to add, because the section on the bazaar is in any way inferior, of course. It is simply because I am somewhat more familiar with the material in that section. But that’s all the more reason to buy the book, especially as a student of economics – becaue this book makes you more familiar with how the state and society also influence economic outcomes. Within the economic sections, the sandalwood story and the airline pricing story are my personal favorites. But practically every chapter brings along a delightful little nugget of information that is surprising, or a delicious twist of phrase that will likely make you chuckle, or sly titles to some of the chapters that will elicit both raised eyebrows and raised tempers.

The one complaint I have with the book is that I find myself wishing for an index and a bibliography at the end of the book, both of which are missing. It is understandable, for more than one reason, but as a fundamentally lazy person who also hopes to use this book as a teaching aid, both of these things would have gone a very long way. An online resource, perhaps, if one is permitted to be a little greedy?

But that minor quibble apart, there is nothing that prevents me from heartily recommending this book to you. Younger people might miss some of the references (“Vinod Kambli? Who he?” I can hear ’em go already), and they may also not have seen more than half the movies that have been referenced in the book – but that actually brings me to my final point.

A great way to read this book together would be to start a film club, and watch the movie in question in each chapter, before reading that chapter. Before the next movie screening, have a discussion about both the movie and the chapter, and all of the many “that reminds me” that might emerge from said discussions. Rinse and repeat for twenty-eight glorious chapters, give or take. I hope students in colleges and universities take up this suggestion, and spend some time in learning about movies, life in India, the role of the state, the market and society in the our own day-to-day lives, and a whole host of books, reports and papers as well. A positive externality that will result as a consequence of this will be the fact that you will have acquired a degree of expertise in public policy.

But as the authors themselves (and that wise old sage Crime Master Gogo) tell you, aa hi gaye ho, to kuchh lekar jao.

In all seriousness though, please do make sure that you read this book, if you are in any way interested in India. Recommended wholeheartedly.

Minimizing Soul

The local JW Marriott in Pune has fed me thousands of calories over the years. I’ve been going there to eat hog for the last twelve years, and I’ve always left the premises with a full tummy and a truly contented mind. The ingreditents have always been top-notch, the preparations have always been tasty, the service has always been very good, and the staff have always been a perfect combination of friendliness and professionalism.

All good. But you knew there was a “but” on the way, didn’t you?

They have this loyalty scheme at the Marriott, called Club Marriott. Pay a certain amount of money upfront, in order to get discounts at restaurants, discounts on their spa services, the ability to use their swmming pool and some other freebies thrown in. It costs a little more than ten thousand rupees for the year, and if you are a reasonably regular patron at their restaurants, it certainly makes sense. And as my friends and family will queue up to tell you, the phrase “reasonably regular” is an understatement in my case.

The good thing about this membership scheme, at first glance, is that the price has stayed constant over the years. For as long as I can recall, it has been about the same price – a little more than ten thousand rupees per year. It used to be a coupon booklet and a membership card earlier, and it is now an app on your phone.

But inflation has certainly not been low over these years, let alone the same. Nor has the popularity of the hotel and its restaurants been the same. It has only gone up, as it should – for the service is truly top-notch.

Something’s gotta give, right?

And what has given way over time has been the return on the ten thousand rupees that one spends at the start of the one year period.

In the earliest version of the loyalty scheme, it was the case that two people could eat at half price. Three people could eat at a third off, while four or more (until a cap of twenty guests) could eat at one fourth off. You could book most rooms in the hotel at half off. You could make use of the jacuzzi, steam and sauna if you used the voucher that allowed you access to the pool.

And then, over time, it became the case that regardless of the number of people at the table (until twenty), you would always get only a thirty-three percent discount. Only the base rooms were made available for booking at a discount. You could use the pool, sure, but nothing else.

And this year, they have reduce the discount further still, to twenty-five percent.

All this might sound like me moaning and grumbling about what is very much a first world problem, and you wouldn’t be wrong. But the larger point I want to make is in relation to a post I wrote about two years ago:

Getting the most out of life can be thought of in two ways. It could mean living life to the fullest (however you might define this for your own sake). It could also mean getting the most out of life by minimizing time, effort and cost spent on any activity.

To me, that Marriott membership is about living life to the fullest. I am happy to pay more to get more, and that indeed is what the scheme is about from a microeconomic perspective. It is very much a form of price discrimination. It also involves the sunk cost fallacy, but that is a story for another day. But I have always thought of the membership as being about maximizing soul.

But by keeping the price of the membership the same and reducing over time the benefits associated with said membership, Marriott has turned it into a penny-pinching scheme. Purchasing the membership for the same price every year to get slightly lesser benefits is one way to evolve its pricing. Purchasing the memership for a slightly higher price every year to get slightly more benefits is another way to evolve its pricing.

It absolutely makes sense for the bean counters at the Marriott to maximize efficiency when it comes to inventory, labor, raw material purchases, electricity usage and the like. But should schemes about customer delight be about maximizing efficiency, or should they be about maximizing delight?

What is Marriott optimizing for, in other words? And when a luxury hotel optimies for penny-pinching, I’d argue it doesn’t make much sense.

My belly-aching about the pricing strategy at the Marriott aside, the larger point I want to get across is this: as a seller, you should be clear about the kind of business you are in, and the kind of experience you want you customer to have. Do you want to sell to the pay more to get more segment, or do you want to sell to the pay lesser to get lesser segment? Do you want to position yourself as a luxury good/service provider, or do you want to position yourself as a cheap and efficient good/service provider?

Either approach is fine, to be clear. But when you choose the second option in the case of the first question, and the first option in the case of the second question, you are likely going to face trouble down the road.

In the case of the Marriott, there are plenty of other factors at play. The propensity of Punekars (or Indians, for this is a pan-India scheme) to pay, what the competition is doing, how many other luxury hotels are there in the area are other obvious questions you must analyze.

I’ll still renew my membership, in all probability. But it no longer is a scheme that delights me. It has become, instead, a scheme that can save me some moeny every time I go to the Marriott. In the language of the microeconomist, it is more about the budget line than it is about the indifference curve.

The membership no long maximizes soul.

And more’s the pity.

Twenty Twitter Threads from The Bhandarkar Oriental Research Institute

Incentives Matter

A little hobby of mine, that I have managed to get my daughter hooked on to as well, is etymology.

I’ve long held that concepts become more interesting, more relatable and therefore more memorable – in the literal sense of the term – once you’re able to tell yourself a story about the underlying concept. Look up the etymology of the word “average”, for example, and it is likely to be a story you won’t forget in a hurry. By the way, here’s a fun question the daughter asked some months ago, and I’ve been kicking myself for not having thought of it first.

So what is the etymology of the word incentive?

From Medieval Latin incentīvus (“that strikes up or sets the tune”), from incinō (“to strike up”), from in- (“in, on”) + canō (“to sing”).

I like words. I like stories that can be fashioned out of, and about, words. If you click around on the search result that I have linked to, you realize that you can go down quite a rabbit hole about the history of the word incentive. Words such as kindle, singing, and incendiary crop up, and the associations these words can conjure up in one’s mind can result in a very pleasant couple of hours. But the phrase that resonated the most with me was “sets the tune”. It fits nicely with what incentives actually do in real life – they do set the tune on which we are tempted to dance.

Now who sets the tune, for whom, and with what consequences – that’s a whole other story, and practitioners of public policy can tell this tale much better than most other folks. But even outside the always-fascinating drama that is always being staged in the theater of public policy, this story is at the heart of what plays out in applied economics. Who is incentivizing whom, towards what end, and do the incentives end up producing intended or unintended consequences, and at what cost – these are fascinating questions to answer.

My favorite story about getting incentives right comes from Marginal Revolution University:

And my favorite story about getting incentives wrong comes from Calvin and Hobbes:

And that’s the tricky thing with incentives. Getting them right is a surprisingly difficult thing to do. The reason it is a surprisingly difficult thing to do is because of a variety of reasons, but it is possible to start to think about building a framework that one might use to design incentives.

Begin by asking yourself this question: Who is designing the incentive, and for whom?

Let’s begin with a simple example. Let’s say I am designing an incentive for myself. If, I say to myself, I can finish writing the blog post you’re reading right now without taking a break, I’ll reward myself by having a cup of coffee. In this case, I am designing an incentive for myself – I am setting a tune for myself to dance to.

Note two other things about this little incentive scheme:

  1. It is a positive incentive. I am not going to punish myself if I do not finish my designated task – that would be a negative incentive. I am, instead, going to reward myself if I finish my designated task. Think of the old English phrase “the carrot and the stick” to get a sense of what a positive and negative incentive mean.
  2. It is a non-monetary incentive. I am not going to reward (or punish) myself with money. There is no prize money, nor is there a fine. There is, instead, a non-monetary reward – a nice hot steaming cup of coffee. Incentives need not always be monetary!

So, a positive, non-monetary reward to finish a task. What could possibly go wrong? Consider the opening paragraph of Ch. 6 of a lovely little book called In The Service of the Republic:

In 1902 in Hanoi, under French rule, there was a rat problem. A bounty was set—one cent per rat—which could be claimed by submitting a rat’s tail to the municipal office. But for each individual who caught a rat, it was optimal to amputate the tail of a rat, and set the rat free, so as to bolster the rat population and make it easier to catch rats in the future. In addition, on the outskirts of Hanoi, farms came up, dedicated to breeding rats. In 1906, there was an outbreak of bubonic plague that killed over 250 people.

Kelkar, Vijay; Shah, Ajay. In Service of the Republic . Penguin Random House India Private Limited. Kindle Edition.

By the way, the footnote associated with this little tale contains the link to the fuller story, and is worth reading in its entirety. It would appear that the cobra story from India doesn’t have any corroborative evidence. For those who don’t know the background, there is a very similar story from India, only involving cobras isntead of rats. (If you will permit a slight digression: I was telling both of these stories to my daughter, and her only observation was to note that the cobra story was unlikely because “won’t cobras be an example of an apex predator? They can’t grow as quickly as rats, correct?”)

But what can go wrong is what the government in Hanoi discovered – that the person for whom the incentive has been designed may well end up hearing a completely different tune than the one that the designer of the incentive intended. That is, the designer would like you to do x, but you end up doing y instead.

Teachers may set up assignments to incentivize learning, but students are playing a different game. They are looking to minimize efforts in order to maximize marks. Ditto for managers and members on a team in the corporate world. Ditto, as I and my wife have been discovering to our chagrin, for parents and kids! That last bit has been a particularly aggravating discovery, since both my wife and I are economists.

But this phenomenon of incentives not working out as envisaged has an entire “law” of its own, called Goodhart’s Law. This is what it says:

“Any measure that becomes a target stops being a measure”

You’ll find different phrasings of the same idea online, but that’s the simplest way to express the idea. If the measure (to stop the culling of the rat population) is rat’s tails that have been cut off, and you make this the target – well, they stop being a measure of the culling of the rat population!

And that’s why designing incentives is so very tricky. The Indian government found this out to its cost in the aftermath of demonetisation, for example, but rather than look for examples elsewhere, I think you learn about incentives best when you try to think of examples from your own life.

But you cannot – simply cannot – be a student of economics without appreciating both what incentives are, and how difficult it is to design and implement them. The study of this facet of economics will last for your entire life, and you will always find something interesting to learn about it, every single time.

Incentives matter.

Now, if you will remember, I had promised myself a cup of coffee if I finished writing this blog post without taking a break. Goodhart’s law would imply that I would indeed finish writing this blog post without taking a break, but presumably at the cost of either its length, or its quality, or possibly both. I leave it to you to judge if that has been the case.


I’ll go brew that cuppa.

What is Cricket Optimizing For?

What if you asked an economist how to go about analyzing the answer to this question? I’m not so interested in the answers to this question in today’s post, but in trying to figure out how to go about thinking about how to set up this question for analysis. But I will conclude today’s post by trying to answer some of the questions/points I will have raised by then.

  1. What do we mean when we say “cricket”? Do we mean the players, the administrators, the viewers, the businesses interested in informing the viewers about the sport, or all of the above? If it is to be all of the above, are they all pulling in the same direction? If not, should we not be analyzing what each of them are optimizing for?
  2. What do we mean when we say “cricket”? Do we mean international cricket, or the leagues?
  3. What do we mean when we say “international” cricket? Do we mean Test match cricket, or One-Day Internationals os T20 internationals?
  4. What is cricket optimizing for, but also over what time horizon? What is best for cricket this year, in 2023? What is best for cricket in the medium run – say over the next five years? What is best for cricket over the next ten years? Do the answers change given the horizon, and do the answers change given the answers to the first three questions?
  5. If any one, or more, of the answers to these questions are such that they are in contradiciton to one another, how should we prioritize? On what basis?

The larger point behind today’s post is not to figure out how to figure out the answers to these questions. The larger point is to help all of you realize that analysis can only begin in earnest once the questions are clear in your own head. And while a throwaway question like “What is cricket optimizing for?” is fun to think about over a couple of beers, breaking it down into its constituents is always helpful. When you tackle any big picture question, spend some time in breaking it down into its constituent parts. Oh, and make good ue of the MECE principle while doing so.

For example: what is China optimizing for isn’t the correct question. Who within China are you talking about? Ditto for Russia. And for the USA.

“What are you optimizing for?” is a great question to ask, but only if you really and truly know who the “you” in the question is.

But having said all that, here are some (not all!) points from me for having considered these questions:

  1. What do we mean when we say cricket?
    • Players will want to maximize their incomes. This is not me being sarcastic, or saying that players are mercenaries. This is me saying that players are human beings. Had it been you or I in their place, we would also have wanted to maximize our incomes over the 15 years or so (at most) that we could have realistically played the game at a professional level. That is not a bad thing, it is a perfectly rational thing to do!
    • Administrators are optimizing for maximizing revenue streams. This is also a perfectly rational thing to do, but I do think that administrators are maximizing revenue streams over the short run, and are damaging the long-term health of the game while doing so.
    • The viewers (en masse) are optimizing for alleviating boredom. There will always be some eyeballs for a match, no matter where it is being played, and no matter between whom, and no matter how inconsequential. This results in the point above, and this is a great example of why thinking long term is A Very Good But Very Underrated Thing.
    • Businesses are optimizing for maximizing their long term returns, but across many diverse businesses. Amazon Prime doesn’t show you cricket matches from New Zealand because they are passionate about cricket, but because Amazon is passionate about getting you hooked on to Amazon Prime. Which, in turn, will get you hooked on to using Amazon. But that is just one example of a broadcaster (loosely defined) optimizing for its larger business interests (also loosely defined). ESPNCricinfo is also a business that is about informing you about cricket, but they have a much more direct interest in (and passion for) the sport. But obviously a very different business model, and this before we start to think about ESPN, and Disney. Note that this is a hugely complicated point, and difficult to speak about in a single blogpost, let alone a sub-point of a point in a blog post!
  2. In an ideal world, we would be optimizing for maximizing the long term health and popularity of the game. But we do not live in an ideal world. We therefore need to ask ourselves which of these groups mentioned above are likely to hold sway, and at what cost to the interest of all the other groups. That administrators and businesses are likely to take most decisions is a given. That they are likely to do so in favour of their own interests is obvious. Getting their interests to align with those of the viewers, and to have all interests be focussed on the long run would be a good way to get going towards living in that ideal world. Think long term, everybody!
  3. There is no escaping the fact that we really should be having a conversation about having the 2023 ODI World Cup being the swansong for the format at large. Scrap T20 Internationals, save for only a T20 World Cup, held once every two years.
  4. These apart, T20 leagues in all major cricket playing nations.
  5. Cross-subsidization of Test matches for as long as possible, and the eventual demise of this version of the sport too. I hope this is delayed for as long as possible, but it is an eventual inevitability.

Pts. 3, 4 and 5 are assertions/predictions on my part, but I see no way out of these conclusions. Cricket, if it really is going to optimize for maximizing the long term health and popularity of the game, needs to shed an entire format and cross-subsidize another one for the foreseeable future. And bilateral cricket should die a natural death with Test cricket, whenever it happens. To be clear, my personal hope is that it never does. But I am betting, alas, that it will.

I would love to be wrong, but I fail to see how.