Encouraging bad behaviour

While flipping TV channels last evening (an activity I seldom undertake nowadays) I came across this new advertisement for Myntra.com:

I watched this advertisement 2-3 times, and to me the clincher seemed to be the fact that you can return goods to Myntra and get your cash back the same day.

The intention of the advertisement is clear – for someone who is uncomfortable with buying clothes online (like the woman in this advertisement), the fact that you can return the stuff and get your money back immediately can be a huge incentive to try.

The problem, however, is with the overall message it conveys. One of the biggest problems with online retail in India is the high rate of returns. Returns create friction in several ways – from the logistics cost to reversing payments to possible fraud to possible damage of goods. From this perspective, returns are undesirable behaviour as far as retailers are concerned.

In this context, it’s rather bizarre that Myntra is putting out an ad that promotes the use of returns. While it might be a decent incentive to attract new customers and expand the market, the problem is that it encourages your existing customers (who are likely to transact more than new customers) to misbehave!

In other words, Myntra’s latest ad actually encourages undesirable behaviour from customers! I find it quite puzzling.

PS: On the other hand, Myntra’s competitor Amazon is actually making returns less friendly. If you return an electronic product now, you can only get a replacement, and not your money back.

Blogging about my wife

I might have mentioned multiple times on this blog that my wife thinks I don’t blog enough about her. She has told me that after reading my blog, she had assumed that I’d be writing tomes to her like I did to some of the women I was hitting on earlier in life, and that on this count I’ve severely disappointed her.

In my defence, I’ve said that I don’t write about her because there is “no angst“. On other occasions, I’ve looked at the blogposts I wrote in the early days after I first met her, and found that most of my posts around the time were about her. And despite her protests that I don’t write about her, she gets intermittent mentions on this blog.

So as is my usual habit, I was going through some old blogposts today, and the discovery of the day is that I’d actually blogged about my wife on the day we first saw each other. And this was long long before we had met!

In the early days of our meeting, I remember Priyanka telling me that she had first seen me at the Bangalore Landmark Quiz in 2007, which was incidentally a couple of months before we chatted (on Yahoo! Messenger) for the first time. I’d always maintained that I hadn’t noticed her at that quiz. Until I saw this blogpost today.

Based on some details mentioned in this blogpost, I realise that I had actually seen the-person-who-is-my-wife on that day, and that I had actually found her cute. I had compared her to another cute chick I’d seen at the same quiz two years earlier, however, and this anchor meant I downplayed her on my blog.

From my blogpost:

Both times, there was A cute chick I saw just before the quiz… Both times, the cute chick i’d seen before quiz sat at the same place. Fourth or fifth row from front. Towards the right of the audience. Ideal position for me to put eye contact during the finals…

This time I’m not writing any letter to the chick-of-the-day. i didn’t find her as impressive as the one i’d seen two years back. Or maybe the novelty factor of seeing a chick at a quiz has worn off… But I’m unlikely to put blade…

I realise this doesn’t sound terribly charitable to the person who is now my wife, but it is documentary evidence that I did write about her the first time I saw her! So this deserves further documentation!

And apart from providing such documentation, that blogpost is of extremely poor quality, and I’m not proud of it at all. Seems more like a rant than an honest blog-post.

Writing and depression

It is now a well-documented fact (that I’m too lazy to google and provide links) that there exists a relationship between mental illness and creative professions such as writing.

Most pieces that talk about this relationship draw the causality in one way – that the mental illness helped the writer (or painter or filmmaker or whoever) focus and channel emotions into the product.

Having taken treatment for depression in the past, and having just finished a manuscript of a book, I might tend to agree that there exists a relationship between creativity and depression. However, I wonder if the causality runs the other way.

I’ve mentioned here a couple of months back that writing a book is hard because you are working months together with little tangible feedback, and there’s a real possibility that it might flop miserably. Soncequently, you put fight to make the product as good as you can.

In the absence of feedback, you are your greatest critic, and you read, and re-read what you’ve written; you edit, and re-edit your passages until you’re convinced that they’re as good as they can be.

You get obsessed with your product. You start thinking that if it’s not perfect it is all doomed. You downplay the (rather large) random component that might affect the success of the product, and instead focus on making it as perfect as you can.

And this obsession can drive you mad. There are days when you sit with your manuscript and feel useless. There are times when you want to chuck months’ effort down the drain. And that depresses you. And affects other parts of your life, mostly negatively!

Again it’s rather early that I’m writing this blog post now – at a time when I’m yet to start marketing my book to publishers. However, it’s important that I document this relationship and causality now – before either spectacular success or massive failure take me over!

Dining philosophers in action

When we learnt semaphores as part of our Operating Systems course during undergrad, one of the illustrations that was used was the “dining philosophers’ problem“.

The situation is simple – there are six philosophers seated around a table and six spoons placed between them. Each philosopher (the problem is not sensitive to the profession of the eater) has to now pick up a spoon. It is not clearly mentioned if a philosopher has to pick up the spoon on his left or on his right.

This is now a coordination problem. If all philosophers go the same way, all is good, since each of them gets exactly one spoon. If any two philosophers go the opposite ways, it results in two philosophers fighting over the same spoon while one spoon remains unclaimed. The use of semaphores in the solution to this problem is outside the scope of this blogpost.

Back when I learnt about the dining philosophers, it seemed like a rather esoteric and academic exercise (one minor point of hilarity occurred when this particular chauvinist in my hostel refused to read this book on operating systems by Silberschatz and Galvin because the book referred to philosophers as “she”. “How can philosophers be female, da?” reasoned this guy). It seemed unlikely that it would actually occur in real life.

Until it did tonight. The wife’s graduation ceremony was followed by cocktails and a formal sit down dinner. The dinner had been arranged around round tables, with large plates being set in front of each chair. Bread plates had been placed between the large plates.

So there were eleven of us around the table, with eleven plates in front of us, and eleven bread plates between us. The positioning of the bread plates meant that each of us could have either picked the plate on the left of us or the plate on the right (it was symmetrical to our seat). As the wines started to be brought in by bearers, it was time to consume the bread.

Our table consisted of eleven Indians, all of whom were unaware of the convention regarding bread plates. All of us wanted to eat bread, though. Had any of us known the convention, that person would’ve confidently swooped, and the rest of the table would have followed. With all of us being unaware, we stared at one another blankly, waiting for someone to move. A perfect Dining Philosophers Problem had been set up (dining MBAs and families, to be more precise).

We proved to be inefficient philosophers. Some moved left, others moved right. Those that saw people go left followed left. Those who saw people go right followed right. Inevitably there was a conflict, as my mother-in-law and I reached for the same bread plate.

The conflict was resolved by looking around the table to see the side that was in majority – most people had gone for the bread plates on their right. The rest made adjustments and bread was broken. It would turn out later that we were all wrong – the convention is for the bread plate to be placed to the eater’s left.

Ordinarily I might have been disturbed about my lack of knowledge of social conventions, and resulting faux pas. Seeing the Dining Philosophers’ Problem in action more than compensated for that today! Seeing my excitement at seeing the problem in action, the others on the table might have thought I’d had a glass of wine too many.

Diversity and sorting by last name

So the wife graduated today. The graduation ceremony was in threes – three graduates were called at a time and presented their degrees (the wife now claims that she has one more degree than me, since my B-school gave me a Post Graduate Diploma and not a Masters).

It was reminiscent of swearing in of Ministers of State in India, who take oath four at a time. My graduation ceremonies, where we collected our degrees one at a time, was more like the swearing in of Cabinet Ministers. This simultaneous award of degrees worked well in finishing the ceremony in good time, though.

As is usual in such ceremonies, the graduates had been sorted by name. Except that since this is a global business school, the sorting was done by <Last Name> followed by <First Name> (at all my schools, sorting has been in the opposite order).

This related to fairly hilarious bunching of graduates from different countries at the same point in time. One batch of three was a set of three Lee’s, for example (rather amazingly, there was not a single Wang in the graduating class). They were followed by two more Lee’s/Li’s. Another set of three were three Japanese who had the same prefix to the last name.

And the wife was one of three Indians in the batch whose last name started with “Bha-“. It’s a rather unique Indian construct, and the three were listed consecutively for graduation. It was only because of a “cut” that occurred in the middle that the three didn’t go simultaneously to receive their degrees.

Different countries have different name forms and the same words might occur as a prefix of a large number of last names from the country. Such prefixes might also be unique to certain countries, thanks to which sorting by last name results in the occurrence of several “country clusters” through the course of the list.

It got me wondering if the diversity of the batch (more than 50 countries were represented in the graduating class of ~300) mgiht have been exhibited better, and people of the same nationality been spread apart more widely through the list had they done (what is to us Indians) the conventional thing and sorted by first name instead!

Liquidity and the Trump Trade

The United States Treasury department has floated a new idea to improve liquidity in the market for treasury bonds, which has been a concern ever since the Volcker Rule came into place.

The basic problem with liquidity in the bond market is that there are a large number of similar instruments trading, which leads to a fragmented market. This is a consequence of the issuer (the US Treasury in this case) issuing a new bond every time they wish to borrow more money, and with durations being long, many bonds are in the market at the same time.

The proposed solution, which commentators have dubbed the “Trump Trade” (thanks to the Republican Presidential candidate’s penchant for restructuring debt of his companies), involves the treasury buying back bonds before they have run their full course. These bonds bought back will be paid for by newly issued 10-year bonds.

The idea here is that periodic retirement of old illiquid bonds and their replacement by a new “consolidated” bond can help aggregate the market and boost liquidity. This is not all. As the FT ($) reports,

The US Treasury would then buy older, less liquid and therefore cheaper debt across the market, which could in theory then be reissued at a lower yield. In recent months, yields on older issues have risen more than those for recently sold debt, suggesting a deterioration in liquidity.

This implies that because these “off the run” treasuries are less liquid, they are necessarily cheaper, and this “Trump Trade” is thus a win. This, however, is not necessarily the case. Illiquidity need not always imply lower price – it is more likely that it leads to wider spreads.

Trading an illiquid instrument implies that you need to pay a higher transaction cost. The “illiquidity discount” that many bonds see is because people are loathe to holding them (given the transaction cost), and thus less people are willing to buy them.

When the treasury wants to buy back such instruments, however, it is suddenly a seller’s market – since a large number of bonds need to be bought back to take it off the market, sellers can command a higher spread over the “mid price”.

Matt Levine of Bloomberg View has a nice take on the “IPO pop” which I’ve written about on this blog several times (here, here, here and here). He sees it as the “market impact cost” of trying to sell a large number of securities on the market at a particular instant.

Instead the typical trade of selling, say, $1 million of a bond with $1 billion outstanding, and paying around 0.3 percent ($3,000) for liquidity, you want to sell, say, $1 billion worth of a bond with zero bonds outstanding. That is: You want to issue a brand-new bond, and sell all of it in one day. What sort of bid-ask spread should you pay? First principles would tell you that if selling a few bonds from a large bond issue costs 0.3 percent, then selling 100 or 1,000 times as many bonds — especially brand-new bonds — should cost … I mean, not 100 or maybe even 10 times as much, but more, anyway. No?

Taking an off-the-run bond off the market is reverse of this trade – instead of selling, you are buying a large number of bonds at the same time. And that results in a market impact cost, and you need to pay a significant bid-ask spread. So rather than buying the illiquid bond for cheap, the US Treasury will actually have to pay a premium to retire such bonds.

In other words, the Trump Trade is unlikely to really work out too well – the transaction costs of the scheme are going to defeat it. Instead, I second John Cochrane’s idea of issuing perpetual bonds and then buying them back periodically.

These securities pay $1 coupon forever. Buy these back, not on a regular schedule, but when (!) the day of surpluses comes that the government wants to pay down the debt. Then there is one issue, with market depth in the trillions, and the whole on the run vs. off the run phenomenon disappears.

People don’t worry enough about liquidity when they are trying to solve other liquidity worries, it seems!

 

Big data at HDFC Bank?

I had a bit of a creepy moment today – I must admit that, despite being a “data guy” and recommending clients to use data to make superior decisions (including customisations), it does appear creepy when you as a customer figure that your service provider has used data to customise your experience.

I’m in Barcelona, and wanted to withdraw cash from my Citibank account in India. Withdrew once, but when I wanted to withdraw more, the transaction didn’t go through (this happened multiple times, at multiple ATMs).

Frustrated, I figured that this might be due to some limits (on how much I could transact per day), and then decided to get around the limitations by transferring some money to my HDFC Bank account (since I’m carrying that debit card as well).

An hour after I’d transferred the money by IMPS, I put my HDFC Debit Card in my wallet and walk out, when I see an email from the bank informing me that my Debit Card is valid only in India, and with a link through which I could activate international transactions on it.

I’d never received such emails from HDFC Bank before, so this was surely in the “creepy” category. It might have been sent to me by the bank at “random”, but the odds of that are extremely low. So how did the bank anticipate that I might want to use my debit card here, and send me this email?

I have one possible explanation, and if this is indeed the case, I would be very very impressed with HDFC Bank. Apart from my debit card, I also have a credit card from HDFC Bank, which I’ve been using fairly regularly during my time in Europe (that my only other credit card is an AmEx, which is hardly accepted in Europe, makes this inevitable).

My last transaction on this credit card was to pay for lunch today, and so if HDFC Bank is tracking my transactions there, it knows that I’m currently in Europe (given the large number of EUR transactions recently, if not anything else).

Maybe the bank figured out that if I’m abroad, and have transferred money by IMPS (which implies urgency) into my account, then it is for the purpose of using my debit card here? And hence they sent me the email?

The counterargument to this is that this is not the first time I’ve IMPSd to my HDFC Bank account during this trip – the Income Tax and Service Tax websites don’t accept Citibank, so I routinely transfer to HDFC to make my tax payments. So my argument is not watertight.

Yet, if the above explanation as to why HDFC Bank guessed I was going to use my debit card is true, then there are several things that HDFC Bank has got right:

  1. Linkage between my bank account and credit card. While I’ve associated both with the same customer ID, my experience with legacy systems in Indian financial institutions means actually associating them is really impressive
  2. Tracking of my transactions on my credit card to know my whereabouts. If HDFC has done a diligent job of this, they know where exactly I’ve been over the last few months (provided I’ve used my card in these destinations of course).
  3. Understanding why I use my account. While I’ve IMPSd several times in the past (as explained above), it’s all been in either the “service tax season” or “advance/self-assessment income tax season”. Mid-May is neither. So maybe HDFC Bank is guessing that this time it may not be for tax reasons?
  4. Recognising I might want to use my debit card. If I’ve put money into my account and it’s not tax season, maybe they recognised I might want to use my debit card?

Maybe I might be giving them too much credit, and it just happened that the randomly sent out email came at the time when I’d just put the money into the account.

And the link they sent to enable international transactions worked! I had to use my laptop (it didn’t work on either the app or mobile web, so that’s one point deducted for them), but with a few clicks after logging into my bank account, I was able to enable the transactions!

So maybe there is reason to be impressed!