Arranged Scissors 12 – Rejection Sharing Agreements

This is similar to the Klose-Podolski corollary to the Goalkeeper Theory. To refresh your memory, or to fresh it in case I haven’t mentioned this earlier, the Klose-Podolski corollary refers to a case of two close friends who decide to hit on the same person. The implicit understanding is that they don’t regard each other as rivals but blade together, and first get rid of all the other suitors before they engage in one last showdown so that the bladee picks one of them.

We came up with this corollary to the Goalkeeper Theory shortly after the 2006 Football World Cup, during which Klose and Podolki formed a cracking strike partnership for Germany. Later on, they were to play together for Bayerrn Munchen, but like most Klose-Podolski arrangements, they too ended up in bitterness with Poodolski (who scored the lesser number of goals among the two) publicly voicing his bitterness and finally transferring to his “native” Koln.

Now that the crazy digression is out of the way, let me get to the point. Today is the first day of Navaratri, and with the inauspicious “Mahalaya Paksha” having gotten out of the way, arranged scissors is back in full earnest. This also means that I re-enter the market, though I’m still yet to list myself (don’t plan to for a while at least. OTC is said to give superior valuations). And some casual conversation and some not-so-casual phone calls this morning, I have been thinking of the arranged marriage equivalent of the Klose-Podolski arrangement.

So basically, as part of this arrangements, two parties who are looking to hit the same side of the deal strike a deal to share “rejection information” with each other. “Rejection information” can be of the following two types:

  • Today I found out about this girl. She seems to be really good in most respects – good looking, rich, good family background, virgin and all that. But for some (usually random) reason, my son doesn’t want to marry her. Why don’t you try her for your son?
  • Today I found out about this girl. Talked to her, her parents, etc. Doesn’t seem like a good prospect at all. She is either ugly or too “forward” or her family background is bad. I think the chances of her getting along with your son is quite low. Don’t waste your time with her.

Note that both of this is extremely useful information, especially in an illiquid market. What is important here is the nature of people with whom you strike such agreements. The basic thing is that your correlation with them should neither be too low nor too high. Ideally, they should belong to the same/similar caste, should have a fairly similar family background, etc. but the boys shouldn’t be too similar. Yeah, I think that is a fair criterion – they should be as similar as possible in terms of “arranged criteria” but as different as possible in terms of “louvvu criteria”.

Basically if the correlation is too low, then you can’t really trust their judgment on counterparties. On the other hand, if the correlation is too high, then it is extremely likely that they turn out to be “rivals” and that if one party rejects a girl, it’s unlikely that the other party will like the girl. I supppose you get what I’m talking about.

One downside to such agreements that I can think of – it might cause bitterness later on in life, long after the goal has been scored. The feeling that “this guy married a girl that I rejected” or the other way round might come back to haunt you later on in life.

Intellectual Property

A blog post earlier this month on Econlog finished off with a very strong quote by Friedrich Hayek:

One of the forms of private property that people cherish most is their ideas. If you convince them that their ideas are wrong, you have caused them to suffer a capital loss.

I ended up liking it so much that I added it to my work email signature. Thinking about it further, why is it that some people are more open to debate than others? Why do some people admit to their mistakes easily while others are dogmatic about them? Why do some people simply refuse to discuss their ideas with other people? I think Hayek’s observation offers a clue.

Let us consider two people – Mr. Brown and Mr. Green. Mr. Brown believes in diversification, and his investments are spread across several financial instruments, belonging to different categories, with a relatively small amount of money in each of them. For purposes of this analogy, let us assume that no two instruments in his portfolio are strongly correlated with each other (what is strong correlation? I don’t know. I can’t put a number on it. But I suppose you get the drift)

Mr. Green on the other hand has chosen a few instruments and has put a large amount of money on each of them. It is just to do with his investment philosophy, which we shall not go into, as this is just an analogy.

Let us suppose that both Mr. Brown and Mr. Green held Satyam stock on 6th January 2009. They were both invested in Satyam according to their respective philosophies – and the weightage of Satyam in their respective portfolios was also in line with their philosophies. The next day, 7th of January, the Satyam fraud came out. The stock crashed to a tenth of its value. Almost went to zero. How would our friends react to this situation?

Mr. Green obviously doesn’t like it. A large part of his investments has been wiped out. He has become a significantly poorer man. For a while he will be in denial about this. He will refuse to accept that such a thing could happen to one of his chosen stocks. He will try to convince himself that this fall (a 90% fall, no less) is transient, and the stock will go back to where it once was. As days go by, he realizes that his investments have been lost for ever. He is significantly poorer.

Mr. Brown will also be disappointed by the fall – after all, he too has lost money in the fall. However, his disappointment is mitigated by the fact that the loss is small compared to his portfolio. There have been other stocks in his portfolio which have been doing well, and their performance will probably absorb the Satyam losses. Some of the stocks in his portfolio may also be fundamentally negatively correlated with Satyam, which means they will now gain. There is also the possibility that the Satyam fall has opened up some new possible areas of investment for Mr. Brown, and he might put money into them. It is much easier for Mr. Brown to accept the fall of Satyam compared to Mr. Green.

So you replace stocks by ideas, and I suppose you konw what I am gettting at. The degree of openness that people show with respect to an idea they have varies inversely with the share of this particular idea in their “idea portfolio”. The smaller the proportion of this idea, the lesser will be the “capital cost” of their losing the idea. And hence, they will be more open to debate, to discussion, to letting someone critically examine their ideas. If the proportion of this particular idea in their overall portfolio is large, there will obviously be resistancce.

A corrolary of this is that when someone possesses a small number of ideas they are more likely to be dogmatic about them (I am using the indefinitive “more likely” here because even when you have a small number of securities in your portfolio, your exposure to some of them will be really small and so you’ll be less unwilling to lose them. Though I must point out that people with small ideas portfolios become so used to madly defending the big ideas in the portfolio that they start adopting the same tactic for the smaller ideas in their portfolio and become dogmatic about them – which is irrational).

I just hope I didn’t cause you a capital loss by writing this. For me, on the other hand, this was a bonus stock.

Car Ownership

People, especially in the US, make a big deal about home ownership. In fact a large part of the current economic meltdown has its roots in the American craze for home ownership. Fannie and Freddie were created to help home loans become cheaper, then there was the CDO wave. Then came subprime. NINJA (no income no job amortized). All that. Boom. Bust. Jai.

A related concept that no one seems to talk about is car ownership. They say that the safety of a neighbourhood goes up if the proportion of owner-occupied homes goes up. And this is the underlying theory behind most of the home ownership craze.

|||ly, road safety is directly proportional to the proportion of owner-driven vehicles on the road. Take Bangalore for example. Till the late 90s, the traffic there was excellent and well-behaved. Some roads were already clogged, yes. But drivers were in general very well behaved. And the reason behind that was that most people owned their bikes and cars. They had a greater incentive to make sure that there was no damage done to their vehicles nad drove more carefully.

Yes, personal safety also plays an impact and is independent of whose vehicle the driver is driving, but I think in the progression of severity of accidents, vehicle safety gets compromised before personal safety. In other words, there is a one-way implication here – if you drive keeping in mind the aim of not damaging your vehicle, it is more likely that you are not going to get injured. The reverse doesn’t necessarily hold. And that is why car ownership is so important.

So what happened in Bangalore in the early 2000s when traffic suddenly became horrible? This thing called BPO happened, which brought with it the mostly chauffeur-driven taxis. Now, on one hand, these guys had perverse incentives as their efficiency was measured on the speed from which they got from point A to point B. Apart from this, most of them were not driving their own vehicles (this was a departure from the earlier wave of taxis and autos, most of which were owner-driven) and so they didn’t care so much about damaging their vehicles, which led them to drive more rashly.

Similar is the case with Delhi, which is known to have always had horrible traffic. Being the political capital, Delhi has always had a reasonably high proportion of chauffeur-driven cars. Which is why, for a long time, its roads have been known to be rasher than roads in other cities. And things still haven’t improved.

The thing with car ownership is that it forms a positive-feedback loop. Suppose the number of chauffeur-driven cars goes up. Then, the traffic in general becomes more rasher. And driving becomes more of a headache for you. Which increases your incentive to employ someone to drive your car. Which further pushes up the proportion of chauffeur-driven cars. This is what has happened in Delhi over the last 50 years. This is what has happened in Bangalore over the last 10 years.

In order to make our streets safer, we need to incentivize people to drive their own cars and bikes (one clarification – by own, I mean either your own or something that belongs to close family or friends; in both cases, incentive to keep vehicle safe is high). If I’m not wrong, people can claim tax exemption against the salaries they pay their driver. This needs to go first. Next, insurance companies need to have different levels of payout for self-driven and driver-driven accidents (I know this is going to be hard to be implement).

Yes, this might increase unemployment since driving other people’s vehicles is a major occupation nowadays. But is greater unemployment too high a price in order to ensure greater safety? (ok I can quickly think of one counterargument for this – if people become unemployed, the chances they’ll become goons rises, which makes society in general less safe)

Sit down behind the wheel, and be counted. Say no to drivers. Drive your own car. It is in your own, your car’s , other people’s and other people’s cars’ interest. You don’t need to be driven. You need to be in the driver’s seat.

Recession notes

Over the weekend I spoke to a few friends, over phone and GTalk. And enquired about their business. Some interesting insights:

  • On Saturday, I spoke to this guy who is a banker in the City of London. He says that one major fallout of the global economic crisis is that the financial markets have become highly inefficient.
  • Knowing that they won’t get bonuses, he says, bankers have no incentive to arbitrage these inefficiencies. Sadly, people refuse to believe that investment bankers perform socially useful and productive work
  • Yesterday, I was talking to this guy who runs a manufacturing SME. He says that apart from one really bad month (January) when orders fell over 50%, he is doing quite well.
  • Thanks to the downturn, a few manufacturing shops have shut down in various places in Europe. Now, the erstwhile customers of these erstwhile manufacturing shops are looking towards India for their sourcing. My friend is hopeful of bagging one such contract.
  • Thanks to the downturn, firms are integrating their manufacturing. For example, a prominent stationery manufacturer has decided to manufacture 100% of its products from its plants in India. My friend has been a long-term supplier to the india plant of this particular manufacturer, and now expects to get more business from them.

Interesting stuff overall.


I’m trying to understand the significance of attending another person’s wedding. It is very unlikely that you are going to add any significant value to the process, since the person who invited you is likely to be extremely busy with the process. Unless you know one of the main people involved in the wedding really well, there is a finite probability that your attendance might not be noted also (just in case the photographer is not diligent enough).

Of course, weddings give you the opportunity to network. Especially if it is a noisy south indian setting (I’ve attended one north indian wedding so far, and what put me off was the requirement to stay silent during the proceedings) or a reception. It is a good excuse for you to catch up with all those people who belonged to the same affiliation group as you and the person who invited you. It is a good opportunity to expand your social circle.

Back in the 1980s, when I was a kid, one of the great attractions of weddings was the food. Bisibelebath was a special item back then, as were the various “wedding special” sweets. Some of the more affluent folk would also offer ice cream for dessert (that has become a common thing now, especially for receptions). The food on its own was enough to make me look forward to weddings. Over time, the general quality of wedding food has dropped. And the general quality of food in restaurants has increased well at a faster rate. So you don’t need to go to a wedding for the food anymore.

Historically, I’ve been fairly social. I’ve usually attended all functions that I’ve been invited to, especially if it’s in the same city. I admit I haven’t really travelled too many times to attend weddings but done short trips (such as Bangalore-Mysore) occasionally. I’ve always calculated that the cost (time, travel, etc.) of attending a wedding is not much in terms of potential benefits in terms of networking, catching up, expanding circle, etc. Of course, I need to admit that over the last couple of years, NED has been part of the equation, and there have been a few occasions when I’ve worn a nice shirt and then backed off from going.

It is all fine when travel is local, where NED is perhaps the only thing that can tilt the balance in favour of not attending the wedding. When you live away, the whole equation changes. The cost of travelling goes up dramatically (in terms of time, money and inconvenience). The climb is especially steep if you live a flight away, rather than just a train journey away. What used to be borderline cases when the distance was small now dussenly become absolute noes. The obvious ayes become borderline cases. And in some cases obvious ayes become obvious noes. It is only when a wedding happens in your new city that what were obvious noes become obvious ayes.

Four months ago, my cousin (father’s brother’s daughter) got married in Bangalore. If I were in Bangalore, it would have been an emphatic aye. In fact, it’s likely that I’d’ve volunteered to take up a significant number of duties at that wedding. However, the way things turned out (my being in Gurgaon), it wasn’t tough to declare that as a noe. The work that I would’ve otherwise volunteered for suddenly became “work”, became a “cost”. Combined with a couple of other factors, it turned out to be a fairly obvious noe. And I don’t think anyone really minded.

It seems to be the season for friends to get married, especially juniors from IIMB. Two of them who have just got married to each other are having their reception tonight 100m away from my Bangalore house. A case that would have been an overwhelming yes, now become borderline. Remember that NED to travel varies with the travel-cost in a super-linear fashion, and I think it is that which has turned today’s case into a no. There have already been a few other weddings in the season for which I’ve convinced myself with a similar reason. And there are more.

So I ask myself once again – why should I attend someone’s wedding? I have so far been putting the obvious variables into my calculation – netwroking opportunity, goodwill, opportunity to catch up with people, side effects (a wedding in Bangalore is a good excuse for me to visit Bangalore, etc.), travel costs, chance of occurrence of NED, how much ‘work’ it will be, etc. and have been trying to base my decision on these.

Is there something I’ve missed out? Is there something else that I need to consider which might change the costs and benefits of going? Coming back to the more fundamental¬† question, why should I attend someone’s wedding?

Arranged Scissors 3 – Due Diligence

One of the most important parts of the arranged marriage process is due diligence. This is done at various levels.¬† First there is the parental due diligence – and the first thing that is done is to check if the counterparty’s parents and other close relatives are financially sound. Then there is a check run on the counterparty’s siblings and cousins – to make sure that moral fibre is of the highest quality. And last but not the least, there is personal DD, which is the most interesting.

Of particular interest is the counterparty’s past affairs. This wasn’t much in the limelight till about 10 years back when there was a case where a girl got her arranged fiance murdered since she wanted to marry her boyfriend. After that, people who had so far been in denial regarding people’s boyfriends and girlfriends woke up to the fact that they needed to check if the other party was single as claimed. Nowadays, people go great lengths in order to check this.

Last month I received a call from my friend who told me that one of his friends was “in the market” and was in the process of checking out an acquaintance of mine. So this friend asked me to do a background check on this acquaintance. And I called up one friend who called up another friend who confirmed that this girl was indeed very “decent” (at least that was the message I got- considering that there were two channels of communication before me, I don’t know what the actual message was) and I propagaed it (I promise I didn’t distort it).

Then, there is this uncle who is well-connected. Ok I’m digressing a bit – this is not about arranged marriage, but since we are on the topic of due diligence, this example deserves merit. So this uncle who is well connected wanted to do a background check on his daughter’s boyfriend. Not knowing any other common link, he did what he knew well – pulled strings. The boy used to work for a fairly large IT company and my uncle managed to get in touch with the boy’s HR director and got confidential character files pulled out in order to confirm that his daughter had indeed chosen a decent guy.

One other reason why due diligence may have in fact become easier is because now people post considerable amount of information online. A combination of orkut, facebook, linked-in, blog and twitter profiles is enough to determine enough about a person’s character, I think. And most people (at least in the market segment that I’m in) will have at least one of these. So all you need to do is to find someone who has access to this person’s orkut/facebook profiles and you are through. In fact, I’m planning to add my facebook, twitter, blog and linkedin links to my email signature when I write “expression of interest”/”expression of contact” mails (more about those mails in another post), thus saving the counterparty valuable time and money she might have otherwise spent on due diligence.

The problem with such widespread due diligence is that you need to keep people who you don’t like in your good books. Becauase due diligence works on a “no second chance” principle. Most people collect data from a number of sources. And if at least one of those sources says “indecent” then jai only. Death only are there for inherently unpopular people like me (i’ve recently discovered that I’m a hard person to like; and it takes people considerable effort to start liking me). The fact that I’ve one time or the other ended up pissing off at least half my extended family makes me wonder if I should exit this market and go back to the old-fashioned way of trying to find someone for myself by myself. That much said, I think I’ve applied enough maska on extended family members who I think are well-connected.

I think if this whole due diligence process gets documented well, then it could make for some interesting social network analysis. How does someone try to find someone who might know you? What is the average number of steps that one needs to follow in order to find someone who knows this counterparty? What kind of people are likely to be more involved in writing due diligence reports – people who are very well connected or the quiet types? Does an increased online presence have any effect on the amount of due diligence that various counterparties do?

I don’t know how one can find good data for this.


Arranged Scissors 1 – The Common Minimum Programme

Arranged Scissors 2

Year Ending Post

Last december 31, I wrote a this day that year post. Two years back, I had published a short story. The year before, I had written about the events of the day, and one year prior I was mugging for what was going to be a disastrous marketing exam. As I am writing this, I’m playing scrabble on facebook, and bridge with my computer. I’m listening to music, and am planning to hit the sack soon.

This afternoon I received a mail from my boss, which he said is a standard format mail he sends to friends and colleagues. It was full of pictures of him and his wife and his kids, and stories about what they did this year. About the changes and special events in each of their lives. About how the year has been from different perspectives. And so forth. I think I have received a couple of other similar mails (from US based people – this might be some american funda; my boss also lived in America till early this year) from other acquaintances (though, without pics) which I haven’t bothered to read. Since I’m clueless about what to write, I think I’ll just do a standard year-end roundup.

The most significant thing for me was my move to Gurgaon, and to this new job. That had been preceded by four months of joblessness, and more than two years of acute NED (in fact, I think it was during this period of extended NED that I actually invented the term NED).

The concept of NED also seemed to advance by leaps and bounds this year. I have heard of people who are at least three degrees away from me use it. The message of this concept seems to be spreading. I am sure that one day it will be famous, but then I’m not sure if I, as its inventor/discoverer, will get due credit.

Another significant event of the year has been the movement of this blog from livejournal to its present location. I must mention that this website has been like “glad bangles” for me. A week after I inaugurated this, I had a nice job offer, ending over a year of NED. There were a few other changes also in my life around that time, which I don’t remember now. What I do remember was classifying this website as “glad bangles”. and I like this better than Mad Angles.

On the louvvu front, it was a very quiet year, apart from one quick episode. Maybe one of the least productive years – comparable, maybe, to my years back in IIT.

Ok I think NED is happening. i just resigned my scrabble game. I had resigned my bridge game ages back, and I’d closed the program. I’m feeling sleepy now. So I’ll close it here. Happy new year. And I think this is the worst year-ending post that I’ve written in a long time. This website maybe deserved a much better new year post in the year end but it’s ok.