Tag: tipping point

Market forces

This morning I refused to board an auto rickshaw since it had one of those old analogue metres. Most autos in Bangalore nowadays use digital metres, which is the regulation. Except a few like the one I saw in the morning.

Now, given that most autos have digital metres people have a choice to choose only such autos. I’m sure the driver I met this morning will realise soon enough that he’s not getting as much business as he can due to his old metre, and make the switch.

It’s similar with usage of metres. In some parts of Bangalore it’s the norm for auto rickshaws to ply by metre. In such areas any driver who tries to make a quick buck by negotiating a higher fare is likely to lose customers. When a customer knows that after letting go of an auto which asked for excess fare, he had a good chance of finding one that will go by the regulated fare, he is less likely to heed to the demand for excess fare.

You can think of this being a case of what Malcolm gladwell calls the tipping point – once markets have tipped to one side (let’s say using regulated fares for auto rides) there is positive reinforcement that leads to an overwhelming move in that direction.

To get back to the metre example, when the fares increased a few months back traffic cops in Bangalore ran a drive where they checked for auto metres and fined those who had not made the switch by a particular date. Maybe that’s led to about 95% of the metres getting recalibrated. The beauty here is that market forces will take care of pushing this 95% to 100% and cops need not spend any more time and energy on enforcing this! Similarly if cops want to enforce usage of regulated  fares they would waste time by doing this drive in areas where most rides are by metre – the focus should be on tipping the other areas over!

To summarise, some parts of regulation gets enforced by sheer market forces, and regulators should not be wasting their energies there. Focus should instead be given to those areas where market failure is extreme – for that is where regulation has a role to play.

Outliers – Notes

Last evening I borrowed Malcolm Gladwell’s Outliers from the library. Finished off reading it in one sitting this morning. I had been disappointed with his earlier book (The Tipping Point) and have been describing it as a blog post that has been written in 200 pages.

Outliers, on the other hand, is significantly better. For starters, there is a really nice narrative style which goes the book going. Having read the book, I still haven’t understood the central idea of it, but there are enough interesting sub-plots and side-fundaes that it’s worth reading. Some notes.

  • The second chapter of the book hints that you need to spend a considerable amount of time fighting it out at something before you become a stud in that. Gladwell claims there are no “natural studs” at anything, and people become studs at something only after reasonable effort. I think the key is on taking that step up to studness after you have put enough fight, and some people (pure fighters) don’t seeem to do that
  • There is tremendous non-linearity in the world, and this is a point that Nassim Taleb had also made in Fooled by Randomness. Basically, there are some discrete steps. For example, if I had applied the brakes even one second earlier, I could’ve prevented the car crash I was involved in this April. One extra mark here or there can change a candidate’s JEE rank by 500 places, and totally change his life. Etc.
  • Gladwell talks about “honor cultures” – where people tend to take offence easily. He claims that this kind of culture is more prevalent in pastoral communities where people need to be more aggressive and possessive. When I read about “honor cultures”, I was reminded of Rajasthan, and the Rajputs there going to war on one another on trivial “honour issues”, and Prithviraj Chauhan using “honour” as the excuse for supposedly pardoning Mohd Ghori in the first battle of Tarain in 1190. Was Rajasthan a traditionally pastoral society in those days?
  • The Power Distance Index that he talks about makes sense, but unfortunately India is not mentioned in the studies that he quotes. I would expect India to have a fairly high power distance index, but I’d also be interested in seeing if India’s PDI varies regionally – I would expect it to be higher in the north than in the south
  • A while back, I had written one reason as to why there doesn’t exist a strong breakfast culture in North India. Gladwell’s chapter on rice cultivation inspires an alternate reasoning. He claims that rice farming is much harder than wheat farming, and the former tends to take longer hours, and occupies a larger proportion of the year. Maybe due to the longer hours, south indians felt the need for three meals a day, while two were sufficient in the north. Also, rice digests quicker than wheat, so eating at more frequent intervals is warranted.
  • The epilogue, in which Gladwell talks about his mother’s family, gives an indcation about the “race system” in Jamaica. Compared to our caste system, which is discrete, Jamaican discrimination is on a continuous scale which has several shades of brown between black and white. Also, this continuous scale means that a child lies somewhere on the colour line between his father and his mother, and his standing in society is determined by his own colour. On the other hand, in the Indian caste system, rules dictate that the child belongs to either the father’s or the mother’s caste. Interesting to see how much of a difference this has made in general economic development.

I know a lot of this might not make sense to you if you haven’t read the book. I have just noted some headline points here. If you need more fundaes, leave a comment with your question and I’ll write about it.

And I would definitely recommend you to read the book. Nice quick read it is.