Jekyll2021-11-09T00:14:35+00:00https://pj-paul.github.io/feed.xmlPJ PaulPersonal blog. Usual disclaimers.
PaulComparing Affirm and AfterPay — The Yin and Yang of BNPL2021-10-15T00:00:00+00:002021-10-15T00:00:00+00:00https://pj-paul.github.io/fintech/2021/10/15/affirm_afterpay<div id="table-of-contents">
<h2>Table of Contents</h2>
<div id="text-table-of-contents">
<ul>
<li><a href="#orge292d05">Summary</a></li>
<li><a href="#org7c06b5c">Affirm gets twice the juice for the same GMV</a></li>
<li><a href="#org5d02382">However, AfterPay's higher book turnover generates higher return on invested capital</a></li>
<li><a href="#orgea458a9">Affirm and AfterPay are distinct bets on the evolution of US ecommerce and payments.</a></li>
</ul>
</div>
</div>
<div id="outline-container-orge292d05" class="outline-2">
<h2 id="orge292d05">Summary</h2>
<div class="outline-text-2" id="text-orge292d05">
<ol class="org-ol">
<li>Affirm and AfterPay deploy diametrically different business models. While Affirm monetizes both the merchants and the customers on its platform, AfterPay predominantly relies on Merchant Discount Rates for monetization with minimal interest burden on customers. This results in Affirm generating revenues similar to AfterPay's on a GMV only half as large.</li>
<li>However, in choosing to monetize both sides, Affirm finds itself servicing higher Average Order Values ($500+ v/s $150) with a longer receivables cycle (5 Receivable turns per year v/s AfterPay's 17 turns per year) leading to significantly lower aggregate yield on capital.</li>
<li>As such, Affirm and AfterPay represent divergent bets on the evolution of American eCommerce and spending power. AfterPay is a demand curation service combined with a checkout lubricant. AfterPay's focus is on discovery and conversion in the high frequency/ low-value space, while Affirm is an affordability solution. AfterPay's marketing and discovery DNA will continue strengthen following its merger with Square.</li>
</ol>
</div>
</div>
<div id="outline-container-org7c06b5c" class="outline-2">
<h2 id="org7c06b5c">Affirm gets twice the juice for the same GMV</h2>
<div class="outline-text-2" id="text-org7c06b5c">
<p>
The chart below compares the GMV processed by Affirm and AfterPay over the last three years. AfterPay has consistently dominated Affirm in GMV processed. AfterPay's broader merchant base (100K merchants in FY2021, with 28K in USA) and a larger customer base (16.2 Mn in FY 2021 v/s Affirm's 7.1 Mn) allow it to rack up consistently large GMV numbers. However, it is Affirm that earn more revenue per dollar of GMV serviced.
</p>
<p>
<p align="center"><img src="/docs/affirm_afterpay/GMV_Revenue.png"/></p>
</p>
<p>
Affirm monetizes its GMV better by charging both the merchants and the customers. Merchants are on average charged a discount rate of ~4.5% and customers are on average charged an interest rate of ~4% as part of Affirm's monetization strategy.
<p align="center"><img src="/docs/affirm_afterpay/Revenue_Share_GMV.png"/></p>
</p>
<p>
In order to justify the higher charges, Affirm focuses on high-value transactions where affordability can be a concern.
</p>
</div>
</div>
<div id="outline-container-org5d02382" class="outline-2">
<h2 id="org5d02382">However, AfterPay's higher book turnover generates higher return on invested capital</h2>
<div class="outline-text-2" id="text-org5d02382">
<p>
Affirm's higher margins on GMV come with a catch: Affirm needs to wait longer to collect back the loans it made to customers. This means that Affirm needs more capital than AfterPay to service the same amount of GMV.
</p>
<p>
The graph below shows how many times Affirm and AfterPay turn their receivables book around. We see that AfterPay rolls their receivables an average of 17 times, almost once every three weeks. In contrast, Affirm rolls their book only 5.5 times; in other words it takes Affirm over two months to collect back and re-issue an earlier loan.
</p>
<p>
<p align="center"><img src="/docs/affirm_afterpay/Receivables_Turnover.png"/></p>
</p>
<p>
AfterPay's ability to roll its book faster allows it to compensate for the lower Gross Margin it earns on GMV. The graph below shows the ratio of Net Revenue to the average balance of receivables on Affirm's and AfterPay's book. AfterPay's advantage from its faster turnover is evident.
</p>
<p>
<p align="center"><img src="/docs/affirm_afterpay/ROIC.png"/></p>
</p>
<p>
Affirm recognizes this yield calculation in their S-1 filing. From page 97, we see
</p>
<blockquote>
<p>
As an annualized percentage of average loans held for investment,
total interest income decreased from approximately 21% to 18%. This decrease was driven by an increase in
the amount of 0% APR loans being held on our balance sheet as a percentage of the total loans held for investment, which averaged 27% during the three months ended September 30, 2019, compared to 45% during the three months ended September 30, 2020. The shift was largely due to strong volume of longer-term 0% APR loans.
</p>
</blockquote>
<p>
Affirm might be angling for a slice of this low-value, high-frequency pie. Affirm's recent partnerships, with Spotify and Amazon, and product launches like the Debit+ card suggest that Affirm is at least slightly interested in low-margin, high-frequency transactions. However, it's unclear if Affirm's origination bank partners would be comfortable processing such smaller ticket size loans.
</p>
</div>
</div>
<div id="outline-container-orgea458a9" class="outline-2">
<h2 id="orgea458a9">Affirm and AfterPay are distinct bets on the evolution of US ecommerce and payments.</h2>
<div class="outline-text-2" id="text-orgea458a9">
<p>
The following 2x2 diagrams summarize the Yin-Yang nature of Affirm and AfterPay.
</p>
<p>
<p align="center"><img src="/docs/affirm_afterpay/TicketSize_Duration.png"/></p>
</p>
<p>
Affirm is primarily an affordability play, rather than a discovery play. As such Affirm is spiritually closer to (and will need to compete closely with) credit cards. The archetypal products serviced by Affirm are consumer durables like Peloton (Peloton contributes roughly a third of Affirm's revenue). Expect Affirm to become entrenched in the space of high-margin, high-value consumer goods that are purchased after significant research and deliberation.
</p>
<p>
AfterPay on the other hand is a marketing and discoverability partner for the growing Direct-to-consumer market with the credit feature serving more as lubricant to reduce friction at checkout. AfterPay's future lies in turbo-charging impulse purchases driven increasingly through direct to customer marketing campaigns. AfterPay's highly engaged users (Average of 6.5 transactions per year v/s Affirm's 2.3 transaction) provides it an advantage by generating rick SKU-level data to train predictive models for targetted advertising and marketing campaigns. AfterPay is a bet on the power of marketing; Affirm is a bet on the power of credit.
</p>
</div>
</div>PaulAffirm and AfterPay are diametrically different in how they locate themselves on the Margin-Turnover grid. While Affirm monetizes its GMV at twice AfterPay's rates, AfterPay more than makes up for this with their higher turnover of the receivables book. The new effect is for AfterPay to have a significantly higher yield on their average capital invested.Lessons for FedNow from India’s UPI miracle2021-08-01T00:00:00+00:002021-08-01T00:00:00+00:00https://pj-paul.github.io/fintech/2021/08/01/Lessons-UPI-Success-Fednow<div id="table-of-contents">
<h2>Table of Contents</h2>
<div id="text-table-of-contents">
<ul>
<li><a href="#org1b835e5">Summary</a></li>
<li><a href="#org220529d">The UPI miracle and some questions</a></li>
<li><a href="#orgdd4bd48">UPI's Secret Sauce</a>
<ul>
<li><a href="#org8a8ba78">Smoother integration with banks via containerized applications</a></li>
<li><a href="#org57c7b57">Unbundling 'servicing' from 'ownership' of customer accounts:</a></li>
<li><a href="#orgde5e838">Generous servings of luck and network effects</a></li>
</ul>
</li>
<li><a href="#org90db81a">Lessons for FedNow</a></li>
</ul>
</div>
</div>
<div id="outline-container-org1b835e5" class="outline-2">
<h2 id="org1b835e5">Summary</h2>
<div class="outline-text-2" id="text-org1b835e5">
<p>
In 2023, Federal Reserve of USA plans to launch 'FedNow' – a peer-to-peer payment network with instant settlement. This essay reviews the experience of India's Unified Payments Interface (UPI) – one the world's most successful publicly operated P2P instant-settlement payment networks – and identifies key lessons for FedNow.
</p>
<p>
Two features were central to UPI's revolutionary success:
</p>
<ol class="org-ol">
<li>The modular design of UPI's backend made it easier for banks to integrate into the UPI network.</li>
<li>UPI's unbundling of the 'servicing' of customer accounts from the 'ownership' of such accounts created opened significant UX and regulatory arbitrage and opened the door for mammoth investments by Google Pay, PhonePe and other customer-facing applications.</li>
</ol>
<p>
The lessons for FedNow are straightforward:
</p>
<ol class="org-ol">
<li>Design developer tooling to provide a smoother integration experience for potential member banks. USA's financial system is extremely fragmented compared to India, with deposit taking banks numbering over 10,000 – without appropriate tooling, comprehensive coverage may take several years to achieve.</li>
<li>Unbundle 'servicing' from 'control' of customer accounts, and allow third party access to 'servicing' APIs.</li>
</ol>
</div>
</div>
<div id="outline-container-org220529d" class="outline-2">
<h2 id="org220529d">The UPI miracle and some questions</h2>
<div class="outline-text-2" id="text-org220529d">
<p>
The UPI, or Unified Payments Interface, is a semi-public payments protocol operated by an umbrella organization of India's banks; think Visa but for mobile payment and operated by a public-ish entity. UPI moves about 10 % of the total retail payment volumes in India — that's about 3.5Bn transactions per month. UPI apps, which include Google Pay, Amazon Pay, and Facebook's Whatsapp have more than 150 Mn active users between them.
</p>
<p>
Looking back, the rise of UPI in India has been nothing short of a miracle. Less than five years ago, in 2016, India retail customers made transfers worth $3.2 Trillion. Most of these funds were transferred using NEFT, which clocked around 100 Million transactions a month. Card network transactions were growing at 30% per year, and PayTM was fast emerging as the preferred mode of peer-to-peer payments. Fast-forward to the present, and UPI strides upon the Indian payments arena like a Colossus; IMPS, and the card networks lie vanquished. Private payment players like PayTM have mostly joined forces with UPI. Card networks actually lost share in transaction value in this intervening years. The UPI has truly become the one interface to rule all payments.
</p>
<p>
How did this happen? How did UPI – owned and operated by a quasi-government entity of all governance structures – come to dominate digital payments in India, building a customer base of several 100 millions of users, all within a span of 4 years? For context, it took Facebook and Twitter, with all their virality and global reach, the same time to reach 100 million users.
</p>
<p>
What explains this radical, miraculous success of UPI? While the fall in costs of data and smartphones that occurred after 2010 was a necessary condition for the emergence and growth of UPI, that alone cannot explain why UPI emerged as the preferred payment mode over other incumbents such as the Central Bank operated IMPS. Even though may rightly point to the demonetization of Indian currency in 2016 as a cruel catalyst for the initial adoption of UPI, that alone cannot explain UPI's sustained growth since then, or the decline of Paytm — the dominant payment incumbent at the time of demonetization with a wider network of merchants.
</p>
<p>
I propose that UPI's success boils down to two design decisions at the heart of the protocol's design:
</p>
<ol class="org-ol">
<li>At the technical level, UPI's minimalistic backend interface required banks CBSs to implement only two APIs to integrate into UPI. This minimized the effort required to onboard banks onto the UPI network.</li>
<li>At the customer-facing level, UPI made it possible for customers to securely operate their accounts held a regulated banks through applications designed and operated by non-Bank, unregulated entities like Google Pay. This arbitrage in regulatory overhead without a trade-off in delightful customer experience by this decision was the biggest reason for the success of the success of UPI.</li>
</ol>
</div>
</div>
<div id="outline-container-orgdd4bd48" class="outline-2">
<h2 id="orgdd4bd48">UPI's Secret Sauce</h2>
<div class="outline-text-2" id="text-orgdd4bd48">
</div>
<div id="outline-container-org8a8ba78" class="outline-3">
<h3 id="org8a8ba78">Smoother integration with banks via containerized applications</h3>
<div class="outline-text-3" id="text-org8a8ba78">
<p>
At the bare-metal level, UPI's underlying code was designed to minimize the integration effort it took for banks to join the network. Integration efforts are one of the biggest blockers in the path of substantive improvements in Indian banking. For instance, in 2019, when the Indian government merged six state-owned banks, the choice of which banks to merge with which other boiled down to the technological compatibility of their respective backend systems.<sup><a id="fnr.1" class="footref" href="#fn.1">1</a></sup> To avoid the same fate, the UPI team needed to make it easy for banks to plug into the network they had created, irrespective of their backend technology. Their solution was to develop a ready-made software module to handle most of the core administrative tasks involved in processing transactions, along with minimizing and standardizing the points of contact between this module and the rest of the bank's core-banking systems.
</p>
<p>
Consider the life cycle of a customer on a payments network. Such a customer would first need to register herself and link her registered identifiers like a unique handle and a look-up to an underlying account, that customer would also need to set some kind of authentication mechanism for transactions, and of course, she should be able to perform debit transactions, receive credit transactions, and also perform ancillary services such as fetching the balance of her linked account and a list of past transactions. All of these routine administrative tasks and operations could be standardized and externalized into a single module, instead of asking the banks to develop their custom implementations. Even if banks could reliably implement those tasks and operations, idiosyncratic variations between the implementations of each bank lead to conflicts and roadblocks in the future developments of UPI.
</p>
<p>
The UPI team's solution leveraged a concept known as 'containerization', where the code and the surrounding environment required for an application is contained within an 'installer'. Think of a container as an installer file for a PC game, but, instead of just installing the game, the installer first spins up a virtual machine with the appropriate operating system and other dependencies installed and then installs the game/application. This container installed the 'UPI switch' as the team described. It was the 'UPI switch' that was responsible for handling most of the heavy lifting involved during various stages of the customer life-cycle.
the UPI team created the UPI network around a UPI switch, a containerized application (think of this as an installer, like a .exe or a .dmg file) which handles all of the heavy lifting involved in the customer life-cycle, reducing the interfaces with bank's IT systems.
In fact, under this approach, the bank IT system only needed to provide interfaces to debit a customer's account and to check the balance in the customer's account. This central UPI switch was designed as a containerized application deployed on-prem on the bank's compute infra.
</p>
<p>
The UPI switch then operated as a collection of micro-services handling administrative tasks such as registering users and their PIN. Transaction authentication happened via a PIN input by the customer on their device. Once again the UPI Switch micro-service performed the authentication of the input PIN without the bank CBS having to step in. Such a micro-service reduced the integration required between UPI and the specific CBS systems of banks, allowing the entire UPI network to function with just three end-points connected to bank CBSes – one to look-up customers, one to check the balance of a given account, and another to debit an account. The IT vendors of banks were free to implement the back-end for these end-points in whatever manner worked best for them.
</p>
<p>
The net effect of all this to solve one part of the 'cold-start' problem involved in starting up a two-sided network from scratch. With bank onboarding a solved problem, the UPI team could now focus on attracting customers.
</p>
</div>
</div>
<div id="outline-container-org57c7b57" class="outline-3">
<h3 id="org57c7b57">Unbundling 'servicing' from 'ownership' of customer accounts:</h3>
<div class="outline-text-3" id="text-org57c7b57">
<p>
While a smoother onboarding of banks was one part of the 'cold-start' puzzle, UPI still had to solve the problem of acquiring customers. And here, the UPI team correctly perceived that acquiring customers was not a task to be left to the Government, Government-owned banks, or even incumbent private banks. Instead they designed the UPI APIs and SDKs such that third party applications could enjoy authenticated 'Write' access to the underlying accounts of the customers maintained with incumbent banks.
</p>
<p>
The UPI team's decision would later pay the way for the arrival of giants such as Google Pay and Amazon Pay, who spent considerable marketing budgets acquiring customers and merchants. The market share of various payment apps serves as a progress card for the decision to unbundle 'servicing' from account ownership. As the figure below shows, the UPI landscape in India is entirely dominated by the top-3 apps enjoying a cumulative ~85% share of transactions and value. The share of transactions processed by all 150 banks on the UPI network barely exceeds 3%. Despite the head start banks enjoyed in onboarding customers through their mobile banking applications, the largest UPI-based payment apps in India are private fintech players such as Google Pay, PhonePe and Paytm. Rather characteristically, the banks have been beaten hands-down in the game of onboarding and delighting customers, a fate the UPI team, presumably could've claimed to see from miles away.
</p>
<p>
<p align="center"><img src="/docs/fednow_upi/app_share.png"/></p>
</p>
<p>
Funnily enough, surprisingly few analysts have identified this unbundling as a major factor behind the success and growth of UPI.<sup><a id="fnr.2" class="footref" href="#fn.2">2</a></sup> Instead, a lot of attention was devoted to the falling cost of data and cheaper devices as the reasons for UPI's success. All of those factors could also have allowed PayTM's private network to monopolize India's mobile payments, but instead it is UPI that emerged triumphant, with PayTM eventually joining the network.
</p>
<p>
The 'first-class' citizenship offered unregulated private fintechs made it possible for the likes of Google Pay to enable a customer to onboard themselves and to transact using their account entirely from within Google Pay, without any involvement of the underlying bank's systems or interfaces; the UPI stack offered a self-contained transactions suite. Similar to local loop unbundling in public utilities like power, distribution was separated from 'generation'. Unlike in USA, where Google Pay and Apple Pay achieved such disintermediation by leveraging NFC to emulate debit/credit cards within customers' devices, supporting customers on UPI required no such workarounds. Customer facing applications were first class citizens of the UPI ecosystem, by virtue of the separation of concerns between customer on-boarding and customer account operation.
</p>
<p>
In the final analysis, this direct access to 'Write' APIs on top of the customer's bank accounts is what helped UPI beat PayTM. PayTM, initially designed as a wallet, continued to require users to first make a deposit into their PayTM wallet/ account, and then perform transactions from that wallet/account. UPI on the other hand removed the need for customers to 'load an intermediary wallet/ account' before performing a transaction. Users could now move money on the fly via UPI. 'Write' APIs for user's bank accounts continues to be elusive in India's highly conservative and paternalistic banking ecosystem, a fact highlighted in a previous post on CBDCs in India.
</p>
<p>
The regulatory and UX arbitrage in allowing customer facing applications to distribute financial products is a gift that keeps on giving. The march of disintermediation beats on inexorably, spreading from relatively peripheral P2P transactions to online and ecommerce transactions, to investments now, and soon (potentially) to credit. Consider the case of Fixed Deposits in India, and the stunning success of Equitas Bank's launch of their FD product on Google Pay<sup><a id="fnr.3" class="footref" href="#fn.3">3</a></sup>. All this in a product without the network effects of a payment protocol/ network. Nothing can stop the juggernaut of a well-designed product combined with word-class distribution.
</p>
</div>
</div>
<div id="outline-container-orgde5e838" class="outline-3">
<h3 id="orgde5e838">Generous servings of luck and network effects</h3>
<div class="outline-text-3" id="text-orgde5e838">
<p>
As the sections above illustrate, UPI had all the right ingredients to create magic. However, it still took the entry of a behemoth, in the form of Google Pay, to evangelize and market the protocol. Without Google's aggressive cashback offers (users could receive between INR 20-100 for each transaction they performed) and extensive merchant acquisition, it's hard to see UPI reach its current levels of usage. To be clear, UPI did create its own luck. The massive regulatory and UX arbitrage created by allowing unregulated applications to service customer bank accounts is what opened the doors for Google Pay; without that crucial technical and governance decision, Google would've probably balked at applying for some curmudgeonly license, and the UPI we see today would still be an underdog if not an also-ran.
</p>
<p>
Google Pay's scorched earth marketing and customer acquisition campaigns created the critical mass of customers UPI needed for 'lift-off'. Once this critical mass was reached, the network effects inherent meant that not too long after, merchants would also start joining the UPI network. The transition from offline merchant collections to online collections was even smoother, thanks to the robust, extensible API provided by UPI's <a href="https://github.com/pj-paul/FinTech/blob/main/UPI%20Linking%20Specs_ver%201.6.pdf">API specifications.</a> As to why Google decided to bet big on a nascent payment protocol in a relatively peripheral market, we can only speculate. Perhaps, having an Indian CEO may have helped.
</p>
</div>
</div>
</div>
<div id="outline-container-org90db81a" class="outline-2">
<h2 id="org90db81a">Lessons for FedNow</h2>
<div class="outline-text-2" id="text-org90db81a">
<p>
So, what should we and FedNow take away from UPI's success story.
</p>
<ol class="org-ol">
<li>Making it easier for members to join you network is vital. Particularly in a banking space as fragmented as the USA with over 10,000 deposit taking institutions.</li>
<li>Separation of account 'servicing' from 'ownership' + First-class citizenship for customer-facing applications. Almost all UPI's success have come from a deliberate strategic choice to become a playground open to all instead of trying to compete with extant networks out there. To do this, UPI needed to force legacy participants to open up their customer bases to be served by new-age fintech applications.</li>
</ol>
<p>
The United States' mobile payments market appears similar to India's payments market before UPI. We see the same cast of a few rickety, unpopular payments rails that stifle mobile payments, a few closed-loop wallets that charge exorbitant amounts to withdraw your own funds, and a growing reliance on card networks. If FedNow learns its lessons and plays its card rights, the biggest payments market in the world will experience nothing short of a revolution.
</p>
</div>
</div>
<div id="footnotes">
<h2 class="footnotes">Footnotes: </h2>
<div id="text-footnotes">
<div class="footdef"><sup><a id="fn.1" class="footnum" href="#fnr.1">1</a></sup> <div class="footpara"><p class="footpara">
See a reporting on the merger and the role of technical compatibility <a href="http://archive.today/2021.09.13-130123/https://timesofindia.indiatimes.com/business/india-business/how-tech-platform-sealed-the-fate/articleshow/70918397.cms">here</a>.
</p></div></div>
<div class="footdef"><sup><a id="fn.2" class="footnum" href="#fnr.2">2</a></sup> <div class="footpara"><p class="footpara">
William Cook and Anand Raman at the World Bank are among the handful of analysts to appreciate the key role of this unbundling of 'ownership' from 'servicing' of customer accounts. See their overview on UPI <a href="https://www.cgap.org/research/publication/national-payments-corporation-india-and-remaking-payments">here</a>.
</p></div></div>
<div class="footdef"><sup><a id="fn.3" class="footnum" href="#fnr.3">3</a></sup> <div class="footpara"><p class="footpara">
See for instance Andy Mukherjee's <a href="http://archive.today/2021.09.16-100659/https://www.business-standard.com/article/finance/how-google-s-push-into-indian-retail-banking-challenges-traditional-lenders-121083000043_1.html">reporting</a> on the launch of Fixed Deposits by Google Pay.
</p></div></div>
</div>
</div>PaulIdentifies two main reasons for the success of India's UPI payment network for FedNow to consider in the design of their product.The RBI’s CBDC Proposal — A solution in search of a problem2021-06-15T00:00:00+00:002021-06-15T00:00:00+00:00https://pj-paul.github.io/fintech/2021/06/15/CBDC-in-India<div id="table-of-contents">
<h2>Table of Contents</h2>
<div id="text-table-of-contents">
<ul>
<li><a href="#org32b0bad">Summary</a></li>
<li><a href="#orgb857d0d">What's this CBDC I keep hearing about?</a>
<ul>
<li><a href="#org3d5a578">And can I 'do' crypto and block-chain with a CBDC?</a></li>
</ul>
</li>
<li><a href="#org27c0bac">Hold on. This CBDC doesn't sound like such a big deal…?</a></li>
<li><a href="#orgfda1aaa">Is India planning to launch a CBDC? What will it look like?</a></li>
<li><a href="#orgeddf2f2">What exactly is the problem with RBI's current design of the Rupee CBDC?</a></li>
<li><a href="#orgb9cd0c2">So… should India even build a CBDC then?</a>
<ul>
<li><a href="#org5329021">1. Banks regard infrastructural innovations as thankless affairs</a></li>
<li><a href="#org0982601">2. Bank APIs lack standardization, which limits efforts to aggregate various bank offerings</a></li>
<li><a href="#orgccfc08f">A solution inspired by Ethereum</a></li>
<li><a href="#orgca1521c">Solving the monetization problem for infrastructure innovation</a></li>
<li><a href="#org9cb2b99">Solving the lack of standardized specs for financial products</a></li>
</ul>
</li>
<li><a href="#org7419d69">What's next for India's CBDC?</a></li>
</ul>
</div>
</div>
<div id="outline-container-org32b0bad" class="outline-2">
<h2 id="org32b0bad">Summary</h2>
<div class="outline-text-2" id="text-org32b0bad">
<p>
The Reserve Bank of India (RBI) is actively exploring a Central Bank Digital Currency (CBDC) for the Indian Rupee. A close examination reveals CBDCs to be redundant alternatives to commercial bank deposits in the Indian context. Routine payments and other operations are cheap and fast in India, and Indian banks are generally stable without major episodes of default, highlighting the redundancy of a digital currency.
</p>
<p>
Instead, the RBI could use a well-designed CBDC to solve two core problems afflicting fintech innovation in India — banks lacking incentives for innovations, and the lack of standardization in the technical implementation of financial products. A CBDC modeled as an enhanced version of the Ethereum block-chain can help address these problems, without being a 'me-too' clone of commercial bank deposits.
</p>
</div>
</div>
<div id="outline-container-orgb857d0d" class="outline-2">
<h2 id="orgb857d0d">What's this CBDC I keep hearing about?</h2>
<div class="outline-text-2" id="text-orgb857d0d">
<p>
Simply put, a Central Bank Digital Currency (CBDC) is a deposit you maintain with the Central Bank of your country. As such it is nearly identical to a deposit you male make at any other private commercial bank in your country. Similar to how you can use your balance with a commercial bank to buy dinner or stocks, you will be able to use CBDCs to perform these same functions. For instance, coffee-shops in Beijing were among the first merchants where China's digital yuan was launched.<sup><a id="fnr.1" class="footref" href="#fn.1">1</a></sup> Just like how your deposits with private banks earn you interest, your Central Bank may also decide to pay interest on the balance you keep with them.
</p>
</div>
<div id="outline-container-org3d5a578" class="outline-3">
<h3 id="org3d5a578">And can I 'do' crypto and block-chain with a CBDC?</h3>
<div class="outline-text-3" id="text-org3d5a578">
<p>
A block-chain is but one way to keep track of all the transactions and updates happening to the balances you keep with a bank. Generally most banks use a centralized database with secured access to keep track of all transactions. Cryptocurrencies use a distributed database called the block-chain for this purpose; updates to this database are made via consensus of the peers on the distribution network.
Whether a CBDC must also use a block-chain implementation is entirely up to the bank issuing it. To drive this point home, even now, there's nothing stopping a private bank in your country, from offering a crypto-currency token against the deposits you make in that bank, a Private Bank Digital Currency if you may.
</p>
</div>
</div>
</div>
<div id="outline-container-org27c0bac" class="outline-2">
<h2 id="org27c0bac">Hold on. This CBDC doesn't sound like such a big deal…?</h2>
<div class="outline-text-2" id="text-org27c0bac">
<p>
As you may suspect, a lot of it is indeed hype. At its core, CBDCs are completely analogous to commercial bank reserves for most domestic transactions. As long as country's payments infrastructure is cost and time efficient, a CBDC alternative to commercial bank reserves will be redundant.
</p>
<p>
However in countries with broken financial infrastructure, particularly the around payments, a CBDC can add significant value. For instance, P2P transfers in the USA are often expensive and inefficient. Wire transfers (the equivalent of India's RTGS) may cost the sender and the recipient upwards of $30. Other modes of fund transfers (such as the ACH used for payroll and vendor payments) may take up to a week to clear and settle. CBDCs can offer a work-around by removing multiple stakeholders involved in an inter-bank transfer, potentially leading to savings in time and cost. A similar logic applies for international transfers, where removing intermediaries could make FX transactions faster and cheaper.
</p>
<p>
Another potential advantage of a CBDC is the protection it offers against banks going under, resulting in customers losing their deposits. While this is a remote possibility in India (thanks to the tight regulatory oversight of the RBI), in the USA for instance, about 4 banks go under every year on average typing up assets of close to $160 Million.<sup><a id="fnr.2" class="footref" href="#fn.2">2</a></sup> CBDCs protect you from this risk, almost by definition —— since all money in an economy are simply IoUs issued by a Central Bank, Central Banks, by design, cannot run out of IoUs to issue, leading to zero risk of default on CBDCs.
</p>
</div>
</div>
<div id="outline-container-orgfda1aaa" class="outline-2">
<h2 id="orgfda1aaa">Is India planning to launch a CBDC? What will it look like?</h2>
<div class="outline-text-2" id="text-orgfda1aaa">
<p>
Yes, India is planning to develop a CBDC. The RBI has made a lot of hints in this direction. In March, 2021, Governor Das mentioned that the RBI was working on developing an Indian CBDC while evaluating the financial stability implications alongside, suggesting that the CBDC under consideration would have significant overlap with the features of commercial bank deposits.
</p>
<p>
Official specifications for the Digital Rupee CBDC are yet to be released. So, we can only make reasoned speculation based on other information shared by the RBI. Based on the content of recent speeches and documents shared by the RBI, India's CBDC seems to be headed straight down the path of being a commercial bank reserve clone.
</p>
<p>
Governor Das' comments about the work happening on CBDC, along with his emphasis on 'financial stability implications' of such a product, suggests a CBDC that is at least a partial clone of commercial bank deposits.
</p>
<p>
For instance here are some comments Governor Das made in March, 2021: <sup><a id="fnr.3" class="footref" href="#fn.3">3</a></sup>
</p>
<blockquote>
<p>
While doing all these, we need to be watchful of the risks associated with certain technological innovations. That being said, while we are working on introducing a digital version of the fiat currency, the Reserve Bank is also assessing the financial stability implications of introducing such a Central Bank Digital Currency (CBDC).
</p>
</blockquote>
<p>
Before this, the annual Report on Currency and Finance (RCF, 2021) published by the RBI in February, 2021, evaluated CBDCs as 'not an unmixed blessing' ('a mixed blessing', parsing out the double negatives), specifically highlighting the potential for disintermediation of commercial banks, and mitigation options for the same, even going as far to suggest a penalty on excess CBDC reserves. <sup><a id="fnr.4" class="footref" href="#fn.4">4</a></sup>
</p>
<blockquote>
<p>
CBDC is, however, not an unmixed blessing – it poses a risk of disintermediation of the banking system, more so if the commercial banking system is perceived to be fragile. The public can convert their CASA deposits with banks into CBDC, thereby raising the cost of bank-based financial intermediation with implications for growth and financial stability. In countries with significant credit markets, commercial banks may lose their primacy as the major conduit of monetary policy transmission. One recently proposed solution to limit disintermediation is the introduction of a 2-tier remuneration system for CBDCs, whereby […] CBDC balances of the individual over and above the ceiling are subject to a penal negative interest rate (Bindseil and Pannetta, 2020). CBDCs providing anonymity may also have implications for cross border payments in violation of extant acts; appropriate safeguards against AML/CFT would need to be laid down.
</p>
</blockquote>
<p>
All of this gives us cause to conclude that RBI's CBDC would effectively be a clone of private bank deposits with a cyrptographic implementation similar to block-chain.
</p>
</div>
</div>
<div id="outline-container-orgeddf2f2" class="outline-2">
<h2 id="orgeddf2f2">What exactly is the problem with RBI's current design of the Rupee CBDC?</h2>
<div class="outline-text-2" id="text-orgeddf2f2">
<p>
If RBI's CBDC is a mere cryptographic clone of a routine private bank deposit focused on payment-related use cases, it will inevitably end up as an expensive failure.
</p>
<p>
For starters, it's hard to identify a pressing customer need solved by such a CBDC. Payment systems in India are extremely cost and time efficient. Real-time wire payments and mobile-based P2P payments are all free for retail customers. RBI regulations have also compressed interchange margins on commonly used card products. Near real-time settlements are the norm in India, and the only entities charging non-trivial margins on payments are offline money-transfer firms (such as Western Union, PayNearbuy etc). The concept of a closed-loop wallet operator (similar to Venmo, for instance) charging 1% for users to withdraw their funds would be unthinkable in Indiain India.
</p>
<p>
As if that wasn't enough, the logistical and organization efforts involved in integrating such a CBDC into India's existing payment and settlement systems will be a nightmare for RBI. India's payments systems are wide-ranging covering everything from ATMs, NEFT/RTGS/IMPS, along with various NPCI offerings. And, unless RBI wants its Twitter feed and telephone helplines to drown with complaints about cash-backs and double-debits, and unless they are happy to open and service thousands of branches all over the country, a cloned CBDC shouldn't even be considered by the RBI. Indian bank customers are extremely reliant on in-person servicing, as multiple years of bench-marking have highlighted. Futher, as anyone who has handled customer satisfaction can attest, Indian customers are notoriously averse to reading help documentations, and will accept nothing short of near-immediate telephonic support. Although the RBI could outsource the onboarding and servicing of customers to existing commercial banks, it's unclear how enthusiastic these banks would be about cannibalizing their base of low-cost deposit customers.
</p>
<p>
As we saw earlier, unless a country's payment systems are terribly broken, or it's banks are carrying a high risk of default, commercial/private bank reserves are more than enough to meet most requirements. For once, the CBDC at home is better than the one in the store.
</p>
<p>
The example use cases highlighted by RBI in the Report on Currenacy and Finance, 2021 alone make it clear that a CBDC is unnecessary. Consider the following list of use cases in that document:
</p>
<blockquote>
<p>
CBDCs can […] promote financial inclusion by direct benefit fiscal transfer, pumping central bank ‘helicopter money’ and even direct public consumption to a select basket of goods and services to increase aggregate demand and social welfare….
</p>
</blockquote>
<p>
All of the items listed above can be achieved via commercial bank reserves. In fact, only a few weeks ago, NPCI shared updates on a UPI-based medical e-Voucher that can only be used at permitted merchant categories.<sup><a id="fnr.5" class="footref" href="#fn.5">5</a></sup> Corporate debit cards have had built-in merchant white-listing for years now. Several CBDCs in the avatar of a commercial reserve substitute are effectively solutions seeking problems.
</p>
<p>
The current design of the Rupee CBDC, given it's functional redundancy and logistical complexity, will end up as a white elephant.
</p>
</div>
</div>
<div id="outline-container-orgb9cd0c2" class="outline-2">
<h2 id="orgb9cd0c2">So… should India even build a CBDC then?</h2>
<div class="outline-text-2" id="text-orgb9cd0c2">
<p>
India should absolutely build a CBDC. But such a project should aim to solve a pressing systemic problem, instead of being a redundant clone of commercial bank deposits. And the biggest systemic problems in Indian fintech are two-fold:
</p>
</div>
<div id="outline-container-org5329021" class="outline-3">
<h3 id="org5329021">1. Banks regard infrastructural innovations as thankless affairs</h3>
<div class="outline-text-3" id="text-org5329021">
<p>
Indian banks are rightly averse to further investments in infrastructure products such as payments. The expansion of digital payments in India over the past half-decade was subsidized in part by the member banks by operating the network at zero cost for customer and merchants. The card interchange policy followed by the Government of India echoes the same story of banks subsidizing customers and merchants. Bank transfer rails, such as IMPS, NEFT, and RTGS, have only charged nominal costs to users since inception.
</p>
<p>
Banks rightfully consider innovation at the infrastructure layer to be a thankless affair. This stance is visible in their lukewarm response towards implementing UPI's 2.0 specifications (implementation by most banks is pending for close to a year) as well as the Account Aggregator specifications. Asking them to bear the burden of CBDCs would be a step too far.
</p>
</div>
</div>
<div id="outline-container-org0982601" class="outline-3">
<h3 id="org0982601">2. Bank APIs lack standardization, which limits efforts to aggregate various bank offerings</h3>
<div class="outline-text-3" id="text-org0982601">
<p>
One of the key challenges in developing fintech products in partnership with Indian banks is the sheer scale of idiosyncratic variation in the APIs and lower-level interfaces of each bank. No two banks seem to have the same schema or object model for accounts and customers. These technical deviations raise the difficulty of creating products that work across banks. Consider a fintech building a bank statement reconciliation tool that plugs into the Statement APIs (assuming generously that they exist) of their users' banks. The technical effort involved in first accessing and then supporting the divergent specifications of banks is enough to kill a young startup. Given that all financial products in India are designed following guidelines of the RBI, it is certainty possible for the discrete steps/ API calls involved in the digital creation of a financial product to be standardized.
</p>
<p>
This lack of standardization also blocks the emergence of the next generation of aggregated products – including aggregated Term Deposits, and Personal Loans – meant to build on top of the first generation innovation in payments and collections. Compare, for instance, the large-scale aggregation of Mututal Funds through the BSE Star App built by the BSE Stock Exchange, with the perennially fragmented landscape of Fixed Deposits — the benefits of standardization and aggregated customer interfaces is striking.<sup><a id="fnr.6" class="footref" href="#fn.6">6</a></sup>
</p>
</div>
</div>
<div id="outline-container-orgccfc08f" class="outline-3">
<h3 id="orgccfc08f">A solution inspired by Ethereum</h3>
<div class="outline-text-3" id="text-orgccfc08f">
<p>
A CBDC designed inspired by the Ethereum block-chain with enhanced primitives to create other basic financial products such as Term Deposits and Unsecured Loans could help address these problems. This Ethereum-Plus CBDC could be operated entirely by the RBI with minimal involvement and support from private banks. Customers could be allowed to make deposits into CBDCs from their bank's mobile banking or net-banking applications. RBI could then expose an Ethereum-like virtual machine together with out-of-the-box primitives such as Accounts and Transactions (similar to the primitives available on Ethereum) and smart-contract capabilities defined on top of customer deposits. Enhanced primitives (examples include primitives to complete KYC verification, primitives to collect generic key-value pairs) to enable the composition of other financial products such as Term Deposits, and Unsecured Loans completed the product. <sup><a id="fnr.7" class="footref" href="#fn.7">7</a></sup>
</p>
</div>
</div>
<div id="outline-container-orgca1521c" class="outline-3">
<h3 id="orgca1521c">Solving the monetization problem for infrastructure innovation</h3>
<div class="outline-text-3" id="text-orgca1521c">
<p>
<b>A Two-track approach for monetizing infrastructural innovation</b>
</p>
<p>
The classic Account and Transaction primitives available on the Ethereum-Plus CBDC combined with smart-contract capabilities provide enough support for the next generation of innovation in payments. In order to ensure that banks are able to capture the benefits accruing from such innovations, access to these CBDC rails maybe restricted to fintechs who have entered profit-sharing/ partnership agreements with legacy bank partners. Further, banks and fintechs maybe provided a free reign in pricing and operating innovative products developed on these CBDC rails. This completes the creation of a two-track approach to monetizing infrastructural products, where the basic products (such as UPI and bank/ wire transfer products) continue to be priced nominally, but further innovations capture sufficient value for innovators.
</p>
</div>
</div>
<div id="outline-container-org9cb2b99" class="outline-3">
<h3 id="org9cb2b99">Solving the lack of standardized specs for financial products</h3>
<div class="outline-text-3" id="text-org9cb2b99">
<p>
<b>Convergence to standardized technical specifications for product primitives</b>
</p>
<p>
The 'Plus' part of the proposed Ethereum-Plus CBDC denotes the enhanced primitives available to perform a variety of tasks such as performing customer KYC, and sharing standardized personal/ nominee information or underwriting information. The long term goal here is to get banks to implement standardized specifications and APIs for core financial products. While initially, the Enhanced primitives provided by the CBDC would not be connected to the Core Banking Systems of member banks, over time member banks maybe nudged to confirm to the new standardized specifications. Compared to previous and ongoing asks from banks (such as the operational cost subsidy involved in running UPI) technical standardization would be a tamer affair, with the potential to provide immediate gains in the form of aggregated customer offerings. As in the case of UPI, India's public sector banks maybe called on to lead by example.
</p>
</div>
</div>
</div>
<div id="outline-container-org7419d69" class="outline-2">
<h2 id="org7419d69">What's next for India's CBDC?</h2>
<div class="outline-text-2" id="text-org7419d69">
<p>
At least for now the RBI seems to be exploring the path of developing CBDCs that are close substitutes for commercial bank reserves. There is precedent for this path from China's Digital Yuan; for some reason, the default associated with CBDC seems to overlap significantly with the capabilities of India's commercial bank deposits. In other words, the RBI could be getting memed into a vision of a CBDC which might not be relevant for India.
</p>
<p>
Given past history, RBI should come out with a document listing the preliminary specifications and scope and invite comments in the next 6-9 months. Let's see if wiser voices can prevail.
</p>
</div>
</div>
<div id="footnotes">
<h2 class="footnotes">Footnotes: </h2>
<div id="text-footnotes">
<div class="footdef"><sup><a id="fn.1" class="footnum" href="#fnr.1">1</a></sup> <div class="footpara"><p class="footpara">
<a href="https://www.ledgerinsights.com/digital-yuan-beijing-shanghai/">https://www.ledgerinsights.com/digital-yuan-beijing-shanghai/</a>
</p></div></div>
<div class="footdef"><sup><a id="fn.2" class="footnum" href="#fnr.2">2</a></sup> <div class="footpara"><p class="footpara">
<a href="https://www.fdic.gov/bank/historical/bank/">https://www.fdic.gov/bank/historical/bank/</a>
</p></div></div>
<div class="footdef"><sup><a id="fn.3" class="footnum" href="#fnr.3">3</a></sup> <div class="footpara"><p class="footpara">
Financial Sector in the New Decade. Shri Shaktikanta Das, Governor, Reserve Bank of India at the Times Network India Economic Conclave 2021 in New Delhi) <a href="https://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1106">Link to Transcript</a>
</p></div></div>
<div class="footdef"><sup><a id="fn.4" class="footnum" href="#fnr.4">4</a></sup> <div class="footpara"><p class="footpara">
<a href="https://rbi.org.in/Scripts/AnnualPublications.aspx?head=Report%20on%20Currency%20and%20Finance">RBI's Report on Currency and Finance, February, 2021</a>
</p></div></div>
<div class="footdef"><sup><a id="fn.5" class="footnum" href="#fnr.5">5</a></sup> <div class="footpara"><p class="footpara">
" In the meeting, the PMO said, the concept of UPI e-Voucher developed by National Payment Corporation of India (NPCI) was also discussed. This digital payment option will enable financial transactions linked to specific purpose which can be used only by the intended user. It can be useful for targeted and efficient delivery of various government schemes and an immediate use cases of UPI e-Voucher could be healthcare services, it said." <a href="https://www.business-standard.com/article/current-affairs/pm-modi-chairs-meeting-to-review-national-digital-health-mission-121052700962_1.html">Link to report</a>
</p></div></div>
<div class="footdef"><sup><a id="fn.6" class="footnum" href="#fnr.6">6</a></sup> <div class="footpara"><p class="footpara">
See this <a href="https://www.bseindia.com/static/markets/mutualfunds/BSEStarMF.aspx">news-release</a> from BSE about the BSE Start.
</p></div></div>
<div class="footdef"><sup><a id="fn.7" class="footnum" href="#fnr.7">7</a></sup> <div class="footpara"><p class="footpara">
This section is slightly jargon heavy. Ethereum's <a href="https://ethereum.org/en/whitepaper/">Whitepaper</a> explains these concepts in greater detail.
</p></div></div>
</div>
</div>PaulTable of Contents Summary What's this CBDC I keep hearing about? And can I 'do' crypto and block-chain with a CBDC? Hold on. This CBDC doesn't sound like such a big deal…? Is India planning to launch a CBDC? What will it look like? What exactly is the problem with RBI's current design of the Rupee CBDC? So… should India even build a CBDC then? 1. Banks regard infrastructural innovations as thankless affairs 2. Bank APIs lack standardization, which limits efforts to aggregate various bank offerings A solution inspired by Ethereum Solving the monetization problem for infrastructure innovation Solving the lack of standardized specs for financial products What's next for India's CBDC? Summary The Reserve Bank of India (RBI) is actively exploring a Central Bank Digital Currency (CBDC) for the Indian Rupee. A close examination reveals CBDCs to be redundant alternatives to commercial bank deposits in the Indian context. Routine payments and other operations are cheap and fast in India, and Indian banks are generally stable without major episodes of default, highlighting the redundancy of a digital currency.Annie Duke’s Thinking in Bets — Old bias in a new bottle2020-12-15T00:00:00+00:002020-12-15T00:00:00+00:00https://pj-paul.github.io/books/2020/12/15/duke_thinking_bets<div id="table-of-contents">
<h2>Table of Contents</h2>
<div id="text-table-of-contents">
<ul>
<li><a href="#org0b49564">Summary:</a></li>
<li><a href="#org47d4da4">Decision Loop: Beliefs -> Decisions -> Outcomes -> Updated beliefs</a>
<ul>
<li><a href="#orgcaf743b">Errors in belief formation</a></li>
<li><a href="#orga41f308">Errors in weighing beliefs</a></li>
<li><a href="#orgd310ec5">Errors in interpreting outcomes: Credit for me, but not for thee</a></li>
<li><a href="#orgcb0afe6">Errors in updating beliefs given an outcome</a></li>
</ul>
</li>
<li><a href="#orge2b14ff">TiB ignores decision making in the face of incomplete information</a></li>
<li><a href="#orgf10cbe7">Chapter Summaries</a>
<ul>
<li><a href="#orgbed61f1">Chapter 1: Life is poker, not chess</a></li>
<li><a href="#org12e95a8">Chapter 2: Belief formation and updating.</a></li>
<li><a href="#org21494aa">Chapter 3: Updating beliefs in the face of new information</a></li>
<li><a href="#org387faec">Chapter 4 and 5: Decision making and evaluation in groups</a></li>
<li><a href="#org01149fc">Chapter 5: Questioning decisions with general public</a></li>
<li><a href="#org1c50f3e">Chapter 6: Combating present bias, recency bias, hindsight bias and outcome bias</a></li>
</ul>
</li>
<li><a href="#org59004d8">Further resources</a></li>
</ul>
</div>
</div>
<div id="outline-container-org0b49564" class="outline-2">
<h2 id="org0b49564">Summary:</h2>
<div class="outline-text-2" id="text-org0b49564">
<p>
Annie Duke's 'Thinking in Bets' (TiB) is a book about making better decisions in the face of uncertainty, purportedly drawing on the author's experiences as a champion poker player. Though an entertaining read, full of anecdotes from the world of sports and poker, TiB is disappointingly short on novel insights into decision making, and often feels like a regurgitation of ideas from the well-known cognitive bias literature.
</p>
<p>
TiB's core focus is on redressing cognitive biases that plague decisions. In redressing these biases, TiB completely ignores positive improvements to the decision making process (for example how to weigh different conflicting parameters, or how to go about gathering data for decisions), particularly in the face of incomplete or noisy information inputs. As a result, TiB does not offer any new ideas for readers familiar with the LessWrong/ Rationalist community ethos. Several ideas described in high-level terms in TiB would also have benefited from a fuller acknowledgment and discussion of the Bayesian roots underlying them.
</p>
<p>
That said, I found the motif of the 'Decision Loop' in the book a helpful tool to diagnose shortcomings in my decision making process, and to classify the innumerable cognitive biases affecting decisions.
<p align="center"><img src="/docs/duke_bets/cover.jpg"/></p>
</p>
</div>
</div>
<div id="outline-container-org47d4da4" class="outline-2">
<h2 id="org47d4da4">Decision Loop: Beliefs -> Decisions -> Outcomes -> Updated beliefs</h2>
<div class="outline-text-2" id="text-org47d4da4">
<p>
At the heart of 'Thinking in Bets' is the idea of a Decision Loop, with striking parallels to the <a href="https://en.wikipedia.org/wiki/OODA_loop">OODA Loop</a>, describing how we make decisions based on our beliefs, which are in turn updated using the outcomes of previous decisions.
</p>
<p>
The Decision Loop outlines the life-cycle of a decision. Most decisions start from beliefs we hold – both about the state of the world, and about the effects of our actions on the world. These beliefs influence our decisions to act on the world in one way or another. However, the outcomes from our actions are also influenced by luck, in addition to the skillful action we took. Outcomes, in other words are a signal with some noise embedded. To learn from outcomes we need to first tell apart the signal from the noise, and then update our priors in the light of this signal. After this updating, we're ready for our next round of decisions. 'Thinking in Bets' discusses what can go wrong in each step of this cycle.
</p>
<p>
<p align="center"><img src="/docs/duke_bets/Decision_Loop.png"/></p>
</p>
</div>
<div id="outline-container-orgcaf743b" class="outline-3">
<h3 id="orgcaf743b">Errors in belief formation</h3>
<div class="outline-text-3" id="text-orgcaf743b">
<p>
<b>We form beliefs without adequate vetting</b>
Duke argues that we are gullible when forming beliefs, and do not vet statements before believing them. She presents as evidence psychology studies where subjects are
To be honest, I'm not entirely convinced by Duke's reasoning for this claim. Duke speculates that there's an evolutionary advantage to forming beliefs faster and less rigorously. Even ignoring the general 'just-so' nature of evo-psych arguments like this, if we were all this gullible, we wouldn't last too long out there. Even the studies cited seem to have participants evaluating decisions with nothing at stake. I would expect most people around me to be a lot more discerning in their beliefs when it comes to making real-world decisions.
</p>
<p>
<b>We choose what we want to believe: Confirmation bias, Cognitive dissonance and ideological bias</b>
New information always filters through the prism of our existing biases and higher-order beliefs, and often ends up confirming what we already believe. We are often unable to process information that contradicts strongly held views of the world, and instead choose to ignore it. In effect, our beliefs formation is highly inaccurate, and reflects our biases and prejudices.
In Bayesian language, our prior might be a bit too strong to allow new information to meaningfully update our beliefs.
</p>
</div>
</div>
<div id="outline-container-orga41f308" class="outline-3">
<h3 id="orga41f308">Errors in weighing beliefs</h3>
<div class="outline-text-3" id="text-orga41f308">
<p>
<b>Present bias</b> We care more about our present selves (which want to binge a series instead of sleeping) than our future selves (which has an early meeting the next day). This makes our decisions sub-optimal for our future selves.
</p>
<p>
<b>Recency bias</b> More recent events get higher weights when we make decisions. Duke gives an example from poker where winning $1k earlier in the night, and losing $900 towards the end feels a lot worse than losing $900 first, and winning back $1K towards the end. Emotional over-reactions (to setbacks in life, work, and poker) are all examples of recency biases. All of these situation lead to decisions that are 'rash' or highly sensitive to the immediate present.
</p>
</div>
</div>
<div id="outline-container-orgd310ec5" class="outline-3">
<h3 id="orgd310ec5">Errors in interpreting outcomes: Credit for me, but not for thee</h3>
<div class="outline-text-3" id="text-orgd310ec5">
<p>
Most outcomes that result from our decisions are a combination of skill and luck (good or bad). Learning from outcomes requires us to split this skill component from the luck component, a notoriously difficult task.
</p>
<p>
In general we give ourselves too much credit for positive outcomes, and too little blame for negative outcomes, a result of a natural bias for self-preservation. When it comes to others this dynamic flips: we assign too much blame to others and too little credit.
</p>
<p>
Unfortunately Duke does not offer much to help us perform the correct attribution. Duke's only suggestion is to treat our skill-luck split as a bet in itself, and to ask ourselves if we think the outcomes would replicate consistently.
</p>
</div>
</div>
<div id="outline-container-orgcb0afe6" class="outline-3">
<h3 id="orgcb0afe6">Errors in updating beliefs given an outcome</h3>
<div class="outline-text-3" id="text-orgcb0afe6">
<p>
<b>Hindsight bias and Outcome bias</b>
Hindsight bias makes remote possibilities seem more likely.
Outcome bias makes us evaluate decisions based on the actually realized outcomes, rather than the statistically expected outcomes. This makes lucky long-shots seem like good decisions, and near-miss sure-shots seem like poor decisions.
</p>
<p>
<b>Confirmation bias, Cognitive dissonance and ideological bias again</b>
The human mind is more interested in feeling good than in being right. Similar to how we form beliefs in the first place, our observation of outcomes is also colored by our higher-level beliefs (such as political or religious affiliation).
</p>
<p>
<b>All or Nothing error</b>
For some reason, Duke thinks that we suck at assigning fractional probabilities to outcomes. It's all or nothing for us every time. Things are either 100% luck or 0% luck, or 100% skill and 0% effort. There's nothing in between. Our lives are also 100% rotten and no good, without any intervening shades of gray. As a result, we're unable to accurately learn from an outcome. Updates to our beliefs are persistently biased one way or the other.
</p>
</div>
</div>
</div>
<div id="outline-container-orge2b14ff" class="outline-2">
<h2 id="orge2b14ff">TiB ignores decision making in the face of incomplete information</h2>
<div class="outline-text-2" id="text-orge2b14ff">
<p>
My biggest complaint about the book is the near complete cop out on the promise made in its subtitle <i>'Making smarter decisions when you don't have all the facts</i>'. I expected a discussion on evaluating whether the facts available are sufficient, and if not, how to go about addressing them. But nothing of that sort was forthcoming.
</p>
</div>
</div>
<div id="outline-container-orgf10cbe7" class="outline-2">
<h2 id="orgf10cbe7">Chapter Summaries</h2>
<div class="outline-text-2" id="text-orgf10cbe7">
</div>
<div id="outline-container-orgbed61f1" class="outline-3">
<h3 id="orgbed61f1">Chapter 1: Life is poker, not chess</h3>
<div class="outline-text-3" id="text-orgbed61f1">
<ul class="org-ul">
<li>Outcomes of decision in life involve skill and luck (unlike chess which in theory has well-defined outcomes).</li>
<li>Making decisions requires us to learn from uncertain outcomes of those decision, and to make decisions in the face incomplete information.</li>
</ul>
</div>
</div>
<div id="outline-container-org12e95a8" class="outline-3">
<h3 id="org12e95a8">Chapter 2: Belief formation and updating.</h3>
<div class="outline-text-3" id="text-org12e95a8">
<ul class="org-ul">
<li>Our subjective beliefs are inputs into decisions.</li>
<li>However, these beliefs are not rigorously vetted when formed.</li>
<li>Strongly held beliefs are not updated appropriately.</li>
<li>Cognitive ability does not improve our ability to vet and update our beliefs.</li>
<li>Solution: Reconfigure out beliefs into probability distributions.
<ul class="org-ul">
<li>In the language of Bayesian statistics, beliefs are priors. Use a flatter prior to capture uncertainty, and a spikier prior where you're more certain.</li>
<li>Priors incorporate both the mean values and the variance around them.</li>
</ul></li>
</ul>
</div>
</div>
<div id="outline-container-org21494aa" class="outline-3">
<h3 id="org21494aa">Chapter 3: Updating beliefs in the face of new information</h3>
<div class="outline-text-3" id="text-org21494aa">
<ul class="org-ul">
<li>Ideally, we should learn from the outcomes of past bets/ decisions to re-calibrate our priors for the next decision.</li>
<li>But we fail in this process:
<ul class="org-ul">
<li>Mis-attribution of luck and skill.</li>
<li>Self-serving bias</li>
<li>Don't give credit to others</li>
</ul></li>
<li>Solution: Consider the decision to attribute outcomes between skill and luck as a bet in itself. Would you expect the results to replicate</li>
</ul>
</div>
</div>
<div id="outline-container-org387faec" class="outline-3">
<h3 id="org387faec">Chapter 4 and 5: Decision making and evaluation in groups</h3>
<div class="outline-text-3" id="text-org387faec">
<ul class="org-ul">
<li>Groups can improve decision quality if they (1) Value accuracy, (2) are accountable to accuracy, and (3) incorporate diversity of ideas.</li>
<li>Confirmatory drift due to natural homophily and confirmation bias. Examples, judges and academia.</li>
<li>Principles for structuring a group
<ul class="org-ul">
<li>Communal data sharing</li>
<li>Impartial evaluation</li>
<li>Disinterested evaluation</li>
<li>Organized skepticism</li>
</ul></li>
</ul>
</div>
</div>
<div id="outline-container-org01149fc" class="outline-3">
<h3 id="org01149fc">Chapter 5: Questioning decisions with general public</h3>
<div class="outline-text-3" id="text-org01149fc">
<ul class="org-ul">
<li>Express uncertainty rather than conviction: "I could be wrong", "I'm not sure")</li>
<li>Start with a 'yes': 'Yes, I agree with you that X is likely. But in Y case…'</li>
<li>Confirm that the other party wants to evaluate their decisions. Don't be a <a href="https://en.wikipedia.org/wiki/Sealioning">sea-lion</a>.</li>
<li>Validate their struggles and be future facing in evaluations. "How can we avoid this in the future?"</li>
</ul>
</div>
</div>
<div id="outline-container-org1c50f3e" class="outline-3">
<h3 id="org1c50f3e">Chapter 6: Combating present bias, recency bias, hindsight bias and outcome bias</h3>
<div class="outline-text-3" id="text-org1c50f3e">
<ul class="org-ul">
<li>Present bias arises because we discount the well-being of our future selves too much. An Ullysses contract (names after the Greek hero who tied himself to a mast to avoid being tempted by the sirens) solves this by locking your present self into a particular action.</li>
<li>Time travelling — thinking about how you'd feel about certain decisions 10 minutes, 10 months, and 10 years down the line helps to combat recency and present bias and to gain perspective on what's really important, and what's emotional noise in your mind.</li>
<li>Mapping out future scenarios and even assigning subjective probabilities to each scenario helps to combat hindsight bias and outcome bias. Such probability mapping ensures that our decisions accounted for all available information and parameters, and was the best possible one given the information and trade-offs.</li>
</ul>
</div>
</div>
</div>
<div id="outline-container-org59004d8" class="outline-2">
<h2 id="org59004d8">Further resources</h2>
<div class="outline-text-2" id="text-org59004d8">
<ul class="org-ul">
<li>LessWrong <a href="https://www.lesswrong.com/tag/original-sequences">sequences</a> on decision making, bias, epistemic confidence etc.</li>
<li>Richard McElreath's <a href="https://xcelab.net/rm/statistical-rethinking/">Statistical Rethinking</a> is a good introduction to thinking like a Bayesian. The course helps your formalize the intuitive manner in which we process and update beliefs and information.</li>
</ul>
</div>
</div>PaulA mildly entertaining regurgitation of the mainsteam congitive bias literature.A house for Mr Josettan2020-02-02T00:00:00+00:002020-02-02T00:00:00+00:00https://pj-paul.github.io/2020/02/02/josettans_house<div id="outline-container-org316f7f3" class="outline-2">
<h2 id="org316f7f3">Summary:</h2>
<div class="outline-text-2" id="text-org316f7f3">
<p>
A ad for paint offers a perceptive window into the life of north Indian migrant labourers in Kerala.
</p>
</div>
</div>
<div id="outline-container-orgb3845f4" class="outline-2">
<h2 id="orgb3845f4">Josettan's house: Migrant labour in Kerala</h2>
<div class="outline-text-2" id="text-orgb3845f4">
<p>
There's a new ad on Kerala's cable networks. It features a colourful, caricatured, bunch of foreigners visiting a house in small-town Kerala. Visitors include a 'Maasai' tribesman in full traditional get-up, a Queen Elizabeth-wannabe hat-wearing 'English' lady in a sky-blue outfit, a kimono-wearing 'Japanese', a 'Chinese' peasant in straw hat and a long dress, a 'Scot' man-spreading in his kilt, and a 'Mexican' strumming a guitar under the shade of his sombrero. They're in Thissur to see Josettan, and his house.
</p>
<p>
<p align="center"><img src="/docs/josettans_house/all.jpg" height = '600'/></p>
</p>
<p>
The ad portrays two categories of overlooked 'outsiders' in detail, obliquely revealing the cultural space and tolerance afforded in Kerala for such portrayals.
</p>
</div>
<div id="outline-container-org590cbf9" class="outline-3">
<h3 id="org590cbf9">Africans in Kerala's popular culture</h3>
<div class="outline-text-3" id="text-org590cbf9">
<p>
African characters do not make routine appearances in Malayalam movies or ads. Although the one-off white tourist of unspecified ethnicity sporting a thick British accent is a common trope, Africans are hard to find in Malayalam media. That said, the last major movie was 'Sudani from Nigeria'– the story of a young African footballer who comes to Malabar to play in the local 7 a-side football tournament. No other detailed portraits of African characters come to mind.
</p>
<p>
And yet, here's a mere advertisement, detailed enough to get a specific African tribe's name correct, and to translate the news about the protagonist's house in Swahili. 'Nyumba ya Josettan' is the title of a photo essay in the 'Maasai Times' newspaper which brought the Maasai tribesman to Thrissur in the first place.
</p>
<p>
It's charicatured, and might be one of the most famous African communities around the world, but the 'Nyuma ya Josettan' newspaper article points to a non-trivial amount of attention to detail.
</p>
<p>
Curiously, Americans seem to be absent from the assorted group of national costumes.
</p>
<p>
Here's the ad in it's full version
</p>
<p>
<div class="videoWrapper"><iframe width="560" height="349" align="middle" src="https://www.youtube-nocookie.com/embed/nCzGrKyvEp8" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe> </div>
</p>
</div>
</div>
<div id="outline-container-org6ef7968" class="outline-3">
<h3 id="org6ef7968">Portrayal of Bengali migrant labourer</h3>
<div class="outline-text-3" id="text-org6ef7968">
<p>
The portrayal of the Bengali migrant in the ad is also notable. Our Maasai visitor, after reaching a major intersection in Thrissur town asks a Bengali migrant labourer for directions to Josettan's house. The migrant worker replies in a thickly accented Malayalam, 'Avide <span class="underline">Setta</span>', a corruption of 'Avide Chetta'. 'Chetta', a male honorific in Malayalam gets mangled into the 'Setta' of Bengali. The labour also has a <b>Bengali</b> newspaper in his hand, another nice touch of detail. I'm not aware of any Bengali newspapers circulating in Thrissur, but if they indeed do, that would be an indication of how deeply rooted out-of-state migrant labourers have become.
</p>
<p>
The attention to details is just a nice touch. Far more important is the fact that this ad got made and broadcast without any backlash at all– actual or feared.
</p>
</div>
</div>
<div id="outline-container-orgdcc3f83" class="outline-3">
<h3 id="orgdcc3f83">Migrant labourers in Kerala and rest of South India.</h3>
<div class="outline-text-3" id="text-orgdcc3f83">
<p>
Migration has been the core of the Indian condition for centuries. The 19th Century, the 20th century saw migrations following the partition. 21st century seems to be the period North to South migration. Between 2001 and 2011, the proportion of South Indian population reporting Hindi as their mother tongue increased by 40%, eclipsing the all-India increase of 25%.
</p>
<p>
The same trends have played out in Kerala, which has one of India's highest daily wage rates coexisting with India's lowest population growth rates. Between 2001 and 2011, Hindi speakers in Kerala almost doubled, albeit from small baseline of less than 1% of the state's population.
</p>
<p>
The similarities end there. In Karnataka and Tamil Nadu, the ballooning migrant presence has strained existing linguistic and cultural fault-lines, culminating in agitations against the use of Hindi in public places and travel systems. In Bangalore, none of the state owned public transport buses carry boards in Hindi. The older buses have signs exclusively in Kannada, while the newer buses have LED tickets for signs in English. In 2017, protestors blacked-out the Hindi names of metro stations in Bangalore, and in 2019, Tamil Nadu witnessed massive protests against an alleged imposition of Hindi.
</p>
<p>
However, the situation in Kerala could not have been more different. Both the government and the public have been accomodative and even welcoming of migrant labourers. Buses plying through major migrant hubs carry Hindi signboards as well as Malayalam. Children of migrant labourers regularly make the news during examinations for scoring well, including in Malayalam. The government of Kerala, launched an insurance scheme for migrant workers in 2017, enrolling over 150,000 workers. Under the scheme, workers would receive an insurance payout of Rs 200,000 in case if accidental deaths, and Rs 15,000 to cover treatment costs in private hospitals. The state government funded the scheme in full, with neither employers nor the labourers having to make contributions.
</p>
<p>
In Perumbavoor, a small town of 28,000 in the outskirts of Kochin, which has become a hub of migrant labour, shopkeepers and buses have signs in Hindi and Assamese. In Perumbavoor's Bhai Bazaar, thousands of migrant workers walk though alleys riddled with Hindi shop-signs, restaurants serving Bengali cusisine, and even a theatre playing Bhojpuri movies.
</p>
</div>
</div>
<div id="outline-container-org776f55b" class="outline-3">
<h3 id="org776f55b">Explaining the difference: No easy answers</h3>
<div class="outline-text-3" id="text-org776f55b">
<p>
What explains this difference? What makes Hindi on signboards verbotten for Kannadigas, while a flesh-and-blood Bengali migrant in an ad aimed at true-blue Malayali home-owners goes unnoticed?
</p>
<p>
Did generations of emigration to the Middle East make Malayalis sensitive to the pain and perils of migration? Do they see a toiling friend or a relative in the Bengali or Bhojpuri migrant? Are they paying forward the helping hands they received during their Middle Eastern exiles?
</p>
<p>
Or is it because the migration so far has not threatened the dominance of Malayalam and Malayalis in their own states? Migrants from Bengal and Bihar are transient. They don't put down roots, nor do they occupy positions where they make decisions over the natives. In Karnataka, the anti-Hindi agitations arose from resentment against migrant bank employees who did not speak Kannada. The native Kannadigas often found themselves having to depend on these unhelpful employees for assistance. Kerala also has a smaller proportion of non-native population. Compared to Karnataka where Hindi speakers are about 3.5% of the population, Kerala's Hindi speakers amount to a mere 0.16% of the population.
</p>
<p>
As Kerala's population growth slows, migration of labour from Northern states will continue to grow, driven by the wage differential between their home states and Kerala. This can lead to hostility towards migrants, particularly North and East Indian migrants. However, the underlying theme of acceptance and assimilation highlighted through ads like the one discussed suggest a brighter future.
</p>
</div>
</div>
</div>PaulA ad for paint offers a perceptive window into the life of north Indian migrant labourers in Kerala.Matt Haig’s The Humans, and why it didn’t work for me2019-09-30T00:00:00+00:002019-09-30T00:00:00+00:00https://pj-paul.github.io/books/2019/09/30/the_humans_matt_haig<p><img src="/docs/images/The_Humans_Cover.jpg" alt="The Humans" class="align-center" /></p>
<h2 id="plot-summary">Plot Summary</h2>
<p>Matt Haig’s ‘The Humans’ is about an alien protagonist who comes to earth to prevent humans from making a particular scientific discovery which
could threaten the stability of the universe. The alien’s mission is to identify and kill anyone with knowledge of the discovery, starting with Richard– a professor of Mathematics who made the discovery– and all those the professor shared details of his discovery with, including his wife, son, and colleagues. The alien goes about his mission, taking on Richard’s physical form and living in Richard’s house with his wife and son, and along the way comes to appreciate humanity through adventures like falling in love with the professor’s wife and becoming a father figure to the professor’s moody and neglected teenage son.</p>
<p>Both as a work of sci-fi and a work of emotive fiction, ‘The Humans’ falls short of potential. Haig neglects to build the world of the alien’s host society leading to an unconvincing decision by the alien protagonist to become a human and to give up his alien super-powers. Haig also ignores the internal emotional world of his human characters making them feel like usherers just there to move the plot along.</p>
<h2 id="world-building-inside-and-outside">World-building inside and outside</h2>
<p>In sci-fi works involving civilizations significantly different from human civilization, I usually expect the author to do a bit of world-building, and to show me how these alien societies grew, evolved, and reached their current stage of development. Such world-building can often provide fresh perspectives into the norms and follies of our mortal lives. For example, in the <a href="https://www.goodreads.com/author/show/5780686.Liu_Cixin">Three Body Problem trilogy</a>, Cixin Liu creates the alien race of ‘tri-solarians’, who communicate by transparently broadcasting their thoughts, rather than sharing a processed version of these thoughts through mediums of words or sounds. This ‘open transmission’ mode of communication means that tri-solarians cannot ‘lie’, and do not even have the concept of lies.
World-building,if done well, can also help paint a picture of the internal mental world of alien characters, by showing how they have adapted to their external worlds.</p>
<p>Haig disappoints this expectation by painting the alien society in extremely broad strokes. We are told that the alien society has transcended scarcity, irrational emotions, and death– they are technological geniuses who have achieved immortality and have been around for millions of years. The alien society disregards personal bonds, marital and familial, with rational thought trumping all else as the sole organising principle. Haig could’ve built on these broad ideas to explore how life forms and societies evolve in the absence of scarcity and mortality. When you’re not afraid of want or death, what does life look like for you? In such a society, how do you convince members to sacrifice and put the group over the individual? What does immortality and the consequent infinite wisdom do to an individual’s sense of self and place in the universe?</p>
<p>Life without death offers a rich vein of ideas to explore as so much of the narrative around the meaning and purpose of human existence is predicated on the inveitability of death and the uncertainty of an afterlife. What if death no longer haunted us, and we were immortal– would we still have to struggle with questions of meaning and purpose? How would we change if we became, quite literally, the masters of our universe? Will we still be able to empathise with ‘lesser’ sentient beings struggling with mortality and material scarcity?
Haig spurns engaging with these questions, and as a result I’m left unconvinced by the alien’s decision to renounce his own immortality and super-human abilities, and to become a human.</p>
<p>Haig shows the alien’s view of humans evolving over a sequence of encounters with human fear and love, including episodes involving physical assaults of Richard’s colleague and son, followed by the affection other humans show towards the victims and towards the alien himself. However, if we buy Haig’s sketch of life in the alien host society, this transofrmation begins to feel a bit suspect. For starters how is our alien protagonist will able to identify and acknowledge emotional expressions such as affection and fear. There are no equivalent references for the alien to draw on. In other places along the book, the alien’s expression of gender identity is too conveniently similar to that of a stereotypical human male– reticenct, selfish, and prone to bouts of narcissm. It’s almost as if the alien protagonist is actually just a long lost human finally discovering his true family. Haig seems to count on the reader to anthropormorphize the alien so as to impute the ability to recognise and acknowledge human emotions.</p>
<p>Similarly grudging is Haig’s attention to the emotional world of other characters. While the alien protagonist seems to conveniently fit the mould of a typical human male, characters like his wife and son do not exist independent of the main protagonist. We do not get to see or feel what goes on in their minds other than in relation to the protagonist. Another member in a reading group I attend quipped that the dog in Richard’s household had a more fleshed out internal life than most characters.</p>PaulThe Humans feels a bit too pat and convenient.Duncan Green on Social Norms: A Response2017-04-26T00:00:00+00:002017-04-26T00:00:00+00:00https://pj-paul.github.io/dev%20econ/2017/04/26/Duncan_Green_Social_Norms_final<ul id="markdown-toc">
<li><a href="#duncan-green-on-social-norms" id="markdown-toc-duncan-green-on-social-norms">Duncan Green on Social Norms</a></li>
<li><a href="#a-couple-of-questions" id="markdown-toc-a-couple-of-questions">A couple of questions</a> <ul>
<li><a href="#how-feasible-is-it-to-use-family-faith-and-teachers-as-starting-points-of-norm-change-programs" id="markdown-toc-how-feasible-is-it-to-use-family-faith-and-teachers-as-starting-points-of-norm-change-programs">How feasible is it to use family, faith, and teachers as starting points of norm-change programs?</a></li>
<li><a href="#should-aiddev-organizations-be-the-vanguard-of-norms-revolution-or-should-we-pick-up-the-pieces" id="markdown-toc-should-aiddev-organizations-be-the-vanguard-of-norms-revolution-or-should-we-pick-up-the-pieces">Should aid/dev organizations be the vanguard of norms revolution, or should we pick up the pieces?</a></li>
<li><a href="#what-can-be-done-then" id="markdown-toc-what-can-be-done-then">What can be done, then?</a></li>
</ul>
</li>
</ul>
<h1 id="duncan-green-on-social-norms">Duncan Green on Social Norms</h1>
<p>Duncan Green has a new <a href="http://oxfamblogs.org/fp2p/what-do-aid-agencies-need-to-do-to-getting-serious-on-changing-social-norms/">blog
post</a>
on how aid agencies can change ‘social norms’. It stirred up a couple of
old debates I’ve had on social change and scope for external
interventions in them. I summarize the blog post and respond to it
below.</p>
<p><strong>Summary</strong>: Aid agencies have gone too far in pushing for reform of
social norms via the legislature route without adequate social buy-in–
the current tide of populism and backlash against political correctness
indicate this. Analysis on <strong>how to change norms should take as the
starting point the “… the moments in people’s lives when norms are
formed or reformed, and the crucibles that forge them”– this identifies
the family, faith organizations, and early years education as sectors of
main interest.</strong> Acting on the created analysis should involve a <strong>shift
away from the current fact-heavy approach, and a greater focus on
“emotion and narrative”, where we “start with the emotion and then
follow up with the evidence”.</strong> Traditional partners (media, civil
society organizations, and academics) should also be used mainly to
change norms- this might entail a major change in current partner
choices. Also, since social norm shifts are linked to critical
junctures, we should look out for and act quickly when a crisis strikes.</p>
<h1 id="a-couple-of-questions">A couple of questions</h1>
<h2 id="how-feasible-is-it-to-use-family-faith-and-teachers-as-starting-points-of-norm-change-programs">How feasible is it to use family, faith, and teachers as starting points of norm-change programs?</h2>
<p>My bet is not very much: religion and family in any society pretty much
mirror the prevailing norms of the society making it hard to use them in
overturning those very norms. This shouldn’t be surprising since
families provide the first and deepest indoctrination into social norms
(particularly the more problematic ones) and these norms in turn draw on
religion to justify themselves. In fact, the current conservative
backlash against public schools in the United States and the resurgence
of the home-schooling movement can be seen as a strong attempt by family
and faith groups to resist an ‘indoctrination’ in liberal values
including LGBT rights/values. In India, at least, the norms that liberal
movements find most problematic (and would like to change) have either
the implicit or the explicit and support of family and faith groups. In
this scenario, it’s not very clear how far family and faith
organizations can take you on the path of norm-change. The ability (and
willingness) of “teachers” to change norms independent of family and
faith organizations is also in question.</p>
<h2 id="should-aiddev-organizations-be-the-vanguard-of-norms-revolution-or-should-we-pick-up-the-pieces">Should aid/dev organizations be the vanguard of norms revolution, or should we pick up the pieces?</h2>
<p>Faced with a social norm in need of reform, every government has two
broad options– go forth with the reform and resist the resultant
backlash (either by reason or force), or wait for the right time and
then push through the reforms. The feasibility of reform and resist in a
fractious democratic polity like India is questionable: in the past
couple of months we have seen a bunch of instances where the reform and
resist tactic has backfired (Jallikettu in Tamil Nadu, and the <a href="http://indianexpress.com/article/india/opposed-to-33-reservation-for-women-naga-bodies-call-for-boycott-of-civic-polls-4458791/%5D%20for%20women%20in%20Nagaland%20legislature">33%
reservation for women in Nagaland
legislature</a>).
Wait and push approach to reforms are usually dictated by compulsions of
politics or external shocks (a la the 1991 Indian economic reforms)—as
such the final reform could go either way. For example, compare the
legislative track record in the case of the <a href="http://www.frontline.in/static/html/fl2105/stories/20040312002504600.htm">Roop Kanwar sati incident</a> to
the case of <a href="http://www.thehindu.com/2003/08/10/stories/2003081000221500.htm">Shah Bano</a>.</p>
<p>Aid agencies face similar dilemmas as to what their role in a society
should be. Should they function as “vanguards of revolution” engaged in
a siege at the frontiers of social norms, or should they let other
popular movements (arising organically or otherwise) do the heavy
lifting and then come in to clean up? Green’s arguments imply a subtle,
yet perceptible, shift from the former to the latter, because the end
goal that evidence-based aid/dev organizations desire when they bombard
policy makers with “stats and facts” is (whether they realize it or not)
the top-down imposition of policy and invested follow-through, in other
words being the “vanguard”. If aid/dev agencies are to retreat from the
vanguard, where should they draw the line and how long are they willing
to wait– sati? female genital mutilation? child marriage? In other
words, should aid agencies wait till a large enough organic movement
evolves (with or without their assistance) before applying pressure on
countries to act against patently ‘wrong’ existing norms?</p>
<h2 id="what-can-be-done-then">What can be done, then?</h2>
<p>Pedagogy of the oppressed shows a way. Coming up in Part 2.</p>PaulResponse to Duncan Green's ideas around changing social norms.Alcohol Ban, and crime in Bihar: Not much to see here2017-01-14T00:00:00+00:002017-01-14T00:00:00+00:00https://pj-paul.github.io/2017/01/14/bihar_crime_alcohol_ban<h3 id="introduction">Introduction</h3>
<p>A few days back, a couple of newspapers carried articles based on this <a href="http://www.indiaspend.com/cover-story/270-days-after-bihar-liquor-ban-major-crimes-up-13-40759">report</a> on how crime rates in Bihar had increased steadily following the alcohol ban. The claim was definitely surprising and worth a deeper look.</p>
<p>The central claim of rising crime post the April ban of alcohol was made citing the following graph, generated from figures obtained from the <a href="http://biharpolice.bih.nic.in/menuhome/crime-in-bihar.html">Bihar police</a>. The author compared the total crime figure of 14,279 in April, 2016 to 16,153 in October, 2016 to arrive at a difference of around 13% which was recorded as the increase in crime post the alcohol ban.</p>
<p><img src="https://pj-paul.github.io/docs/images/Bihar_Crime/Bihar_Crime_Report.png" alt="Bihar Crime Report" /></p>
<p>Before we rule this shift as the result of the alcohol ban, we need to have a sense of what the crime figures for October, 2016 would have been if the ban had not happened. A rough and dirty method to get this sense is to look at how crime figures in Bihar behaved before the ban.</p>
<h2 id="year-on-year-comparison">Year-on-Year Comparison</h2>
<p>If the alcohol ban did indeed impact the crime figures, we would expect the crime figures for each month after April, 2016 (when the alcohol ban came into effect) to be significantly higher than the figures for the corresponding months in 2013, 2014, and 2015. The following graph performs this comparison for us. The graph shows the total cognizable crimes committed in Bihar in each month of the year for the 2013-2016 period.</p>
<p><img src="https://pj-paul.github.io/docs/images/Bihar_Crime/Total_Crimes_by_month_2013_16_bar.png" alt="Total_crimes_by_month" /></p>
<p>The crime figures for each month after April, 2016 are roughly similar to the figures for the 2013-2015 period. In fact, the figures for 2016 are lower than the figures for 2015 in all months except October. Only in April and May are the 2016 figures higher than the 2014 figures as well. It appears that October 2016 is a slight outlier in terms of the past trend.</p>
<p>The above relationship is also seen in the case of the major individual crimes in Bihar. The following graphs indicate the Year-on-Year month-wise comparison for thefts, riots, kidnapping, and burglary, respectively. Only the trend for kidnapping shows a wide deviation from the 2013-2015 trends.</p>
<p><img src="https://pj-paul.github.io/docs/images/Bihar_Crime/Thefts_by_month_2013_16_bar.png" alt="Thefts_by_month_bar" /></p>
<p><img src="https://pj-paul.github.io/docs/images/Bihar_Crime/Riots_by_month_2013_16_bar.png" alt="Riots_by_month_bar" /></p>
<p><img src="https://pj-paul.github.io/docs/images/Bihar_Crime/Kidnappings_by_month_2013_16_bar.png" alt="Kidnappings_by_month_bar" /></p>
<p><img src="https://pj-paul.github.io/docs/images/Bihar_Crime/Burglaries_by_month_2013_16_bar.png" alt="Burglaries_by_month_bar" /></p>
<p>All this seems to indicate that the post-April, 2016 period is not significantly different from previous years, and the alcohol ban has not had a major impact on crimes.</p>
<h2 id="seasonality-of-crimes">Seasonality of crimes</h2>
<p>A general reason for the above results is the seasonality of crime in Bihar- meaning crime is generally higher in some months, and lower in others. This is highlighted by the following graph, which shows the average crime figure for each month of the year for the 2010-2015 period.</p>
<p><img src="https://pj-paul.github.io/docs/images/Bihar_Crime/Total_Crimes_by_month_2010_15_box.png" alt="Total_crimes_by_month_2010_15_boxplot" /></p>
<p>The difference between months is clearly visible. A comparison of the crime figures in January or February against any other month will most likely lead us to conclude that crime had increased.</p>
<h2 id="however">However….</h2>
<p>None of this means that all is well in Bihar. In fact, as the following figure indicates, the monthly crime figures for the period 2013 - 2016 are consistently higher than the figures for 2010 - 2012. While these figures are unadjusted for population figures (per-capita crime could be decreasing, even though absolute crime is increasing) as well as for possible periodicity in crime (crime may rise and fall over cycles of 3 or so years), the persistent upward shift of crime figures deserves closer scrutiny.</p>
<p><img src="https://pj-paul.github.io/docs/images/Bihar_Crime/Total_Crimes_by_month_2010_16_line.png" alt="Total_crimes_by_month_2010_16_line_plot" /></p>
<h4 id="notes-and-references">Notes and References</h4>
<ul>
<li>The code (a bit messy) and the data (relatively clean) used to generate the figures are available <a href="https://github.com/pj-paul/pj-paul.github.io/tree/master/docs/images/Bihar_Crime">here</a>.</li>
</ul>PaulAlleged spike in crime following alcohol ban is largely due to seasonality in crime figures.