(written in 2011)
Following up on my previous article about the emerging world, I am now going to comment on my second main observation, one that I am personally very passionate about. I call it ability to deal with ambiguity. In a nutshell, it is an exciting mixture of carelessness about the future combined with a healthy portion of hubris that things will end up well.
India can be a great example. People here often give the impression that they are unorganised. That they do not seem to give much attention to planning and preparation about what lies ahead. Yet most of the times, when under pressure to deliver, they somehow manage to do what they promised.
I admire this quality of theirs. It is something so many people in the West miss. I do not mean now that people should stop caring about the future, no. One should always have a plan about what to do next. But sometimes, you cannot do your research as extensively as you would like to and you cannot wait for all the information to come in. Sometimes you have to act now otherwise the opportunity is gone. In such moments we have so much to learn from the emerging world.
So next time, when faced with an ambiguous situation and no more time to spare, throw a bit of hubris into the decision making process and trust yourselves that things will end up well. If you believe so, they usually will.
PS: On retrospective, I find this article advocating the idea in a little too careless way. Please article called Trust the Process for more thoughts on the topic.
Monday, 9 January 2012
Emerging markets 1: Risk aversion
(written in 2011)
I am now working in Delhi and usually take local rickshaws, or autos as they call them here, to commute to work. I was once going in one of them back home and was quite afraid as the driver was navigating it on Delhi's congested roads really fast. But I am getting used to it slowly. Having spent some time Mexico and the Middle East earlier this year, September in East Africa and now two weeks in India I came to realise that people in the emerging economies have in general lower levels of risk aversion compared to the western world.
Driving habits in all these counties are horrific for a westerner. Lanes are generally not respected and nor are the speeding limits, drink driving is a norm and you overtake whenever there is at least a slight chance of making it back to your lane without crashing into a car going in the opposite direction.
The same goes for utilisation of space or usable lifetime of things. More people fit into a single bus and more goods are loaded onto a single truck. A van that would have been deemed unusable in the West is still carrying passengers and old wooden scaffoldings can be seen at most construction sites. This drives down capital expenditure and operational costs but in turn it increases the risk of running those processes.
Lower levels of risk aversion are reflected also in living habits. People in Mexico or East Africa live in neighbourhoods where it is not safe to carry your watch during a day and where walking after dawn is almost equal to being in trouble. Some townships in Israel have concrete shields built every 200 meters on a street so that when sirens signal rockets being launched from Gaza people can seek shelter instantaneously regardless on where they are.
But why do people behave in such way? My colleague and friend from Kenya gave me a very simple answer. Because they have to, they have no other choice. If my auto driver was taking too much time to take me from A to B, he would miss out on monies he could have earned by another passenger somewhere else in the meantime. Companies have to innovate in a disruptive way because people would not be able to afford products at their usual costs.
But while the external environment is forcing my driver to be taking risks, I am telling him as a customer to be more careful. Western firms are under pressure to start making bolder moves and companies from emerging markets are learning very well that safety cannot be compromised. It will be interesting to see who learns faster and whether higher aversion to risk is actually an advantage or an disadvantage.
I am now working in Delhi and usually take local rickshaws, or autos as they call them here, to commute to work. I was once going in one of them back home and was quite afraid as the driver was navigating it on Delhi's congested roads really fast. But I am getting used to it slowly. Having spent some time Mexico and the Middle East earlier this year, September in East Africa and now two weeks in India I came to realise that people in the emerging economies have in general lower levels of risk aversion compared to the western world.
Driving habits in all these counties are horrific for a westerner. Lanes are generally not respected and nor are the speeding limits, drink driving is a norm and you overtake whenever there is at least a slight chance of making it back to your lane without crashing into a car going in the opposite direction.
The same goes for utilisation of space or usable lifetime of things. More people fit into a single bus and more goods are loaded onto a single truck. A van that would have been deemed unusable in the West is still carrying passengers and old wooden scaffoldings can be seen at most construction sites. This drives down capital expenditure and operational costs but in turn it increases the risk of running those processes.
Lower levels of risk aversion are reflected also in living habits. People in Mexico or East Africa live in neighbourhoods where it is not safe to carry your watch during a day and where walking after dawn is almost equal to being in trouble. Some townships in Israel have concrete shields built every 200 meters on a street so that when sirens signal rockets being launched from Gaza people can seek shelter instantaneously regardless on where they are.
But why do people behave in such way? My colleague and friend from Kenya gave me a very simple answer. Because they have to, they have no other choice. If my auto driver was taking too much time to take me from A to B, he would miss out on monies he could have earned by another passenger somewhere else in the meantime. Companies have to innovate in a disruptive way because people would not be able to afford products at their usual costs.
But while the external environment is forcing my driver to be taking risks, I am telling him as a customer to be more careful. Western firms are under pressure to start making bolder moves and companies from emerging markets are learning very well that safety cannot be compromised. It will be interesting to see who learns faster and whether higher aversion to risk is actually an advantage or an disadvantage.
Sunday, 18 December 2011
Climbing a mountain
I am writing this post on an overnight bus from Rishikeshh to Delhi, getting back to the metropole after incredible four days in the Himalayas. We tracked up to the Indra Hara Pass, approximately 4,300 meters above the sea level, and back Mclau Dang in three days, spending two nights on the mountain. It was tough. But how tough was it? That depends on one's point of reference.
In September this year, I summited the Kilimanjaro in Tanzania. 5860 meters in altitude, Five days of trekking, sleeping in tents with tenperatures dropping to -15C at night and no shower during the whole time. From about 4500 meters I got some kind of mountain sickness combined with diarhorea which meant I could not eat anything. My muscles were really tired but my mind was still sharp and it dragged the body all the way to the top. Compared to this experience, getting to the Indra Hara Pass was a piece of cake.
We can extend this concept to anything we do. Working 60 hours a week? Feasible compared to 80 hours. Having to find your way around New Delhi? Easy compared to being alone in say, Nairobi.
It is good to have extreme experiences sometimes because they just make everything else seem manageable to us afterwards.
In September this year, I summited the Kilimanjaro in Tanzania. 5860 meters in altitude, Five days of trekking, sleeping in tents with tenperatures dropping to -15C at night and no shower during the whole time. From about 4500 meters I got some kind of mountain sickness combined with diarhorea which meant I could not eat anything. My muscles were really tired but my mind was still sharp and it dragged the body all the way to the top. Compared to this experience, getting to the Indra Hara Pass was a piece of cake.
We can extend this concept to anything we do. Working 60 hours a week? Feasible compared to 80 hours. Having to find your way around New Delhi? Easy compared to being alone in say, Nairobi.
It is good to have extreme experiences sometimes because they just make everything else seem manageable to us afterwards.
Thursday, 27 October 2011
Helping you make good decisions
I have recently read a very interesting book called Nudge by Thaler and Sunstein. It explores our decision making processes and extends it to application in choice architecture. The authors argue that while people are able to think rationally (economically) they not always do so. Here is why, what it means for us and how we can at least partially overcome this problem.
It is either impossible or impractical to precisely calculate the trade offs between our options most of the times. Our previous experiences (intuition) and emotions then come in play and influence what decisions we make. Our rational and emotional selves are pulling us in opposite directions; the right, emotional, side of our brain often being the more dominant one (you know that you should choose A but end up choosing B because your feelings are telling you so). This is how we make sub-optimal choices.
Behavioural economics deals with this phenomena and, unlike rest of the field, it does not pretend that people always make rational choices. If applied, we can then speak of choice architecture. Since we always make our decisions in a certain context, it is possible to influence our choices by designing our decision making circumstances. It is important to say that choice architecture is not about tricking people into certain choices which might not be in their interest. It is about making decision processes easier for people by giving people so called nudges.
Nudges are small and deliberate changes to one's decision making context. They are designed to influence one's emotional decision making process in a direction that the rational system would take. They help people make better judgements while leaving them with the ultimate option to choose. Bellow are six examples of nudges that help ensure people's rational and intuitive/emotional sides are not in conflict.
Defaults
As mentioned earlier, people do not always think about choices they are making. If there are multiple options, we tend to choose the default one (e.i. we do not switch to a different one). When designing a choice context, select the default option carefully as it is likely to end up being the most popular one. If you want people to make an active choice, do not offer an default one but force people to make a decision (e.g. by not allowing them to proceed before they make a selection).
Example: Much higher percentage of people agree to donate organs after their death if the organ donor form has 'Yes I agree to be a donor' as a default option.
Expect error
People can make bad decisions. Moreover, we tend to make the same mistakes over and over again. Try to guess therefore or, if possible, test on a sample of people what decisions they usually make in a situation you are putting them into. When designing a choice context you can then guide people away from making those mistake.
Example: People were forgetting their cards in ATM's when taking cash. A nudge to counter this ensures that a machine does not give us money unless we take our card first. Another great example is a gmail functionality that gives you a warning message if you mentioned word attach(ment) in your email but did not attach anything.
Give feedback
Design a system that tells people if the decisions they are making are good or not. Receiving a feedback is one of the best ways to learn.
Example: Laptops warn us when the battery is low and we need to plug in the charger (e.i. if we make a decision to ignore the decreasing percentage count in the bottom corner of our display and we do not plug in the cord).
Understand mappings
This rather mysteriously called nudge suggests that you should make it as easy as possible for people to understand and evaluate potential outcomes of their decisions before they make them.
Example: Mobile operators having simple tables telling users how much it costs to use their services. This allows us to make a better choice when deciding if we should browse the internet from our mobile phone while abroad or not.
Structure complex choices
When the number of options is too big to evaluate each one individually, we need to apply certain filters. By allowing us to narrow down our domain of selection according to various criteria they make the selection simplier. Think therefore what are the most important criteria for the people you are presenting a decision with and offer them relevant filters.
Example
Amazon allows us to search for books by genre, price or date of publication.
Incentives
Let people know in as far as possible the real costs of their choices and hope it will improve their ability/willingness to think rationally. This nudge is the one closest to conventional economic theory.
Example
Thermostats showing us the cost of energy consumption in real time hence giving us a disincentive to keep the air condition on or treadmills telling how many calories we have burned as we run in a gym.
Happy nudging!
It is either impossible or impractical to precisely calculate the trade offs between our options most of the times. Our previous experiences (intuition) and emotions then come in play and influence what decisions we make. Our rational and emotional selves are pulling us in opposite directions; the right, emotional, side of our brain often being the more dominant one (you know that you should choose A but end up choosing B because your feelings are telling you so). This is how we make sub-optimal choices.
Behavioural economics deals with this phenomena and, unlike rest of the field, it does not pretend that people always make rational choices. If applied, we can then speak of choice architecture. Since we always make our decisions in a certain context, it is possible to influence our choices by designing our decision making circumstances. It is important to say that choice architecture is not about tricking people into certain choices which might not be in their interest. It is about making decision processes easier for people by giving people so called nudges.
Nudges are small and deliberate changes to one's decision making context. They are designed to influence one's emotional decision making process in a direction that the rational system would take. They help people make better judgements while leaving them with the ultimate option to choose. Bellow are six examples of nudges that help ensure people's rational and intuitive/emotional sides are not in conflict.
Defaults
As mentioned earlier, people do not always think about choices they are making. If there are multiple options, we tend to choose the default one (e.i. we do not switch to a different one). When designing a choice context, select the default option carefully as it is likely to end up being the most popular one. If you want people to make an active choice, do not offer an default one but force people to make a decision (e.g. by not allowing them to proceed before they make a selection).
Example: Much higher percentage of people agree to donate organs after their death if the organ donor form has 'Yes I agree to be a donor' as a default option.
Expect error
People can make bad decisions. Moreover, we tend to make the same mistakes over and over again. Try to guess therefore or, if possible, test on a sample of people what decisions they usually make in a situation you are putting them into. When designing a choice context you can then guide people away from making those mistake.
Example: People were forgetting their cards in ATM's when taking cash. A nudge to counter this ensures that a machine does not give us money unless we take our card first. Another great example is a gmail functionality that gives you a warning message if you mentioned word attach(ment) in your email but did not attach anything.
Give feedback
Design a system that tells people if the decisions they are making are good or not. Receiving a feedback is one of the best ways to learn.
Example: Laptops warn us when the battery is low and we need to plug in the charger (e.i. if we make a decision to ignore the decreasing percentage count in the bottom corner of our display and we do not plug in the cord).
Understand mappings
This rather mysteriously called nudge suggests that you should make it as easy as possible for people to understand and evaluate potential outcomes of their decisions before they make them.
Example: Mobile operators having simple tables telling users how much it costs to use their services. This allows us to make a better choice when deciding if we should browse the internet from our mobile phone while abroad or not.
Structure complex choices
When the number of options is too big to evaluate each one individually, we need to apply certain filters. By allowing us to narrow down our domain of selection according to various criteria they make the selection simplier. Think therefore what are the most important criteria for the people you are presenting a decision with and offer them relevant filters.
Example
Amazon allows us to search for books by genre, price or date of publication.
Incentives
Let people know in as far as possible the real costs of their choices and hope it will improve their ability/willingness to think rationally. This nudge is the one closest to conventional economic theory.
Example
Thermostats showing us the cost of energy consumption in real time hence giving us a disincentive to keep the air condition on or treadmills telling how many calories we have burned as we run in a gym.
Happy nudging!
Monday, 26 September 2011
Unconscious intelligence
We just got back from the Masai Mara National Park. We were lucky enough to be there during the great migration when thousands of animals come from the Serengeti park in Tanzania to graze in Kenya. The name Masai Mara means a Masai river. And Masai is a name of the tribe living there. We had a chance to visit their village and to see their traditional pastoral way of life.
What is unique about the Masais is that they are one of the few tribes that have not changed their traditional way of life. They have the same traditions they have had for centuries and while some of them might seem illogical and even funny to us at first sight, they have allowed them to survive until now.
Here are some examples:
Jumping competitions and polygamy.
Masai men often engage in jumping competitions. They do so for two main reasons. Firstly, if there is a pretty girl, more men get together and the one who is able to jump the highest, gets to marry the lady. That is of course providing he has enough cows to give as a dowry (10 cows is a standard). Secondly, if you are a really good jumper and can jump more then approximately 80cm you can pay only 7 cows instead of 10. If you have lot of cows or you are a good jumper you can have more wifes, usually up to five.
Houses with no chimneys
When entering a Masai house, the first impression is that there is almost no light inside and the second one is the heavy smoke that hits you as you go further inside. This is because there is a fireplace in the middle of the hut and only one small window on the side wall, there is no chimney.
When we were discussing these observations with rest of our party over dinner, some people found them illogical and funny indeed. But myself and our friend Klaus from Germany actually appreciated that there must be a reason why they are behaving in this way. Klaus called it the unconscious intelligence.
If you able to jump high, it means you are healthy and physically fit; e.i. you have good genes. If you have lot of cows, you are able to feed your family. It therefore makes sense for such man to have more wifes and kids then man who is weak and will not be able to secure his family (I am not advocating polygamy here, just trying to find logics behind local customs. Also remember, that there is no welfare state in Africa). As for the house, it is able to withstand long periods of heavy rain without any leakage despite being made from wooden branches, grass and cow manure.
I would be the last person to speak against progress and innovation and this article is not meant to defend the traditional ways of doing things. It is to remind us that everything is happening in a certain way for a reason and before trying to change it, we should understand what that reason is. Having understood it, we will be in a better position to judge if there is a better way of doing things and in determining what that way is.
What is unique about the Masais is that they are one of the few tribes that have not changed their traditional way of life. They have the same traditions they have had for centuries and while some of them might seem illogical and even funny to us at first sight, they have allowed them to survive until now.
Here are some examples:
Jumping competitions and polygamy.
Masai men often engage in jumping competitions. They do so for two main reasons. Firstly, if there is a pretty girl, more men get together and the one who is able to jump the highest, gets to marry the lady. That is of course providing he has enough cows to give as a dowry (10 cows is a standard). Secondly, if you are a really good jumper and can jump more then approximately 80cm you can pay only 7 cows instead of 10. If you have lot of cows or you are a good jumper you can have more wifes, usually up to five.
Houses with no chimneys
When entering a Masai house, the first impression is that there is almost no light inside and the second one is the heavy smoke that hits you as you go further inside. This is because there is a fireplace in the middle of the hut and only one small window on the side wall, there is no chimney.
When we were discussing these observations with rest of our party over dinner, some people found them illogical and funny indeed. But myself and our friend Klaus from Germany actually appreciated that there must be a reason why they are behaving in this way. Klaus called it the unconscious intelligence.
If you able to jump high, it means you are healthy and physically fit; e.i. you have good genes. If you have lot of cows, you are able to feed your family. It therefore makes sense for such man to have more wifes and kids then man who is weak and will not be able to secure his family (I am not advocating polygamy here, just trying to find logics behind local customs. Also remember, that there is no welfare state in Africa). As for the house, it is able to withstand long periods of heavy rain without any leakage despite being made from wooden branches, grass and cow manure.
I would be the last person to speak against progress and innovation and this article is not meant to defend the traditional ways of doing things. It is to remind us that everything is happening in a certain way for a reason and before trying to change it, we should understand what that reason is. Having understood it, we will be in a better position to judge if there is a better way of doing things and in determining what that way is.
Listening long enough
One of my first blog posts was about the importance of listening with a genuine desire to understand what the other person is trying to tell you. I now had follow up conversation on this with my friend Freddie from Uganda.
The key take away is that when deciding for how long we should be listening to others before proceeding to giving our point of view there are two key questions to answer.
The first one is how much time should I take to listen to others in order to fully understand what they are saying. This is quite an obvious one. The second one is less obvious and I honestly have not thought about it before. It is how much time should I take to listen to the other person so that he/she gets an impression that I have listened long enough. Sometimes we think (correctly or not) that we got what the other person is saying but he/she might be thinking that we could not have understood it yet. Then we need to listen for a bit longer otherwise the person will think that we do not care about what he/she is saying and will disregard our comments. This is very cultural but especially in Africa it is from my experience a very useful concept to consider and apply.
The key take away is that when deciding for how long we should be listening to others before proceeding to giving our point of view there are two key questions to answer.
The first one is how much time should I take to listen to others in order to fully understand what they are saying. This is quite an obvious one. The second one is less obvious and I honestly have not thought about it before. It is how much time should I take to listen to the other person so that he/she gets an impression that I have listened long enough. Sometimes we think (correctly or not) that we got what the other person is saying but he/she might be thinking that we could not have understood it yet. Then we need to listen for a bit longer otherwise the person will think that we do not care about what he/she is saying and will disregard our comments. This is very cultural but especially in Africa it is from my experience a very useful concept to consider and apply.
On being a teacher
Freddie, my friend from Uganda told me a great thing when we were at the Kenyan coast together. We were a group of 10 people from various countries and were having some great discussions. Some of them got quite fast paced as we were very passionate about the topics. And then Freddie, who was listening to us for a while, came to me and told me about the benefits of being like a teacher.
A teacher has an audience of kids that all learn things at a different pace. She has to be patient and take the time to explain the topic to all kinds otherwise part of the class will not be able to participate and will not be able to do what the teacher is asking them to do. It is the same with travelling across different cultures. You have to understand that not all people get things as quickly as you and you have to adjust your pace.
Taking time often results in getting a better answer. Be it because of a language barrier, lack of knowledge of the particular topic or simply an inability to think critically (from my experience the type of education one received has a huge influence on this) people often get stressed and just say yes or are unable to respond. Take your time and you will get a better answer.
A teacher has an audience of kids that all learn things at a different pace. She has to be patient and take the time to explain the topic to all kinds otherwise part of the class will not be able to participate and will not be able to do what the teacher is asking them to do. It is the same with travelling across different cultures. You have to understand that not all people get things as quickly as you and you have to adjust your pace.
Taking time often results in getting a better answer. Be it because of a language barrier, lack of knowledge of the particular topic or simply an inability to think critically (from my experience the type of education one received has a huge influence on this) people often get stressed and just say yes or are unable to respond. Take your time and you will get a better answer.
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