From Wikipedia, rationality is broadly described as "All that is required for an action to be rational is that if one believes action X (which can be done) implies Y, and that Y is desirable, he or she does X. The action would likewise be avoided were Y undesirable. Such arguments are logically valid but not necessarily logically sound." And being logically sound requires good human judgment.

So as humans do we make a decision based primarily our intelligence or impulse? As the title of his book Predictably Irrational may suggests, Dan Ariely thinks it is the latter. In a span of a week, I have seen or heard about the book from different sources. I first heard about the book when the author was being interviewed on NPR last week. Yesterday, I saw the book on the shelves in a bookstore in San Francisco. Earlier today, my friend Siobhan, sent me this link to the New York Times review of the book. The author is also one of the 2 co-professors of a marketing class I took at MIT 3 years ago (gosh, has it been that long). Here is the blog entry about my thoughts about his class.

As an economic junkie and a Freakonomics fan, I am attracted to the content of Ariely's book. Maybe I should go pick a copy up and read it on my red eye flight from San Francisco to Boston tomorrow.

2/27/2008 11:53:00 AM (Eastern Standard Time, UTC-05:00)

Comments [3]

Book

Modern business, lifestyle, and culture are creeping into the mainstream in Laos. The country is changing fast and in the face of enormous economic change, great opportunities can be created. I can relate to a story of how a Lao girl react to economic change in her local turf.

In Vientiane, Laos, where I worked, there is a strip of land by the Mekong River known as the Mekong Promenade (or Fa Ngum) where traditional streetside food vendors set up makeshift stalls selling delicious Lao food.

In recent years new beer gardens and riverside restaurants have opened up in the area. Mekong Deck, one of the newer modern beer gardens with a stylish modern decor opened for business in around September 2007. I visited Mekong Deck a lot while I was working in Vientiane since my roommate and I knew the people who own the bar. Honestly, Mekong Deck is a wonderful place to nurse a glass of Beer Lao and enjoy the evening tropical breeze by the Mekong River.

Whenever I was at the Mekong Deck, I saw this little girl, about 12 years old, with nice complexion and beautiful eyes selling inflatable figures. Every night, she would walk from one end of the promenade where the streetside food vendors are located to the other end where the chic bars and restaurants are. She would hold these inflated figures usually of animals and sometimes of super-heroes, like Spiderman, while making rounds on the circuit selling toys to patrons there. Regretfully, her business hasn't been doing well. I have never seen a sellout of her inventory. Some nights, I see her getting mad by stomping her feet and yelling at customers for not being able to sell her toys. And then there are nights when she was just sad and disappointed. Ally, a girlfriend of my roommate, and I sympathized with the girl. We really wanted to do something to help her out. One doesn't need an MBA to realize that this is a classical example of adapting to the market and selling the right product. In business lingo, what she needs is the 2 Ps (out of 4) of marketing: placement and product. In terms of placement, we need to recognize that the market is changing at the Mekong Promenade. The demographic trend is towards a younger, affluent, and sophisticated crowd. More importantly, most people go to the Mekong Promenade at night to drink. So she needs a product that specifically targets these people. And what better way to entice a drinking crowd than peanuts. Since I can only speak "baby" Lao (a level of mastery where I can "get by," ie. ordering food and getting around town), I had Ally to speak to the little girl in their native language. We didn't baffle her with the Ps of marketing. Our message was direct and simple. We simply told her: "Go sell some peanuts. Everyone at this beer garden wants peanut." She first reacted by shrugging her shoulders and then asked if we want to buy an inflatable figure from her. We repeated our message to her. She then stared at us for a good 2 seconds before walking away looking disappointed that we didn't buy a balloon from her. Sigh... Maybe I should have bought a toy from her just to get her full attention. In any case, I hope she took our advice and is successful in what she does. I hate seeing her feeling, frustrated and disappointed every night.

2/14/2008 2:31:26 AM (Eastern Standard Time, UTC-05:00)

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Business

Wikipedia offers the following description of the classical prisoner's dilemma:

Two suspects, A and B, are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal: if one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must make the choice of whether to betray the other or to remain silent. However, neither prisoner knows for sure what choice the other prisoner will make. So this dilemma poses the question: How should the prisoners act?

The dilemma can be summarized thus:

Basically, each prisoner has only two choices:

1. Betrays or defects
2. Cooperates and stays silent

Moreover each prisoner must choose without knowing what his accomplice has chosen, thereby making the situation more interesting. But for any prisoner, the dominant strategy is to defect. If the prisoner B stays silent, it would be better for prisoner A to defect. Even if prisoner B defects, it would still be better for prisoner to defect as he/she will be serving 5 years instead of 10. But here's the rub: since all rational players will defect (all things being equal), each prisoner will end up serving 5 years in prison. The system optimal solution is for both to cooperate so that if both prisoners stay silent, they each serves 6 months. In other words, cooperation is the way to go.

What makes prisoner's dilemma even more interesting is how it can be used to explain the one of the behaviors I commonly witness when I was traveling in Asia: the lack of cooperation. I have observed that the lack of social cooperation (sometime it is just downright selfishness) is pervasive in many Asian societies (there are exceptions but the attitude of "everyone for him/herself" seems to be most entrenched in most developing Asian countries). Try taking the subway in China or driving in India, and you will know what I mean. I am no saint myself. Within hours of assimilation in a new city in Asia, I, too, think "If everyone is looking out for him or herself. Why shouldn't I?" That said, my argument isn't a moral diatribe or even a criticism of any sorts. But rather how I can explain traffic gridlock in China and India using the concepts of the prisoner's dilemma.

I have seen it so many times in China and India, people there love to run the red light and most often than not, creating a gridlock that looks like this:

I was traveling on a taxi from New Delhi to Jaipur two months ago. Halfway through the journey, J.K. the taxi driver and I, came to an intersection in a town where the traffic was heavy. As we were about to cross the intersection, the red light came on. Even though there was simply no room to maneuver ahead, every driver in the moving traffic including J.K. floored the pedal and raced ahead as if stopping behind a red light was a death sentence. But in doing so, we actually created something that very much looked like the scene in the picture above. We wasted a good 3 minutes as drivers rushed to untangle the mess they had created. So I asked J.K. whom I had got to know very well by now why he and everyone around him did this even though it doesn't serve anyone any good. With a thick Indian accent, he answered: "We always have to get ahead." I said: "But J.K. there's a reason why we need to stop at the red light." He responded: "No sir, you won't survive if you play nice."

I disagree with J.K. I don't think cooperation is a sign of weakness or niceness. If J.K. was the only person running the red light, that's fine by me since the traffic would still flow. But if everyone is doing it, that's a different story. On the contrary, when drivers actually cooperate and observe traffic rules (a system optimal solution for everyone involved), we can all get through it a little faster by avoiding a traffic carnage. Indeed, I read it from somewhere before that selfishness can go hand in hand with cooperation. So I think the lesson of the prisoner's dilemma in real life is: whether you are altruistic or selfish, the best strategy over the long term should be mutual cooperation.

2/12/2008 11:58:41 AM (Eastern Standard Time, UTC-05:00)

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Business

Economics was my favorite subject when I was studying at MIT. Asia, a continent currently experiencing enormous economic reforms and change, offers a rich source of displays of economic unraveling. In coming weeks, I hope to employ the principles of economics and recount some interesting observations that I experienced while traveling in Asia. I don't claim to be an authority on economics or an expert in Asian culture, besides I am doing this mainly to explore the linkages between management science and some real cases that I observed in Asia. So please enrich the discussion with your comments.

2/10/2008 11:35:41 PM (Eastern Standard Time, UTC-05:00)

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Travels

I didn't have a great camera when I was traveling in Asia recently. In fact, my Canon digital camera broke on the first day I was in India. I had to resort to using my camera phone for the rest of my trip there. I have been lucky with photo taking, especially with sunset as being the subject. I happened to be at the right place and the right time to capture some amazing sunsets and silhouettes. Here are some of the best sunset pictures that I took. See here for complete collection.

2/9/2008 2:36:20 AM (Eastern Standard Time, UTC-05:00)

Comments [2]

Travels

Happy new year everyone -- belated greeting I know, but like they say: it's better late than never.

It has been so long since I last blogged. I have been traveling in Asia the past 6 months, leaving little time to blog. Alright, I also have to admit that I was being unmotivated and lazy to blog at times. But after returning home from my travels, I have been hankering for an outlet to express myself. So starting today, I will make an effort to start blogging again. Stay tuned.

2/8/2008 11:03:03 PM (Eastern Standard Time, UTC-05:00)

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