Thursday, December 27, 2007

FREAKONOMICS Lesson One : The Principle of Familiarity...

"Freakonomics" is a truely thought-provoking book by economist Steven Levitt and Stephen Dubner , which has become somewhat of a cult classic among those who prefer to think off the beaten path and try to understand the often surprising drivers underlying mundane looking facts of our world.

In it the authors outline a very familiar but often over-looked reason why we sensationalise some things and ignore others, it is called, well, the "principle of familiarity". The best example is the fear of flying. We don't bat an eyelid when we set off on a drive along roads which are populated by maniacs, and strewn with the wreckage of accidents. But when someone near and dear is setting off on a flight, there is always a hue and cry, despite the fact that airline pilots are seldom maniacs and that India has not had a civilian airline accident in at least a decade. (touch wood!) In fact, statistics show that airline travel is at least as safe as or more so than automobiles. If we take gross accident and casuality figures, air travel is much safer than driving your car. So, shouldn't we be feeling safer taking that flight rather than when we go grocery shopping?

According to Levitt and Dubner, it is because cars are familiar and under our personal control, that we feel safer in them. They are familiar! So it doesn't matter that the pilot on your next flight has 5000 hours of experience and his plane is packed with millions of dollars of safety features, while your driver (maybe a younger sibling) has just peeled off the big, red "L" board from your car, which was its only safety feature in the first place! You still feel helluva lot safer in the car. This is why we believe in horoscopes and quack astrologers, in curses and wishes...and yes, in touching wood, among other things.

Peter Sandman, a self-described "risk communication consultant" (he essential advises you on how best to tell your dad that you crashed his car) has a nice equation for what he calls the perception of risk.

Risk = Hazard + Outrage

So the perception of risk is a combination of the actual, often quantifiable element of danger (say, the no. of air fatalities per million seat kilometers of travel) and the perception of that danger itself (the gruesome vision of an air crash). According to Sandman, when hazard is high and outrage is low, people tend to underreact and when the hazard is low and the outrage is high, they tend to overreact.

This explains why the local Greens are up in arms when one tree is axed for road widening eventhough hundreds are being cut down daily in illegal logging operations across the State and the Country, or why there is an uproar when the Government hands over some quasi-forested land to ISRO for a world-class institute even when hundreds of acres of dense forest are being appropriated for ganja cultivation. The operative phrase is "out of sight, out of mind". Visualising a tree being cut down at Kowdiar Avenue is much easier than doing the same in some obscure, inaccessible jungle. Not to mention that protesters can conveniently reach Kowdiar from their air-conditioned houses, in their fuel guzzling cars whereas the forests of Idukki or Bandipur are a tad farther away.

Now, while this just described phenomenon can be seen in societies across the world, there is a parallel but opposite process in action as well, the manifestation of which is evident in our media day in and day out.

For that, we need to reframe Sandman's equation,

Attention = Substance + Hype

Let's take the tale of two projects. One is an established player, the largest of its kind in India. It has attracted investors and praise in equal measure from across the world, big and small. It is rapidly expanding with a proven business model and a large existing and potential clientele. The second is a marginal player based in a country where its chosen industry is non existent, it is about one-third the size of the above mentioned player, has no major operations to speak of and is still to evolve a firm business plan or schedule of expansion. Thus far, I am sure all of us would agree that the odds are firmly in favour of the former. People would be more interested in it because of its proven track record and scale. The media should be continually reporting about it, especially since it is the largest employer in the region. As for the second player, a wait-and-watch approach would be adopted. Right?

Well, wake up and read the news. Atleast, read or listen to a few members of the local media fraternity. Surprise, surprise....the second entity gets ten times as much media coverage and even more of the share of public interest. Illogical, well that's the truth and you and me are all part of this willing suspension of logic.

Many of you would have already understood what I am referring to. The first mentioned is Technopark, India's largest IT Park and Kerala's largest employer. The other is the Dubai Internet City, the darling of the press.

The facts are crystal clear:

Source: Media reports, Technopark website and press conferences by GoK/DIC. Note: Technopark refers to Phases I-IV.

Think about it, despite the entire affair having dragged on for almost 3.5 years and a formal agreement having been signed for the last 8 months, DIC still does not have a business plan. Leaves one wondering whether they were expecting manna and money to fall from the heavens. And even if the smallest builder is launching a modest apartment project, care is taken to have snazzy imagery available. Despite the fanfare of the project inauguration of the "Smart"City project, there is still not even a single pixel available. Maybe the ink ran out?! Much is also harped up on the fact that a sister "Smart" City project is coming up in Malta. It is a modest 1 million sq.ft commercial development according to the official site , situated on a tiny island (about the size of TRIDA) with a population of about 400,000. That the island is in the middle of the Mediterranean Sea, has no local IT talent pool and hence is one of the most unlikely places to put an IT park (along with Greenland, New Guinea and the Falkland Islands) seems to have found little mention in the press. Atleast for the Malta projects, there are a few renderings available in the press kit . The one in Cochin has not even been deemed worthy of even a couple of artists' impressions.

So, if this is the case, why is this project occupying centre-stage instead of others which are far more believable and which bring greater benefit to the State and its people - Vizhinjam, Cochin LNG Terminal, Technocity and so on to name a few? The answer is found in the value of the third variable in that equation (Attention = Substance + Hype). A media frenzy over the past few years and months has resulted in the topic occupying far more mind space than it ever deserved. A frenzy which was primarily the doing of a Kottayam-based newspaper and the oldest of malayalam channels. One knows not for what reason, but more space and time were devoted to this issue than to more urgent ones like the pathetic condition of the State economy or to bigger projects like Vizhinjam, Technocity or the LNG Terminal. This is where the question of novelty - the opposite of familiarity - comes in. Though far bigger and more successful than DIC, Technopark was a familiar entity. Whereas with the right mix of "Dubai", "Smart", "Microsoft", "IBM" and what not, there was a lot of novelty on DIC's side. And the people were hooked!

They can't be blamed, not when they are treated to claims that the so-called "Smart" City would help Kerala overtake the likes of Bangalore and Chennai as an IT hot-spot, whereas in reality the total amount of space (and hence employment & revenues) to be added by DIC in 10-12 years is only as much as that added every year in Bangalore or Chennai. Or when the public is told that DIC already has the likes of IBM and Microsoft as tenants in Dubai and will bring them over to Kerala, when the truth is that only sales offices and service management centres work in DIC - no major IT firm has software development centres inside DIC. The reason is very simple, the manpower will have to be brought from India and paid much more, contrary to the principles of offshoring. Sadly, only those working in the industry are aware of these facts, whereas everyone else seems to be on the trip of their lives.

Including the Govt. of Kerala. Well Ministers and Bureaucrats read papers too, can they be blamed for being led astray. One of the top IAS officers of the State, whom I was meeting for another purpose, asked me if DIC were going to construct all the buildings themselves?! I was incredulous, finding it hard to believe that such a senior administrator himself knew so little about a joint sector project! But, that is the sad truth. No one seems to know much about what is going to happen, not least of all the DIC team itself, which is still searching for business plan.

DIC is just a case in point. The trend applies to all sorts of things in our daily lives. We value a Mercedes Benz more than a Skoda with the same features, or a Nokia more than a Samsung. Marketing gurus call it "brand power", but it is a fancy name for the accumulated hype that has been built-up around the brand. After all, neither Benz nor Nokia started out with a head-start over its competitors. All of it was built-up steadily over time, with conscious efforts to differentiate themselves in the minds of their customers.

Unlike in the case of consumer products and services, when we allow ourselves to be led the wrong way in the case of public policy and projects, the end result could be very damaging to society. For example, very little public opinion is directed in favour of developments at Technopark. I cannot recollect even a single public demonstration calling for the speeding up of projects there, despite the fact that it is and will continue to be the largest employer in Kerala. When we delight in calling hartals and bandhs for reasons ranging from the execution of a genocidal maniac called Saddam to the Indo-US Nuclear agreement, I fail to understand why the politicos and the public balk at even a dharna for a mega-project like Vizhinjam, which could change the trading map of the entire region? Or why is it that the newspapers devote space, ad nauseum, to the Dubai World container project when they scrooge over giving attention to a port project which is 4 times its size and a dozen times more important. Or why such a hue-and-cry is raised over handing 100 acres of land to India's most prestigious organisation - ISRO - while laurels are heaped for handing over 250 acres to a unproven firm which has nothing to say for itself, so much so that its "Success Stories" webpage is empty?!

Ladies and gentlemen, the time has come to see through the make-believe part of things and analyse them for what they really are. Levitt and Dubner have pointed something that all of us do but seldom recognise. Failing to distinguish the Substance and the Hype surrounding an issue usually leads us to support the wrong cause or to fail in supporting the right one, at the very least. And when those causes are major public projects, from which all of us stand to benefit, we cannot afford to be led away from the right choice. Otherwise, the real projects could all go elsewhere and we would be left clutching at phantasms which may never come to and were never meant to come to their predicted fruition.


  1. Hi Ajay,
    Good Job!!!I think this should be one of the best blogs that i have ever read in terms of its content and the treatment of the subject. This is an eye opener. I was able to relate to this blog of yours through an incident that happened to me.
    I happened to talk to one of our family friend(his family has been in tvm from the time of moolam thirunal easily more than 100 years). It was the time when IIST land allocation had ran into some rough weather and it was the same time the Smart city agreement was about to signed. I think the so called most circulated malayalam news daily had carried news item which did not give IIST a chance and there was major news which talked about the kind of benefits that Kerala is going reap when smart city project would become a reality et all.
    During my discussion on this topic with him, i happen to realize that how people get brain washed over hyped media news items. He was certain that IIST would not come up in TVM and more over when i happen to tell him the fact Technopark 1-1V + Technocity would be the largest employer in the state, he never believed it.
    I think this incident opened my eyes on how much the people have been brain washed in our state by this media. TVM's very own People dont know that technopark is bigger than anything else that had happened in our state and will remain the bigger for time to come. People have no idea about the potential the vizinjam port has. People dont know how good is their own back yard.
    I will be happy if i can play some role in making people aware of thr truth. I thank you from bottom of my heart for the kind of efforts that you are putting for this cause.
    To Sum up. This gross illtreatment that people of tvm has to put up with should be more than a huge motivation factor for us to protest and revolt against this oppression. I feel that its worth being a naxalite to champion the cause of of tvm development. When people are robbed of their right, then i would say it is fair to fight for your right in what so ever way violent or non violent.
    Finally it was wonderful reading it and As i have always maintained i think these blogs find its way into some news paper or news magazine, it would help our cause better.

    Sincere Regards,
    Seshan K.

  2. The problem I found with Trivandrum people are they are too much oriented to politics, bureaucracy and controversies. The main focus is what goes on in Secratariate, Cliff House, AKG Centre, Indira Bhavan and so on. No one knows whats really happening in Technopark or Vizhinjam, leave alone in other part of Kerala. or Even the youth are not much aware of the development issues, for which, the real blame has to be put on our idle media.

    Well, you get fed what you want to eat. I have a distant relative of mine who completed B.Com and wasted many years chasing his 'wild dream'. His sole aim- a Govt job. He used to tell me,"Govt job= safe & secure life." When I suggested an M. Com or a higher degree he ridiculed it and told me that he has enough qualifications for Govt Service. In short he wasted 5 years writing innumerous PSC Tests, worked 3-4 years in the Middle-East, suffered professional dissatisfaction, returned home and is now working in Technopark, earning a fair sum. I was wonderstruck to hear him speak about TP, its companies and proposed developments! He was very against private job and companies, and the change was very welcome to me! With so much happening in Tvm now, people are slowly recognising the city's true potential...

    Good times ahead guys...

  3. "So it doesn't matter that the pilot on your next flight has 5000 hours of experience and his plane is packed with millions of dollars of safety features, while your driver (maybe a younger sibling) has just peeled off the big, red "L" board from your car, which was its only safety feature in the first place!"

    excellent manner of driving a point home. so well written!


Thanks for your comment, I will take a look at it and put it up at the earliest.