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Saturday, January 22, 2011

Ignoramus...It is Randomness .....of Course !!

This is a sort of read back of fooled by randomness by Taleb. I had a read through, sometime back and now am reading through it again, only this time it seems to make a different set of sense altogether.

Let me take for example, one statement of his.
“Outcome cannot be judged, merely by the efficacy of the output, in fact it needs to be judged by the cost of the alternates”.

Now the obvious reference to this statement given by him was that of trading. However my mind, went to look for alternates (Aha, I am judging the efficacy of his example by looking at alternate examples!!).

I am rich, is the output, ok so the next obvious question is that how rich you are. Never is the question judging the cost of alternate of rich that is poor, how less poor you are.

Another example I could think off, is of course related to my little head and of late all the arguments I counter to Amma.I am married is the outcome, good the judgment of the outcome is who are you married to, what does she do, where do you put up, blah blah.

Never is the outcome judged to the cost of alternates, that is now all your weekends are not your own, you have an additional responsibility, you are tied to one post for ad infinitum, you can’t blow a bundle in one night on a hooker (oops!!).

Anyways now back to randomness.

Similar is the case with the reference of buying a call or a put option. Similarly when you made money, using a particular trade, they are assumed causal, the alternate of the trade is not know that is how much money you would have lost if you had not executed the trade.(gain is not equal to loss here, so says Sirjee)

There was an excellent example, in it. One person, asked a trader to create an alternate trading strategy, if the building which housed them was gutted down by fire in an hour.

Now admittedly the possibility of these events is minuscule, but what these events lack in frequency they make up in magnitude and impact, (the same volume margin funda!!) Building on this he says it is a wiser path to lose small a mounts of money, and by the same logic make an obscene amount just once. (Incidentally he seems to be one of the guys who mad money in the sub-prime).

The flaw in current methods is that we just put the occurrence of random events in one bracket of error, noise or probability.

I am not a mathematician nor a finance guy, but with what little finance I have read the current methods ( say Black-Scholes) does not assign a correct impact value to it. That is you just take each action, drill down a binary outcome, assign a value to each outcome, and to the final value of outcome add some error percentage to get an estimated value, which by the above analysis seems to be wrong.

50K with VAT !

This is true and it happened yesterday!!

As a part of my work I am also in charge of creating brand value. That is fancy poster and visuals for displaying our products, capabilities and in short anything eye catching, to be given in places where it is not economical to go on a regular basis.

Business here is on relationships, however something pretty always helps, (it is human nature to be appreciative of form and structure!)

I got a dikat from the top management on creating on AV to be streamed continuously in our entry reception. Some contact was got out from the annals of web media and the MD of that firm landed for a discussion on how we could do it.

Ahhhh....the meeting reminded me of JWT.

The MD of the firm was a creative guy who somehow had landed on to the servicing side of the business. He tried to explain, certain things to me such as the importance of

1. Your branding strategy?
2. Competitive benchmarking
3. Points of differentiation?
4. Positioning statement
5. Branding construct.

My my...this is asking for fart from a guy who has no trouble in pulling out jargon's from anywhere.

 I picked up the marker and explained branding, among the following other things to him

1. How to execute branding?
2. On a rational construct?
3. To create an aspirational value in an industrial setting?
4. Without using the parameters of legacy and trust.

The MD was impressed and confused in equal measure. He had not done his homework and I always do it. I did not have time to spend on the nuance of a 180s AV, when I had to answer questions on booking expected in Q1, which I really did not know much about.

I gave him a flow chart, firmly explained what I want and also gave him an idea of visuals I had made using PowerPoint and told him to improvise on that, without changing the essence of information.

This alone took an hour, and I ran it through my boss and his boss quickly, they were okay with it. I told them the cost, and they said" Get T from sourcing to fix it".

Fine, I don’t want to dirty my hands there. I caught hold of T; he was a plain speaking veteran of a decade of expertise in sourcing high value items.

I explained the same to him and told him that the stream trickled from the top, so he had to fix it.

He asked the price and I said " 80k for a 180 seconds video"

T just said, " शादी ब्याह मैं तो मुहरत से लेकर बिदाई तक पन्द्र हज़ार मैं  निपट लेता है , यह ३ मिनट के अस्सी हज़ार कैसे हुए ?".

I chuckled inwardly at the plight of the MD of the advertisement firm when he tried to explain to T all the fast ones he tried to pull on me.

I had also to fix up stuff for the audit, so I asked him to take the discussion with them in conference hall, and said I would join soon. Meanwhile I asked another sales head to be present in there, because T sometimes gets very blunt.

This was after 7.30 PM.

I was done by 8 PM and peeked through the con hall glass partition. I could hear clearly through the partition, as the decibel levels sounded magnified in the night time empty office setting.

“Sir, I have a flight to catch tomorrow early morning, if you don’t have the budget this time no problem sir we can do it sometime later”, said the MD

T, ”Budget is always there and never there too, you tell me how is it 80000 for 180 seconds?”

The MD of the ad firm was distraught, almost ready to bite in frustration.

T ploughed on,” Are you married?”

MD suddenly looked puzzled; however, seemed to welcome any change from the 180 seconds and 80K conversation.

“Yes sir, it has been 10 years”, he replied glumly.

“Long time, I am sure you still have the photographs of your wedding?

A wary nod.

“And of course if they are not there, you can always look at the videos , right,”, said T. Then going for the kill he said , “How much did you pay for them?”

 “Sir, please understand we are creating a work of art over here something that can lead you company to the next league”. A slight pause and then,” I understand, that you had a budget of 50k”.

My mistake, alas, I had put in a number during my discussion.

No problems there it seems.

T said, “Yeah that was the idea”.

MD, “Okay sir, we can reduce the timing and still manage the high points”.

“It was 50k with VAT”, said T firmly.

I suddenly suspected had there been a window open in the conference hall the MD would have jumped out.

Anyway I pulled myself away, because it was getting late. But I wanted to know the moral of the story, I thought I would give T a call, later but then I wanted to hear from him live.

So I waited.

9.30 PM, T came out, waved them bye and came to his seat.

I asked, “Sir, how much you agreed upon”.

T replied, “50 K with VAT”.