Profiling humanity through Trump

So Trump just did the ridiculous and won the US Presidential elections. This seemed impossible probably to billions of people across the world and also to what seemed like the majority of Americans until just before the election results came out, but- it is what it is. Trump is loud, rude, cut-throat and all the things that we see as improper in people. Why we see these things as improper is open to debate and I will try and give both sides to the debate later on, but the bottom-line is that a large majority of intellectuals- including almost the entirety of academia were wrong in saying that Trump would be a disaster for the economy- he has received a thumbs-up from the financial markets across the world. Almost all major global stock indices are up, following election results including the Dow Jones Index (considered the benchmark index in the US) which opened at a record high after the election day. Although the markets have been famously wrong on a few occasions, it is known to be correct at evaluating the medium to long term impact of events and decisions (given the current data publicly available) and this is well accepted by academicians as well. What this means is that Trump was probably the right choice, if the US voters wanted to increase productivity and job growth- and thus, for once the 'populist' choice was the right one. I'm personally anti-Trump of course and what I mean by that is that I personally behave in a way quite the opposite of how Trump behaves; and help and support other people like me, but the problem with this world right now is that a larger proportion behaves more like me than like Trump.

There can be no question that Trump represents more 'evil' in the traditional sense of the word than any other President the US has ever seen, forget Hillary. He has openly made outright racist, sexist, bigoted remarks and is still very proud of being what he is. However, all evil things that we have words for in English- are things that reside in all of us. It's just that Trump has more of these 'evil' traits than most of us and in more intensity. This guy is a bit of a catastrophe from a social sciences point of view, but as a student of economics - such a guy is an absolute gem. If we had a society where everyone was 'good' and people were always fair and nice to each other, it would be a society which lacked motivation, purpose and life itself. Such a society would probably be better than a society where everyone was evil (it might be a close call though) but wouldn't come close to a society with a healthy mix of good and evil. Japan's last 20 years of zero growth is probably an example of the limits of Japanese culture which places high importance on doing good (Without the Yakuza and co., their economy probably would've done worse) . Good and evil are not desirable or non-desirable things - they are just things, and most adults realise this. What we have had over the past few decades, with the never-before-seen levels of globalisation and technology - is an exaggeration of the benefits of good. And as we have seen, letting the nice-guy academicians who have no concern for human emotions get out of control- resulted in the second biggest financial crises of the past hundred or so years. By the way, Trump is not all-evil; I'll come to that later.

We are going through an economic and social cycle and currently the cycle favours human emotions. Fear, greed, hatred and the other emotions Trump represents are all perhaps non-desirable human emotions but are human emotions nevertheless and we shouldn't underestimate their importance. These emotions have already shown their power in Britain, Russia, several parts of Europe and now the US, apart from developing countries where they've always been strong.

Being an economist at heart, I prefer not to think of good and evil in the traditional sense that social sciences define them. Good behaviour is associated with kindness, honesty, hard-work, empathy etc. These are behaviours which are sustainable in nature and help you avoid inner as well as outer conflicts. However, these are not the only emotions we have. If a society is filled with too much good, it would develop laziness and inaction. It would all be just too boring. Productivity would plummet. To avoid this, we should have a slight dose of relatively evil emotions such as greed, jealousy, selfishness and laziness which are non-sustainable and focus on the short-term. Take the greatest leaders of people that we have seen - and you will see in them very wide spectrums of emotions and behaviour. They would be capable of great levels of kindness and honesty but at the same time they would be capable of great levels of jealousy and selfishness as well. This helps them balance out short and long-term trade-offs and more importantly, connect with large groups of people.

The world is probably too complex for academicians to understand. This is because we don't fully understand human nature yet, and humans are in control of the world right now. Humans learn better by observing patterns around them rather than by reading books and listening to experts, and thus academicians are by-default poorly positioned to understand humans. They would have to admit their shortcomings first in order to move on and study humanity. Trump understands humanity better than most academicians and as I said earlier Trump is not all-evil. He has one good characteristic in plenty, and that is the virtue of hard work. Trump is a successful businessman and so naturally knows by learning through patterns he has seen, the best and easiest way to make a lot of money. You can be very evil and very hardworking at the same time and still make for a fairly good leader. Especially in the current environment where people have been nice to each other for too long and were disappointed with the results (financial crises and rapidly increasing inequality with the richest 1% holding 38% of wealth in the US) . Good behaviour is submissive by nature and you need a little bit of evil- and the current scenario, a lot more evil than normal to bring a little spice, to get rid of the boredom and to kick the economy into action by spreading the seeds of entrepreneurship.

Having said that Trump is probably the best thing for the economy and the job market as a whole, he isn't the answer to everything. As Hitchhiker's Guide to the Galaxy famously jokes, even if you had the answer to the meaning of life - you wouldn't probably know what the question is. Life is all about variety and it's just a matter of time before the good people strike back with vengeance- with more globalisation, trade, peace-treaties and technology! Also, unlike the case with societies, maximising only productivity and wealth will not result in individual welfare since we have different and constantly evolving individual utility functions in which money is just one of the attributes; thus as individuals we should just focus on what we love doing and try and get a reasonable amount of money at the same time. But if there's a small lesson we can take from all of this, it is to be in touch with our human emotions.

Cricket strike rates and financial leverage

This is my first piece on cricket and quite possibly the only one for the foreseeable future. It's a game I used to follow a lot as a kid and hence I'm familiar with how the game works, but I'm a noob at the modern day intricacies of it. I'll keep it short, technical and to-the-point. Non followers of cricket/corporate finance may find it difficult to relate to the article

So, I was going through this article the other day about a metric which is supposed to indicate how useful a player is in T20 cricket. Similar to how batting average is an excellent indicator of the performance of a batsman is tests, the metric : Strike-rate+average is used to measure roughly the effectiveness of a player in T20s. My short criticism of this is that while strike-rate is something a player scores over 100 balls and average is the what he scores before getting out, there is a bias in the metric towards players having high strike-rates since on an average, players (batsmen, bowlers and keepers) get out before playing 100 balls. Now, there can be an argument that strike-rates are more important than average in T20s and that the metric somehow accommodates for this increased importance by giving more weight to the strike-rate. However, the likelihood that the weightage provided in this simple metric being correct is very low (although the metric scores very high on simplicity due to the strike-rates and averages being readily available) and I would suggest a calculation of the average balls a player faces before getting out and calculating the actual weight that should be given to the average and strike-rate respectively. But why should strike-rates have a higher weightage in T20s?

Now, for anyone having even the most remote knowledge of cricket would know by intuition that strike-rates are more important in shorter versions of the game than in the longer versions like tests. It's something like this - when there is a smaller risk of the team being bowled out well before the allotted overs (or, time in tests- to avoid draws) the team can afford to lose more wickets sooner and thus play a high risk game which allows for a few wickets to fall. High risk tends to give high returns- players are expected to (and do) score much faster in shorter versions of the game but they might get out quicker. In longer versions, the risk of failure if wickets fall is much higher and so scoring runs is more important than scoring runs fast. To draw an imperfect comparison with the world of Credit Risk and finance, a team getting out well before its allotted quota of overs or time = default (it must be noted that there is no allotted quota of survival for corporations), faster scoring rates= financial/other forms of leverage (let's keep it financial leverage to keep things simple) and different forms of cricket represent different worlds where the risk of default is affected differently by financial leverage (while keeping in mind again that there is no expected time-span for survival of corporations).

So, when a player A scores a 3 ball 12 and a player B scores a 20 ball 30, you can judge which one is better (with all the imperfections of using statistics to model real world decisions) if you go back to the metric and combine the strike-rate and 'average' of A (400,12) with sufficient weightage given to both depending upon which form of cricket we are looking at and compare it with the metric value obtained by using the strike-rate and average of B (150,30). However, some complexities which are very difficult to factor in to the model include (1) The fact that batsmen are often expected to stay at the crease longer and make the innings stable (2) Performances in clutch situations especially while chasing require a higher average than strike-rate and (3) A reliable middle order (higher average) often gives the top order batsman more confidence and might result in a higher strike-rate for them.

Going back to finance terminology and how the financial leverage is impacted when a player scores a 60 ball 80 instead of a 10 ball 30: he is scoring for his team (getting profits for the corporation) at a slightly slower rate (the returns are lower) but resulting in lower financial risk for the team. Until now, we have assumed that it is not possible for a batsman to consistently score at higher speeds without risking dismissal. There can also be individuals who score at very high strike-rates without taking much risk, (I'm slightly deviating from the concept of risk being measured at the team level to go to risk at the individual level)- these are akin to the market beaters of the investing world and manage higher returns without taking much risk. The risk here is slightly different from what we commonly talk about in cricket- it doesn't really matter how 'risky'/aerial the shots of a cricketer are; what matters is the probability of him getting out and subsequently increasing the probability of default of the team. A batsman getting out can be considered as a default in itself, and much simpler to measure than the risk of the team getting all out faster if a particular batsman gets out (conditional probability-> Sachin during the late 90s if out quickly would have resulted in a much higher probability of the team getting all-out than with other Indian batsmen). And so, we go back to the metric which weighs and combines average and strike-rate (somehow), to reward players who score consistently higher without risking getting out themselves. The most obvious flaw with the metric (which exists with plain averages as well) is that some players who get out in the last few overs taking extreme personal risks, but not having a substantial impact on the team getting all-out (defaulting) get punished by the metric, which uses probability of a person getting out instead of a more accurate : increased marginal probability of a team getting all-out due to the player getting out. And, due to all these complexities and more, human judgement is extremely important to compensate for the lack of common sense that statistics have.

Hidden market mechanics in day to day life

Basic market mechanics of supply and demand deciding the price can be seen everywhere- and often in places you would not notice. I've probably talked about this earlier but I'll repeat it and try and elaborate the concept further- since childhood I've wondered how on earth I would have enough knowledge to justify being paid tends of thousands of rupees per month for whatever job I would end up doing. It WAS to an extent lack of self confidence, but I would have the same question for a large number of my batchmates (I would ask the question only to myself of course) who were on average dumber than me. The truth is however that it doesn't matter how bad our knowledge is- the fact is that other people are equally bad at it while starting off on their jobs and hence whatever supply you give them is high enough for their demand to be satisfied at the price they take you at.Also, the average person's skill level at a particular level in a firm will correspond to the average person's salary at that level, especially for large firms, provided the company has existed for long enough for the balancing to take place. Imbalances in skill level and salary will even out over time and will reach an equilibrium based on certain other factors (such as if the location is too remote, the salary would be slightly higher than it otherwise would). The comparison to demand and supply doesn't make a lot of sense I admit- BUT the fact that everything is decided by relative values and not by absolute values is fact enough for it to be entirely market based. For many of you though, this is a very obvious fact. Let us move on to other less obvious things.

Market mechanics are also evident in friendships- especially adult friendships. People who are high achievers, highly rich, social butterflies, good looking etc tend to form groups based on these generally desirable traits (I'm talking about the majority here- a minority may value other things). The cool group could for instance may have an attractive girl, a rich but not so attractive guy, a high flying corporate guy, a social butterfly etc. You are given membership in a group based on what you can give back to them- may not be money or good looks or coolness or anything in particular but can be a combination of these traits which make it worth their while to hang out with you. Friendship isn't all about getting benefits out of each other though- it's also about having fun hanging out with such people (people who have desirable characteristics are generally fun to hang out with, and would make friends wherever they go and having such friends enables them to get more friends and thus snowball). A more obvious example is a relationship where market mechanics are a lot more obvious- being rich, cool, feminine or masculine etc are mostly desirable characteristics and you would look for a partner who has these desirable characteristics at least as much as you feel you can give them. There is a a degree of realism our mind has when it comes to setting expectations from what you get out of your partner (based on your assessment of yourself, and past failures in wooing possible partners) which is similar to the price expectation you have out of a phone with a certain set of features or a kilo of tomato based on its quality.

An even less obvious application is in morality. Good and evil do not exist in the pure sense of the words and are judged relative to how good and how evil people in the society generally are. For instance, in a Hindu village where it's normal to discriminate against a Muslim, and say, not allow him to stay in your house for rent, it isn't considered a sin to do the same. The relativeness of good and evil becomes very clear as you become a grown up, when suddenly you start hurting other people and being selfish and still not feel that guilty just because you feel others would do the same thing. As an adult, finding a good (moral) friend is often about picking the least rotten out of the rotten apples. And as I've mentioned in a previous post, given the limited amount of time we have to life- it is often unadvisable to question the quid pro quo and a lot easier to accept these things as part of human existence. The relation to market mechanics of course comes from the fact that - similar to how there is no direct match between your skills on your job and your pay  (it depends on how skilled people around you are), there is no way to measure good or evil without the whole market that exists in goodness and evilness. If you're providing goodness at a lesser price than the market (you are less irritating or something along those lines), you will be considered as a good friend.  But of course, morality is the least important consideration adults have while making friends(slightly drifting from the topic here)- material benefit is the most important.

The last application I'm going to talk about and the least obvious of the ones here is happiness- your happiness is not an absolute thing that can be obtained by completing certain tasks. Firstly, it depends on how well off the people around you are- with respect to the things you value (looks, money etc). Secondly and more importantly, it depends on how life treats you with respect to how you expect life to treat you. In short, if you are happy with the effort you are putting into living and are happy with the results life is giving you- you are happy in life. This is similar to paying a price and being happy with the product's quality at the given price. The only way to be unhappy is to overpay for the goods (putting in too much effort for no results) or not paying enough for the goods you want even though you realise you're not paying enough (this is due to lack of motivation and is a different topic altogether- the discussion here is more about disappointment than with existential crises, and so lack of motivation wont be explored further)

Mediocre companies and mediocre human beings

In corporate finance you come across theories saying that if you're not as good as your competitor you might be destroying value in certain sectors. This is the case in most natural monopolies (like electricity, water) and certain other sectors where scale is large (like say, cereals). I've asked the question to myself- if a company knows that it's not going to be the best at something why try at all? Why not join these huge corporations and help reduce costs by increasing their scale? If you're worried that these corporations are evil you can either join one of the regulators (which regulate competition/financial markets/whichever area you think they're too evil in) - given that you feel these people add enough value and compensate fairly for your work. No company can systematically do evil things and still be hugely successful anyway. The numerous cases that we here of are companies which do certain things like exploiting poorer economies' labour instead of hiring local people, underpaying wages etc. - but these are just normal decisions making economic sense- which hurt some people but benefit others. One could however argue that big investment banks are truly evil(funding terrorist related activities/helping with money laundering etc. ) but this is probably the only sector (perhaps along with law firms) where even the most successful firms can do truly evil things.

Coming back to the point- although I've thought of why mediocre companies try and compete with established ones for eg. Parle competing with Coke and Pepsi or Tata competing with Ford and BMW(in sectors where acquisition is common, it makes sense to have a local competitor- since the strongest competitors are usually taken over- examples of such sectors include technology, telecom etc. ), I have never asked the same question about human beings. But what do companies and human beings have in common? Well, everything  really. Countries and companies are considered as individual human entities in media, when doing political/corporate analysis and even by law. While it might seem absurd to compare a country of millions of people, industries and companies to an individual person who is just composed of himself, it really is not that big a deal. In the top down approach, it makes sense because after all human beings are made up of billions of cells and hundreds of muscles and dozens of liquids- yet we do not analyse these things when talking about a person.   

The guy who comes 8th in class(who wants to get into academics) is not asked to kill himself. And the coder who came 3rd in the computer coding event isn't asked to either. We have a hundred reasons to give these people in their moments of truth to tell them that they are special and unique and how they contribute their own bit to the world just by being themselves. Just think about it- if people in the stone age(or whenever) were happy with eating raw food and no one questioned it we would still not have invented cooking. And small things like this make your existence worthwhile. If you're a person who gets angry quickly it reminds the calm people to get angry once a while as well to get things done. And it reminds them perhaps how great other calm people are and makes them love these others a bit more. There is no good without evil and no progress without questioning the status quo. It doesn't matter in what way you're different from others- you are still adding something to the world (as long as you're not in ISIS and killings hundreds by the day). The advice goes something along these lines. The same applies to companies as well I believe.

Another comparison between companies and people is with respect to margins/capabilities of a person. We all hear a lot about the lazy guy/girl who doesn't work hard enough. (While this comparison does not have any underlying causative similarity- it is something that can be empirically observed.)   Success for a person is  a mixture of capabilities (which may be intelligence, talent in some field etc.) and hard work. The hard work and the capabilities might come for certain other things such as motivation by parents or training or natural DNA etc. but this is the bottomline. And the bottomline for companies is the ROA/ROE. ROA depends on asset turnover and margins. Margins show the capability of the company to charge high and sustain demand, and turnover shows the amount of work they out in- high asset turnover means that the company works hard to push a large number of products on to the customers. (ROE is closely dependent on ROA- applying leverage on ROA gives ROE). Of course success can be defined as being helpful to others in the case of human beings and contributing to the society in case of corporations,  but I'm talking about financial success.

Selling to the succesful

During my first few marketing classes during MBA (I'm a finance major btw) I noticed the word 'positioning' being thrown around about the same way 'synergy' would have been- had it been a class on valuation. While there were other aspects to marketing being mentioned, such as targeting and what not, positioning is probably what seemed most important. And at the time, Apple was the favourite case for the everyone. You just could not talk about positioning without talking about Apple and how it had positioned itself succesfully (a year later when Samsung beat Apple across most global markets, the hype died down). I had just bought a new phone and also done some research on new laptops though I didn't buy one and for me, the only thing that mattered were specifications- things like brand value did not mean much to me, unless of course the brand meant that I would face equipment failure. This meant that I would not really have the courage to buy a Micromax (and these days, a Xiaomi- however it's spelt) but I wouldn't bother much with the esteem that comes with owning an Apple product for instance.

After sitting through a few of these classes, I became convinced that there was no point in going for the premium products just because they were being positioned as premium products, and that I should only look for tangible value. What's the point getting fooled by marketers and their advertisements, right? But as time passed by, I noticed how our marketing professor would prefer premium products even though he knew all about branding strategies. The same was the case with my colleagues- for instance, some would die for a bottle of coke but would never touch pepsi. And of course there was the decent number of apple fanboys. From the point when I started realising this, even I started to value the intangible value that comes with owning something that others look up to.

So, why does this happen? Why does positioning work, even when we know deep inside that there is no practical difference between the features of some products? One reason (which isn't the main one) is probably that successful grown ups can simply afford to spend that bit more on the higher positioned product. There are people who want the best and they don't want to really compromise on brand image when they have the money. As a kid, I used to look for an enormous amount of value and do weeks of research before buying a new phone, but as of now I would just buy the phone which is most suggested by colleagues. A second reason (which still isn't the main one) is the frequency of purchase of certain products. Notice how even at moderately highly priced restaurants, you tend to see lower middle class people. In a country like India, this can happen due to the sheer size of population. People go out as a family to eat once a while, and when they do go out- they want to eat at a place that makes them feel good- a place which is slightly above their means. Which is why you tend to see slightly poorer people than you would expect at a restaurant of a particular class. The same applies to products, and keeping a product at a slightly higher price than you should keep tends to encourage such kind of customers (and the number of such customers is substantial). A third (not yet) reason is that a product/brand which can afford to spend a lot on advertising and has successfully been in the market for a large number of years is a relatively safer product/brand. This is particularly important in the case of services and not THAT important when it comes to products. I would get a loan from an SBI and sleep properly at night but I would probably be a bit worried if I took it from a co-operative society or something which might cheat me in the future and charge high interest rates. This isn't that relevant for products- Micromax phones for instance can be thrown away if they stop working, so it doesn't really affect your sleep that much. The third point is relevant to risk-averse customers in general (like me) and not so much for others.

The fourth and possibly the most important reason is that practical, successful people do not look at all the features and such things while buying a new product. For them, brand image is the most important- if people talk about it in a good way and look up to a product, then you buy it. Unless you want to be different- then you buy a super high priced product which no one talks about. Either way, you cannot go wrong while targeting successful people (By successful, I mean people who work hard earn high incomes). The world is never going to run out of successful people, and to add icing to the cake- they have all the money. So the bottom-line when you're setting up a brand is - target the 'successful' and position it as premium. Like BMW.  And while you're at it make sure that the product has features at least comparable to those of competitors (it's the hygiene factor).

Value addition by finance professionals

For certain jobs and those particularly in finance, the value addition that a person can do doing a job can seem very minimal. In some professions such as, say front-end investment banking, I do not find much value at all. Their job is essentially to sell their clients large deals to ego-hungry acquirers who have too much cash, and to sugarcoat these deals with the word 'synergy'. Now, you (and everyone else) are allowed to disagree with this, but my opinion is based on studies which prove my point of view. It has to be said however that there ought to be studies which prove the exact opposite point of view as well. Investment banking jobs are the cream of the crop of course in the world of finance and are sought after by a pretty large majority, mainly because of the enormous pay and to a smaller extent the lifestyle. Do investment bankers add value individually that can amount to hundreds of thousands of dollars per year (or millions in some cases)by 'valuing' a few companies and doing a bit of math? Highly questionable, and even those who disagreed with me on the earlier point- at least some of them may agree with me here. The huge salaries paid to them are a mixture of the success of the firm as a whole (investment banking is an oligopoly and dominated by a few banks which can bend the rules and at some places even create the rules by lobbying). It comes down to the fact that there is demand for investment banking services and someone has to do it. In spite of all the hatred for investment bankers (kind of), I would myself consider say a Goldman Sachs to be the strongest contender to do a deal if I had to raise an IPO for my company, instead of doing it with some academics. It's a matter of experience in dealing with the lawmakers, the brand appeal that they have etc. and the technical expertise while important is not the most important thing. If investment banking is so lucrative(and pays big- seemingly irrespective of the number of people in the industry), what prevents everyone from being an investment banker and earning big? It's not really a technical field in any case (at least at the front end). Firstly, we know that these banks have so much demand that they can afford to pick the highest IQ people and those with the best backgrounds. This automatically makes them the best people to take up the job in the first place. But all intelligent people do not end up in these institutions. The amount of pressure- from peers as well as clients is so high that not everyone can survive. This ensures that the demand for such jobs never increases disproportionately and if it does, fellow bankers will become still more competitive to retain their jobs in case the low performers are kicked out. In summary, although the value added by investment bankers is low (and generally negative), there will be a continuous need for deal-making and thanks to their oligopoly and vast experience, investment banks will continue to add some kind of value in some way.

There are other jobs such as in technical analysis which are essentially useless. Technical analysis, as any academic with any sense will tell u- is a bit like homeopathy. It might seem to work for those who believe in it, but it has absolutely no scientific background. In such a case, a technical analyst adds zero value in general (negative if you pay them something for their research). Unlike in investment bankers' case where they got paid partially because of the oligopoly, partially because of their experience (which in turn is arguably because of the oligopoly), and partially because of just the demand- technical analysts earn money ONLY because of the demand for such research. And this demand comes from ill-informed clients who are unaware of the pointlessness of technical analysis. I would like to mention that I'm not a big fan of fundamental analysis (or any kind of analysis) since it is difficult to come up with accurate estimates of price- the basic methods of discounted cash flow or gordon growth are very simple (and using trading/transaction multiples for pricing is simpler) and can be used by any 10th standard student. There are no advanced formulae that have been proved to work consistently, but at least there is some sort of theory backing the analysis of fundamentals. If the reader is unfamiliar with academic finance, I would like to mention here that I'm not talking gospel- Efficient Market Hypothesis is one of the strongest theories in finance and was suggested by the Nobel Prize winning Eugene Fama- and it essentially says the same thing. One may also refer to the bankruptcy of LTCM, which had the biggest geniuses of finance managing a the hedge fund.

Many people are under the impression that finance is a technical field where you need to know formulae and theories and numbers and be extremely intelligent. This is false to a reasonable extent. Unlike the founder-CEO of a software firm - who would know the inside out of most of the technical details related to programming, the CEO of a big bank would have little idea about the technical details of risk management within the bank. He would obviously know a whole lot of things relevant to him, but even the CRO (Chief Risk Officer) of a bank may not know how to, say, apply extreme value theory to calculate the losses beyond a certain limit. What he will be good at is dealing with people, knowing the mood of the market, being a good managers and in general- having good intuition and ability to convert empirical evidence into sound decision (something I mentioned in my immediately previous post). To be honest, there are no formulae in finance that help you make money by applying them- it is definitely more of an art and less of a science. Even in the most technical risk management practices, (which I went through in FRM part 2) risk managers end up using empirical formulae for the best results. While, say a Black-Scholes can be assumed to be a near-perfect model (some assumptions regarding the distribution of a share price etc. are not 100% accurate), it cannot be used to make money in any way since the whole world knows about it. It is worth mentioning that the earliest traders who adopted the Black-Scholes formula DID make a lot of money but in a few months, everyone became aware of it. A CAPM formula or a Gordon-Growth formula are, needless to mention- useless in adding value to anything by themselves. But when in the hands of someone with experience working in an monopolistic kind of firm; when the guy understands how things are shaping up in the market and can make sound judgements based on his experiences- the formulae and the guy become more than a sum of their parts, and value is created and money is made.

I would argue that fund managers of mutual funds add zero value as well. In this case, the majority of studies point to the fact that the market as a whole tends to beat the top global fund managers well more than 50% of the time. However it must be noted that although an individual fund manager adds little value when you put your money with him, if fund managers were suddenly wiped out from this world, the markets would suddenly lose a major portion of their efficiency in pricing products and providing liquidity and so on. While individual fund managers do not add much value, fund managers as a whole are an integral part of the global markets. Similarly in the case of those who speculate with say derivatives on behalf of clients (like a derivatives trader or a hedge fund managers) also add value in a similar way. Although these people do not build physical assets such as a house or a car, or even a software- they do add enormously to the world of financial markets and thus to the world. The contribution of the financial markets to our well-being is of course beyond the scope of this writing!

Higher highs and lower lows

The topic is basically the definition of financial risk, which results in high variation in returns. And since I've been watching a lot of finance videos during the long break when I did not write any posts, I can say with confidence that this risk in public companies according to CAPM, is due to market risk, operating leverage and financial leverage!

Anyway the topic isn't about finance and is about difficulty in video games. Recently, i.e in roughly the past decade we've seen a lot of relatively difficult video games being succesful and difficult video games have definitely gathered huge audience. And this is not in comparison to the games that came out in the 80s and early 90s especialy on consoles that were really difficult but more with the 95-2005 games which are probably the easiest of the lot. Bioshock was more difficult than the average shooter on hard, even on medium difficulty. Recently we've had both indie games like Super Meat Boy, Braid, Minecraft (in a league of it's own), Limbo and Hotline Miami (not very difficult, but you'll die a few hundred times for sure) as well as a few mainstream ones like Demon Souls and Dark Souls. Dark Souls is one of the few mainstream games to have had difficulty as a USP (although the game is technically impressive, too)- the 2 parts of the game have each sold millions of copies and Dark Souls 1 is one of the most played games on Games For Windows. Now I'm not saying that older games weren't difficult- God of War, Devil May Cry 3 etc. being examples, but they didn't get so much attention from this big an audience.To give you a fair idea of the average difficulty in a game, that would be a game like Mass Effect 2- which requires some effort, but can easily be finished by an experienced gamers putting in effort without dying in game more than say, 10 times.

So why is there so much demand for games that are tedious to master, and kill you over and over again? The title of this post explains it in a way- people who have more time on their hands to waste, can spend more time learning games and this results in more rewarding experiences. Someone who plays Skyrim at a high difficulty setting (the default setting "Adept" is extremely easy, btw) can enjoy a highly immersive experience and really feel the thrill of finding new equipment or defeating new monsters higher highs. The lows of course mean that dying will be common but then I'm pretty sure that the highs are raised higher than the lows are lowered. Morrowind had a ridiculous journal system which only described in words where you had to go to and the things you had to do to complete quests, as compared to the pointer in Skyrim which always led you to the right place. The journal was enormous and easily exceeded hundreds of pages- out of which you could not even know which ones were completed (although mods and patches take care of this partially). Needless to say, Morrowind has enjoyed huge popularity in the last decade and is regarded by many as the best in the series! (and at worst 2nd best, after Skyrim).

People having more time on their hands could be partly because of new gamers coming in and making the community larger- thus resulting in the veteran gamers wanting to seem more 'hardcore'. This has always been a phenomenon and games with ultra hard learning curves like DotA have had highly intelligent communities (which at one point included me :P ). May be the same phenomenon became a bit more intense recently. Also, global unemployment has hit record levels in the past decade especially in some European countries and it has been pretty high in the US as well though it's come down in the last couple of years. People have literally been jobless. Difficult games which are indie provide a low cost alternative to AAA titles and can provide more content for less, and thus might provide an explanation for the huge boom seen in difficult indie games, although that seems to have died down as well in the past 2 years or so. 2009- 2010 was probably the peak and Super Meat Boy arguably came out at exactly the peak.

Focus on content and fair price of games has actually been a major dicussion point, even in gaming reviews. We don't see movie DVDs or song CDs being criticised because of high price, but this is common across all forums and major movie critics like Gamespot or Edge. RPGs have focused on replayability by choosing evil/good paths and also by choosing different character classes. The good/evil choice allowing for replayability is a very recent invention and probably started with Star Wars KotoR and was made even more famous by games like Fallout 3- while the classes have obviously existed for long, right from the tabletop days. But these days there are separate cut-scenes and dialogues for things like different people who are romanced ( not more than 1 can be romanced in a single playthrough and there are several potential romancees- male and female, depending on your sex) in the Mass Effect series, which takes replayability to something more than the experience of playing; rather it kind of  'unlocks' content for you. This replayability and the in-built complexity of RPGs as opposed to shooters, along with the graphical capabilities of newer PCs and consoles have made RPGs and especially action RPGs arguably the most popular gaming genre. Yes, Wii Sports and Sims and Call of Duty still exist but these are more like exceptions.

Coming back to the difficulty aspect, it is interesting how much effort people are willing to put into games, while they may not want to put a similar effort in real life. It certainly applies to me- I can spend several hours, days and weeks figuring out things in games while I lose patience after an hour if I'm trying to learn something. I can die a 100 times in Braid and still have more fun than reading learning material. In real life, there is a certain kind of happiness we get by achieving something that takes a lot of toil and effort. It's like games have found some way to make us put in this 'effort' by almost making the effort fun, and meanwhile it preserves most of the happiness we get when results are achieved. It's as if game developers are hacking our brains!

The economic value of inhumanity

I watch quite a lot of youtube. People who regularly post on themselves, general stuff, memes and even post on others who post on these things. Owning a youtube channel is a relatively easy way to make money. It's not a lot of money but it can be a living nevertheless. Some of these people are very smart though, and very hardworking. But the pay they get is not much. Among the millions of youtube channel owners, may be a few hundred can afford to make a living out of it. And even the top earners on youtube worldwide only get around 100-200 thousand dollars a year which is a lot, but nothing compared to average performers with similar intellect in other fields. (It is obvious that say, an investment banker would be doing a lot more work than a youtuber and thus earning his pay, but there are cases where a youtuber such as Olga Kay may be working a lot harder and putting in way more time than an i-banker, only to get paid way less.)There are non-monteray benefits though of being a youtuber- the fame and the comfortable and casual nature of the job as well as being able to talk/ make videos about your passion. This makes people do youtubing for these non-monetary benefits partly and thus would compromise a bit on the pay (received from google), thus creating a market where the equilibrium monetary benefits are mediocre.

Music is something I have a lot of passion for, but it doesn't generate money in India. In fact for a large majority of talented musicians, the joy of playing music, the coolness factor, and the associated fame are sufficient. Most bands in Kerala have rich members who don't really need the money. This has ensured that even the people who deserve money don't get it, since there are some who don't ask for it. Playing music or talking about what you like on youtube are very natural things for humans to do- but sitting at a desk and doing paperwork isn't. I doubt if many people would actually be passionate about a desk job (although some might claim the same) but part of the reason why they pay more is because it's plain boring. Going to outer space, being a soldier and fighting a war, being a contrarian value investor and heck- even going away from home and living in a far away city in a small rented house will all pay more (though the last one is not directly related to the others and has more to do with your risk-taking abilities in life, and the abilities to socialise quickly/ live without much social life in a different city). The same way non-monetary benefits reduce the pay for certain jobs which involve doing innately human things, jobs which involve inhuman tasks to be carried out, compensate by paying higher. Passion, which can be measured as the joy when you do something you like, can guide your career path. But in a similar way, if you suffer less pain than others while doing something that no one wants to do, it's in effect the same thing. It's something along the lines of maximising returns/ minimising losses - both of which require similar approaches and end results. For someone who is risk-averse, it can be a wise choice to go for a job which gives him less pain than others, as compared to going for his passion- since you can always misjudge your true passion.

Gesamkuntzberg

 I've always wondered why video games are a lot more entertaining than movies or music or other forms of art. When I was younger, I used to watch very few movies and listen to not much music, while playing copious amounts of video games- which started with a handheld device which had only Tetris and a crappy racing game and then a Nintendo which obviously had Mario and other games, and then a PC when I was 10, which gave me games like Lionking, Aladdin and Skyroads. It's been a long journey since then and I've learnt a lot of things on the way and I've several favourites including Alpha Centauri, Portal, Civilisation II, Fallout 3, DOTA etc.- all from different genres.

The video by MrBtongue which talks about Dark Souls gives a satisfactory explanation for this. Videogames are a Gesamtkunstwerk, or a 'total art form' which makes use of several forms of art to combine them into a single experience. Movies are also a Gesamtkunstwek and they combine things like background score, acting, the story etc. to create a form of art that is superior to the score, acting or story taken separately. Movies have evolved so much over time that things like editing and direction can also be considered to require artistic inputs. Anyway the final result is more than a sum of its parts. Listening to the score of Star Wars, looking at the special effects, looking at the acting, reading the story etc separately does not give you the same experience as watching a movie. Videogames however take it to the next level. There are several additional elements that a game provides. Firstly, it puts the story from a protagonists point of view really effectively compared to a movie since you play the protagonist (I'm talking about action shooters and RPGs in games and movies which have a clear protagonist). Secondly, they let you create your own story and characters. Several games allow player interactions to affect the story. For instance in Mass Effect 2, which can actually be started with a savegame file from Mass Effect 1 to make sure that your character choices are taken into account during the 2nd game- allows you to die in the end if the player does not provide things like providing enough protection to the protagonist's spaceship. This actually kills off the character at the end of the game and thus makes it impossible to export the savegame to Mass Effect 3, which would've be possible if he had survived. Games like Mass Effect give several choices in game to make sure that the story is personalised and that the protagonist behaves in a way that you want him to (and ideally how you would if you were him/her). This mechanic also allows for higher replayability of the game since you can play the entire game with totally different choices and get a new experience- but let's talk about replayability later. Thirdly and most importantly, there is a completely new experience that games provide as compared to movies- the gameplay mechanic. Gameplay mechanic is so crucial to games that all games are classified according to the mechanic and not the type of story that it tells. This is unlike the case in movies and storybooks which are classified according to the story. Games can be First-person-shooters or platformers or Role Playing Games even if they tell a science fiction story. Portal and Mario are both platformers which have absolutely nothing in common in terms of the theme and story. There are very rare cases where the method of storytelling is used to classify books - the choose your adventure type of book falls into this category. Classifying movies as silent, colour/black and white etc. also are parallels to the classification given to games.

So how good are games anyway? I would go to the extent of saying that unless something else comes up, they are the next generation medium for entertainment. One problem with games is that they are not as easily accessible as movies, and while someone who's never seen a movie before would be able to enjoy it, several games are difficult to appreciate or even play, if the person has had no prior experience playing games of that type. GTA 5 racked in 1 billion $ revenues in its 1st four days of release- much faster than any movie ever. This is in spite of the fact that the game hasn't yet been released on the PC and also the issue of accessibility, which I expect would reduce in the future. Companies like Microsoft and Sony realise that gaming is the next big thing and at least till the consoles a couple of generations back (Xbox and PS2) used to sell them at a loss to just get the market share and ensure that they aren't left out of the race.

As of now however, games can't be called superior to movies. This is because movies have been with us for about a century and there have been so many innovations on the way and they have received a lot of attention. Television is also a competitor and provides more personalisation than movies and you get more choice as to what to watch. Youtube gives even more personalisation and I expect youtube and Netflix (or a similar video-streaming service) to directly replace TV as a superior option if it hasn't already-  at least in developed countries. Internet is again, not 100% available or accessible, partly because of speed and connectivity issues. Internet is a relatively young technology and I'm sure that TV would be eventually phased out. Coming to the areas where games aren't as good as movies- one particular point is how games often require a clear protagonist and you are forced to do things on his behalf (or act as a god and control many thing like in Age of Empires- either way you have an effect on the world). This means that you cannot be told a story that the storywriter wants to tell. You always have an effect of your own on the world and the story is not pure in the sense that it's not exactly the single story the storyteller wanted to tell. But then this is like a side-effect to the advantage that you get a personalised experience playing the game and that you have an impact on the world. There are however some games which encourage exploring the story and not really having a huge (and at times any) impact on the game itself. A significant example is the game called "Gone Home" where you (as a girl) explore your house after coming back after some time to find out where your family has gone. Clues and notes give you an idea in the end and your whole lifestory is told through several objects and books in the house. There are several audio clips as well, and the whole experience I have to say, is very unique and very touching. Another game that isn't exactly a story told to you- you do get a few choices and you explore the story through these choices is "The Stanley Parable" which is much more casual and I'm sure that games like The Stanley Parable have a great future. These games which illustrate the different ways in which videogames can be an art-form, are not exactly my favourite games, but they do take care of the criticism of having to write the story ourselves while playing a game. These games have a pre-decided story that you explore using the game environment. Which is interesting because many people do not actually consider them as games. I do, however and it is because of the highly interactive nature as compared to just choosing a clip to watch. Gone Home has you walk around the house and pick up objects and turn on and off the lights, read stuff etc. and it's not quite the same as reading a book or watching a movie. Yes, it doesn't have a clear gameplay mechanic but the interactive nature of the experience makes it a game. Interactivity I guess, can be called as the 4th unique thing about games and it's a lot more than choosing your own adventure in a book that allows you to do so. Replayability is another one at 5th, and there are several game which provide fresh experiences during replays. Strong examples are- playing different races or countries in games like Starcraft or Age of Empires, choosing the 'good' or 'bad' or 'neutral' karma options in games like Star Wars KotoR or Fallout or Elder Scrolls or indeed Mass Effect. I'm sure that there's a 6th and 7th but I'll stop here.

From economists' point of view there's a separate reason why games would be more popular and this is because it's easier to monetise games. People can easily pirate movies and enjoy them to a similar effect as in theatres (or heck, they can create a home theatre themselves) but there are several games which cannot be enjoyed without paying for them. This is especially true for consoles and this explains why developers are more interested in making games for consoles. A game like World of Warcraft is played online and the best thing about the game is that you can play it with your friends. Pirating the game is kind of pointless since playing it alone is just boring. Games would have to connect to Blizzard servers which would check if your game is authentic and thus make it really difficult to pirate such games. Elder Scrolls online is an upcoming game which is expected to sell majorly and has a similar mechanic. Some games which have a single player experience like Diablo 3 need internet connection to work (even for single player) and crackers have found it difficult to disable this requirement. In any case, even without the monetisation reason, games would be incredibly superior as a form of entertainment, to movies in a few decades time (though they are already very superior in my opinion).

Video on Gesamtkuntzberg: http://www.youtube.com/watch?v=XIx7Ot5Mq2Q‎