Gains and Losses

Let’s say that on a particular day, you are in a calm state of mind. Neither too happy, nor sad. Suddenly you are notified that you have been selected for an award of Rs. 10,000. The award is genuine, there are no hidden costs, and you didn’t have to pay anything for this. At once you are elated. The prospect of this cash makes you happy, and your state of mind is lifted.

After a while, you are notified that there was some error, and you will not be given the Rs 10,000 after all.  (Does this scenario seem too hypothetical?) What happens now? You will become unhappy. Will you return to your previous state of mind? Probably not. You will become less happier than you were before you came to know of the cash. You somehow feel the cash belonged to you, and you lost it.

What’s happening here? Why should you feel less happier than before, given that you have ended up in the same spot that you were? One explanation is that we give more importance to losses than to gains. Losses of a given magnitude affect us more negatively than gains of the same magnitude affect us positively. We are more tuned to losses. Probably from an evolutionary point of view, preventing losses was more important than securing gains. To this end, we are wired in favour of losses than gains. We remember negative events more than positive events. We focus more on the negative aspects of anything, as compared to the positive. As the popular saying goes, bad news travels faster than good news.

To mitigate this to some extent, it is better to take a longer term view of things. Take the stock market for example. The stocks and the overall index are bound to rise and fall several times in a day and in a week. A person who watches the market everyday is bound to worry about it more, and be more adversely affected by it, than say one who watches it only once a month, or once a year. Let’s say in a given year the stock market rises and falls sharply several times, returning to the same value at the end of the year. The everyday watcher will by now have had several sleepless nights, and corresponding rises and falls in personal happiness and stress levels, in tune with the market. (Now compare this with the hypothetical scenario above.) The effects of the rise is prices will not be sufficient to offset those of the fall though. Only one who comes back after a year to look at the market again can calmly say – “Nothing much happened this year.”

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Meteor Strikes the Earth

 

 

Meteor strikes the Earth

Meteor strikes the Earth

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Key Events in the History of the Universe and Man

 

From the Big Bang to the Birth of Civilization

 

  • 13.8 Billion Years Ago (BYA) –  Big Bang, and birth of the Universe.
  • 4.5 BYA – Birth of the Sun, Earth and Moon
  • 3.8 BYA – Life begins on Earth; the first single-celled organisms appear in the oceans.
  • 3.5 to 3 BYA – Multi-cellular organisms appear
  • 600 Million Years Ago (MYA) – Small, complex organisms appear in the oceans (Ediacaran Period)
  • 500 MYA – Diversity of life increases enormously in the Cambrian explosion; the first vertebrates and creatures with eyes appear
  • 475 MYA – Plants appear on land for the first time
  • 350 MYA – First flying insects appear
  • 300 MYA – Reptiles arrive on land
  • 200 MYA – Dinosaurs appear on Earth for the first time, and dominate life on land for the next 130 Million years
  • 150 MYA – Birds evolve from a subgroup of dinosaurs
  • 65 MYA – A huge comet crashes into the Gulf of Mexico, causing massive forest fires, throwing dust into the skies, and blocking the sun, leading to the extinction of three-fourths of the species on Earth at the time, the most famous among them being the dinosaurs.
  • 60 MYA – Primates appear on land
  • 50 MYA – Whales, dolphins and porpoises evolve from land animals
  • 20-15 MYA – Ancestors of Humans diverge from the Gibbon
  • 14 MYA – Ancestors of Humans diverge from the Orangutan
  • 7 MYA – First primates to walk on two legs appear
  • 7-6 MYA – Ancestors of Humans diverge from the Gorilla
  • 6-4 MYA – Ancestors of Humans diverge from the Chimpanzee
  • 2.3 MYA – The species Homo habilis starts using stone tools; brain size increases over the next 1 Million years.
  • 1.5 MYA – Human ancestors harness fire and make complex tools.
  • 100,000 Years Ago (YA) – Anatomically modern humans emerge out of Africa and displace other similar species.
  • 100,000 YA – Humans learn to talk
  • 50,000 YA – Humans enter Eurasia and South-East Asia
  • 40,000 YA – Humans enter Australia
  • 15,000 YA – Humans enter the Americas through the Bering land bridge between Russia and Alaska
  • 10,000 YA – Man begins to farm, and settles down in larger communities, giving up his hunter-gatherer lifestyle.
  • 6000 YA – The first civilizations rise in Mesopotamia, Egypt, and the Indus Valley.

 

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Romans

The Roman civilization was one of the largest the world has known. At its height, the Roman empire included most of western Europe, all of Britain except Scotland, parts of Northern Africa, Egypt, Greece, Turkey, and the region around Jerusalem known as Judaea. The civilization had a big impact which lasts to this day. The towering columns in the entrance of the White House in Washington D.C. are based on that of Roman temples. Everyone knows the sayings: “All roads lead to Rome”, and “When in Rome, do as the Romans do.”

The Romans are famous for grand buildings, engineering, aqueducts, amphitheatres, baths, roads, military organization, vast empire, and gladiatorial games. At its height around 100 AD, the population of the empire was around 56 Million, which constituted around one third of the then world population. Some famous people of Rome include – the great general and dictator Julius Caesar; Brutus, the senator who led the assassination of Caesar; the statesman and orator Cicero; the despotic emperor Nero; the conqueror Trajan; Marcus Aurelius, emperor.

The Roman empire came into being with the founding of Rome ca. 753 B.C., by the twins Romulus and Remus on the banks of the Tiber river. Romulus was the first king of Rome. He was followed by a succession of kings, the last of whom was overthrown around 500 B.C., and Rome became a republic. The republic was run by a group of senators who acted as the government. They framed the laws and dictated policy. Some senators had specialized roles – some were judges, some were governors of provinces, some were in charge of finances, some managed public activities and events, some were in charge of civic infrastructure. There were around 100 senators in all.

Rome conquered Greece around 200 BC. The Romans were heavily influenced by the Greeks in various ways. Their grid-like town layout is influenced by that of the Greeks. The famous Roman columns are inspired by those found on Greek temples. Several Greek statues made originally in bronze survive today only as copies made in stone by the Romans.

How did the Roman empire become so powerful? Romans were very good at engineering and organization. Their roads and bridges are prime examples of their skills in engineering. Roads enabled the army to march quickly to cover vast distances, something that is of essence in a war. Their military organization and tactics were superior to that of their opponents. One can see similarities between the Roman military, and modern corporations. The military stressed on training and process, rather than individual bravery. Soliders were not born; they were made. Each new soldier underwent rigorous training as part of his induction into the army. As the army marched to war, every night a camp was made. These camps were extremely well organized. Every camp was laid out in the same way, so that anyone could make his way around them easily. Soldiers had to know how to build a fence and pitch tents. Every soldier carried a shovel as part of his standard equipment. In battle as well, training trumped individuality. Soldiers were taught how to fight. They were trained to defend and conserve energy, and attack when the opponent was vulnerable. Contrast this with the dash and slash heroic depictions of soldiers in popular movies.

Around 50-45 B.C., Julius Caesar became a very powerful man in Rome. He was a great military leader, and was also a consul, who was a special senator and had more powers. There were two consuls at any time. As Caesar became more powerful, his designs became grander, and finally he declared himself dictator of Rome. This obviously didn’t go down too well with the senators, who always thought of Rome as a republic. In fact, Rome became a republic by overthrowing a despotic monarch. Caesar had crossed the line. In 44 B.C. a group of senators led by Brutus and Cassius assassinated Caesar. Brutus and others intended to restore the republic, but their plan was not made well. Rome plunged into a civil war for several years. In 31 B.C., Caesar’s heir Octavian defeated Mark Antony and Cleopatra (the Egyptian queen) in the Battle of Actium. Octavian went on to become the first emperor of the Roman Empire, and took on the name of Augustus.

Augustus was followed by a succession of emperors – Tiberius; Caligula; Nero (ca. 64 A.D. fire of Rome); Vespasian (ca. 70-79AD), in 70 AD commissioned the building of the Colosseum; Titus, conquered the Jews in 70 AD (commemorated by the arch of Titus in Rome); Trajan, conquered new regions, the empire was at its largest extent in his reign; Hadrian, built a wall around the borders of the empire (now known as Hadrian’s wall); Marcus Aurelius (ca. 161 – 180 A.D.). After the rule of Marcus Aurelius, Rome was increasingly attacked by barbarian tribes – Visigoths, Ostrogoths, Vandals, Gauls. Constantine (ca. 330AD) shifted the capital from Rome to Constantinople (present Istanbul, Turkey). The empire was split into two parts – an Eastern empire and a Western. The Eastern empire went on to be called the Byzantine empire (Justinian, ca. 500 A.D.). The Western empire was overrun by barbarians. In around 470 A.D., the last Roman emperor (also called Romulus) was deposed. This event is conventionally thought to signify the end of the Roman empire.

 

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When To Postpone Tasks And When Not To

We saw earlier a number of reasons why we postpone tasks. Some of them are reasonable, while others belong to the procrastinators. Here, we’ll look at some valid reasons to postpone a task, as well as when we should not postpone a task.

First, some valid reasons to postpone a task:

  1. The task is not worth accomplishing. Completing it requires more effort than its benefits deserve. In this case, the right thing to do is to strike the task off the list.
  2. Postponing will enable accomplishing the task in a better way. For example, you might obtain more information.
  3. Postponing will result in lesser effort. For example, the task might be combined with another task which will have to be done in the future. Or, in the procrastinator’s viewpoint, someone else might complete the task, resulting in you avoiding any effort altogether.

Some reasons why you should not postpone tasks:

  1. Postponing causes a fixed cost to be incurred. For example, forgetting to pay a bill on time and incurring a penalty.
  2. Postponing causes gradually increasing loss. For example, if a library has a penalty for each day of delay in returning a book.
  3. Postponing causes an increase in probability of incurring a high cost. For example, the greater the number of days you don’t service your car, the higher the chances that some component gets damaged.
  4. Postponing increases the chances that you will forget to complete the task for a while. This will in turn increase the costs either in manner of points 1, 2, or 3 above.
  5. By far a big reason to not postpone, is that while the task is not done, there is a cognitive load that the task imposes. You have to carry around the task in your head, lest you might forget and invoke point 4. This again is a gradually increasing loss of the type of point 2.
  6. For an alternate viewpoint (and one opposite to that of the procrastinator in point 3 in the previous list), postponing might result in the task being called off, or someone else accomplishing it. This results in you losing the credit of accomplishment, as well as the experience gained while accomplishing it.

Both the above sets of viewpoints have to be taken into account while deciding whether to postpone a task.

 

 

 

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Travel Pricing

Let’s look at a simple example of travel pricing. Say there is a train route from Bangalore to Mumbai. Tickets are two way, for simplicity, with the onward journey on Friday, and the return journey on Sunday. Such tickets are an example of perishable inventory. If a seat is not occupied on a certain day, it is a waste. It cannot be stored for a future date. In this case, tickets are non-transferable, and non-cancellable. To keep things simple for the analysis, assume for now that there is only one seat. The cost of a two way train run is Rs.500 to the train company (say FastTrack), and the minimum fare is set at say Rs.1000. Hari wants to travel there each week. He derives a benefit of Rs.1500 each trip, and is ready to pay upto Rs.1000 for the ticket. If he pays a fare of Rs.1000 and travels, he gets a net benefit of Rs.500, and FastTrack makes a profit of Rs.500. Over a period of 10 weeks, Hari travels 10 times, pays a total of Rs.10,000, with a net benefit of Rs.5000 to him, and Rs. 5000 to FastTrack. The overall benefit in our toy economy is Rs.10000.

Ganesh is a different type of traveller. Everytime he travels, he gets a benefit of Rs.3000, and so is willing to pay upto Rs. 2000 per trip. However, he is not sure if he will travel or not in a given week. All he knows is that he will travel roughly half the time. He will come to know only on Wednesday, whether he is travelling that week. However, the ticket booking opens on Monday. What happens now?

Since the ticket price is only Rs.1000, Ganesh can anyway book 10 tickets, one each Monday, for a cost of Rs.10000. The benefit to FastTrack remains the same, Rs.5000. Ganesh travels 5 times, with a total benefit of Rs. 15000. Net benefit to Ganesh is Rs. 5000. Again, the total benefit in the economy is Rs.10000. But what about the other 5 times when Ganesh doesn’t travel? The seat that Ganesh booked is vacant, while Hari is willing to travel. This is surely a wasteful situation which can be improved. But how? On the other hand, Hari can also the book the same ticket each week ahead of Ganesh. Hari gets to travel 10 times, and Ganesh none. The total benefit is Rs.10000. However, notice that Ganesh’s travel is more beneficial to the economy than that of Hari’s. This suggests that we should look for a scheme that allows Ganesh to travel when he wants, and Hari otherwise. Such a scheme is likely to increase the total benefit.

One possibility is to have two classes of ticket. Let’s call them ‘preferred’ and ‘regular’. Preferred tickets are priced at Rs. 2000, and regular at Rs. 1000. When the booking opens on Monday, there is only 1 preferred ticket, and 0 regular tickets. Any available preferred tickets on Thursday morning are changed to regular tickets. On Monday, Hari doesn’t book the preferred ticket, since he can’t afford it. Ganesh waits, since he’s not sure at this point, if he is going to travel. On Wednesday, he comes to know. If he’s travelling, he books the preferred ticket at Rs.2000. He doesn’t wait till Thursday for the ticket to become regular, since he can’t be sure then if he will get the ticket. Hari doens’t travel that week. On the other hand, if Ganesh is not travelling, then he doesn’t book the preferred ticket on Wednesday. On Thursday morning, the ticket becomes regular, and Hari now books the ticket.

Let’s compute the benefit now. Ganesh travels 5 times paying Rs.2000 each time. His benefit is Rs.15000, and cost is Rs.10000, for a net benefit of Rs.5000. Hari travels 5 times, with a net benefit of Rs.2500. FastTrack makes Rs.1500 on each of 5 of Ganesh’s tickets, and Rs.500 on each of 5 of Hari’s, for a net benefit of Rs.10000. Now we see that the net benefit in the economy has risen to Rs.17500. This is made possible by the ticket scheme that we came up with. Of course, other schemes are possible. In reality, there are a lot more factors to consider, and more people wanting to travel, each with varying requirements. We will analyse more such situations in a later article.

 

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Quotes on Inquiry

 

  • It is error only, and not truth, that shrinks from inquiry. -Thomas Paine, philosopher and writer (1737-1809)
  • Basic research is what I am doing when I don’t know what I am doing. – Werner von Braun
  • They know enough who know how to learn. – Henry Adams
  • Every discovery opens a new field for investigation of facts, shows us the imperfection of our theories. It has justly been said, that the greater the circle of light, the greater the boundary of darkness by which it is surrounded. – Humphry Davy
  • The aim of an argument or discussion should not be victory, but progress. – Joseph Joubert, essayist (1754-1824)
  • A teacher affects eternity; he can never tell where his influence stops. – Henry Adams
  • It is not because the truth is too difficult to see that we make mistakes. It may even lie on the surface; but we make mistakes because the easiest and most comfortable course for us is to seek insight where it accords with our emotions — especially selfish ones. – Aleksandr Solzhenitsyn
  • To teach is to learn twice over. – Joseph Joubert
  • My own suspicion is that the Universe is not only queerer than we suppose, but queerer than we can suppose. – J. B. S. Haldane
  • We suffer primarily not from our vices or our weaknesses, but from our illusions. – Daniel Boorstin
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