Forbes India 15th Anniversary Special

Ten interesting things we read this week

Some of the most interesting topics covered in this week's iteration are related to 'the elements of value', 'passports for cash' and 'Google's entry into bundling of news'

Published: Oct 14, 2017 07:11:38 AM IST
Updated: Oct 13, 2017 07:40:43 PM IST

Ten interesting things we read this weekImage: Shutterstock (For Illustrative Purposes Only)

At Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, including investment analysis, psychology, science, technology, philosophy, etc. We have been sharing our favourite reads with clients under our weekly ‘Ten Interesting Things’ product. Some of the most interesting topics covered in this week’s iteration are related to ‘the elements of value’, ‘passports for cash’ and ‘Google’s entry into bundling of news’.
Here are the ten most interesting pieces that we read this week, ended October 13, 2017:

1) The elements of value [Source: HBR]
When customers evaluate a product or service, they weigh its perceived value against the asking price. Marketers have generally focused much of their time and energy on managing the price side of that equation. But that’s the easy part. What consumers truly value can be difficult to pin down and psychologically complicated. The amount and nature of value in a particular product or service always lie in the eye of the beholder. Yet, universal building blocks of value do exist, creating opportunities for companies to improve their performance in current markets or break into new ones. The authors identified 30 “elements of value”—fundamental attributes in their most essential and discrete forms. These elements fall into four categories: functional, emotional, life changing, and social impact. In their research, they don’t accept on its face a consumer’s statement that a certain product attribute is important; instead they explore what underlies that statement. For example, when someone says her bank is “convenient,” its value derives from some combination of the functional elements like saves time, avoids hassle, simplifies, and reduces effort. And when the owner of a $10,000 Leica talks about the quality of the product and the pictures it takes, an underlying life-changing element is self-actualization, arising from the pride of owning a camera that famous photographers have used for a century.

The elements of value approach extend Maslow’s “hierarchy of needs.” At the bottom of the pyramid are physiological and safety needs, and at the top are self-actualization and self-transcendence. While it’s assumed that people cannot attain the needs at the top until they have met the ones below, numerous patterns of fulfillment can co-exist. For example, rock climbers achieve self-actualization in unroped ascents of thousands of feet, ignoring basic safety considerations. Similarly, the ‘elements of value’ pyramid is a heuristic model in which the most powerful forms of value live at the top. To be able to deliver on those higher-order elements, a company must provide at least some of the functional elements required by a particular product category. But many combinations of elements exist in successful products and services today. To test whether the elements of value can be tied to a company’s performance, they surveyed more than 10,000 U.S. consumers about their perceptions of nearly 50 US-based companies. Their first finding was that the companies that performed well on multiple elements of value would have more loyal customers than the rest. Their second finding was that companies doing well on multiple elements would grow revenue at a faster rate than others. They were also able to see a high correlation between elements of value offered and market-share growth.

The authors found that across all the industries, perceived quality affects customer advocacy more than any other element. Products and services must attain a certain minimum level, and no other elements can make up for a significant shortfall on this one. After quality, the critical elements depend on the industry. In food and beverages, sensory appeal, not surprisingly, runs a close second. In consumer banking, provides access and heirloom are the elements that matter; in fact, heirloom is crucial in financial services generally, because of the connection between money and inheritance. The broad appeal of smartphones stems from how they deliver multiple elements, including reduces effort, saves time, connects, integrates, variety, fun/entertainment, provides access, and organizes. Manufacturers of these products—Apple, Samsung, and LG—got some of the highest value ratings across all companies studied. Well-designed online businesses make many consumer interactions easier and more convenient. Mainly digital companies thus excel on saves time and avoids hassles. Moreover, companies that score high on emotional elements tend to have a higher customer loyalty, on average, than companies that spike only on functional elements.

Managers commonly view pricing as one of the most important levers in demand management, because when demand is constant, higher prices accrue directly to profits. But higher prices also change the consumer value equation, so any discussion about raising prices should consider the addition of value elements. Recall how Amazon’s judicious increases in value helped justify higher prices over time. Segmenting customers into demographic or behavioral groups presents an opportunity to analyse what each of these groups values and then develop products and services that deliver those elements. Whenever an occasion to improve value presents itself, managers should start with a survey of current customers and likely prospects to learn where the company stands on the elements it is (or is not) delivering. The survey should cover both product and brand, because examinations of the two may yield different insights. For example, the product itself may deliver lots of value, whereas customers have difficulty getting service or technical support.

2) Reversing paralysis [Source: MIT]
In recent years, lab animals and a few people have controlled computer cursors or robotic arms with their thoughts, thanks to a brain implant wired to machines. Now researchers are taking a significant next step toward reversing paralysis once and for all. They are wirelessly connecting the brain-reading technology directly to electrical stimulators on the body, creating what French neuroscientist, Grégoire Courtine calls a “neural bypass” so that people’s thoughts can again move their limbs. At Case Western Reserve University, in Cleveland, a middle-aged quadriplegic—he can’t move anything but his head and shoulder—agreed to let doctors place two recording implants in his brain. Made of silicon, and smaller than a postage stamp, they bristle with a hundred hair-size metal probes that can “listen” as neurons fire off commands. To complete the bypass, the Case team, led by Robert Kirsch and Bolu Ajiboye, also slid more than 16 fine electrodes into the muscles of the man’s arm and hand. In videos of the experiment, the volunteer can be seen slowly raising his arm with the help of a spring-loaded arm rest, and willing his hand to open and close. He even raises a cup with a straw to his lips. Without the system, he can’t do any of that.

The Case results, pending publication in a medical journal, are a part of a broader effort to use implanted electronics to restore various senses and abilities. Besides treating paralysis, scientists hope to use so-called neural prosthetics to reverse blindness with chips placed in the eye, and maybe restore memories lost to Alzheimer’s disease. And they know it could work. Consider cochlear implants, which use a microphone to relay signals directly to the auditory nerve, routing around non-working parts of the inner ear. Videos of wide-eyed deaf children hearing their mothers for the first time go viral on the Internet every month. More than 250,000 cases of deafness have been treated. But it’s been harder to turn neural prosthetics into something that helps paralysed people. A patient first used a brain probe to move a computer cursor across a screen back in 1998. That and several other spectacular brain-control feats haven’t had any broader practical use. The technology remains too radical and too complex to get out of the lab.

Courtine’s laboratory is located in a vertiginous glass-and-steel building in Geneva that also houses a $100 million center that the Swiss billionaire Hansjörg Wyss funded specifically to solve the remaining technical obstacles to neurotechnologies like the spinal cord bypass. The head of the center is John Donoghue, an American who led the early development of brain implants in the U.S. and who moved to Geneva two years ago. He is now trying to assemble in one place the enormous technical resources and talent—skilled neuroscientists, technologists, clinicians—needed to create commercially viable systems. Among Donoghue’s top priorities is a “neurocomm,” an ultra-compact wireless device that can collect data from the brain at Internet speed. “A radio inside your head,” Donoghue calls it, and “the most sophisticated brain communicator in the world.” As complex as they are, and as slow as progress has been, neural bypasses are worth pursuing because patients desire them, Donoghue says. “Ask someone if they would like to move their own arm,” he says. “People would prefer to be restored to their everyday self. They want to be reanimated.”

3) Citizens of anywhere [Source:]
Providing citizenship or residence permits in return for a financial contribution generally gets a bad press for offering a perceived back door to criminals, but, like offshore finance, it spans a wide ethical spectrum. How much is black and how much white is anyone’s guess because data are patchy. Peter Vincent of Borderpol, a border agents’ association, estimates that perhaps 1% of the industry’s clients are human-rights violators, money-launderers or other fugitives from justice, and the other 99% mostly jet-setters or “doomsday preppers” (from countries that are politically unstable or threatened by climate change). It’s estimated that several thousand people spend a combined $2bn or more a year on adding a passport or residence permit to their collection. The largest sources of custom are China, Russia and the Middle East. Demand is rising fast, says Eric Major, who helped pioneer the industry while at HSBC, a bank. The number of clients from emerging markets whose net worth ranges from $1m-100m is growing at 15-20% a year. Instability is boosting demand: more South Africans are looking for second passports, for instance, because the number of visa-free destinations they enjoy with their own has shrunk under the prickly government of Jacob Zuma. So is terrorism: citizens of some rich countries (especially America) want a different passport when travelling or working overseas.

Supply has risen to meet this demand. Between 30 and 40 countries have active economic-citizenship or residence programmes, and another 60 have provisions for one in law. Some demand a straight cash donation, others investment in government bonds or the purchase of property. Some take a longer-term view of the potential economic benefits, offering passports to entrepreneurs who will set up a local company and create a minimum number of jobs. The required investment ranges from upwards of $10,000 (Thai residence, for instance) to more than $10m (fast-track residence in Britain). In some countries, the original investment can be withdrawn after several years. Caribbean nations are particularly accommodating. The islands’ colonial past means that they tend to have wide visa-free access; their small size means that rich countries haven’t felt the need to restrict their citizens’ access; their poverty means they need the cash. Pacific islands are also touting for business in the hope of patching up weather-beaten public finances. Vanuatu even throws in goodies with its passports, including a free shell company and bank account.

However, the industry’s biggest leap forward was the entry into the game in recent years of European Union countries, notably Malta and Cyprus. Cyprus advertises “EU citizenship within a few months”, with all the perks, including Europe-wide health care, and with no requirement to live on the island or pass history or language-proficiency tests. The tax benefits are alluring, too. The price is fairly steep: €2m, to be invested in securities or property. The programme explains most of the Russian and Chinese-owned villas popping up across the island. Malta is cheaper: at least €650,000, with another €25,000 per spouse or child. But it is also more rigorous. The vetting process takes a year or more, and around a third of applications are said to be rejected. Around half a dozen other countries are looking to get in on the act, including Montenegro and St Lucia. But the industry is troubled by its “optics”. Iranian sanctions-busters have been caught with St Kitts passports in their pockets; Jho Low, a suspect in the huge corruption scandal around 1MDB, a Malaysian fund, had one too, say American investigators. The OECD has identified citizenship-for-sale schemes as a possible loophole in the fight against international tax evasion.

Small-island schemes are not alone in attracting the wrong sort of headlines. Rich countries tend to offer residency instead of (or as a first step to) citizenship. The largest of those, America’s EB-5 programme, has a chequered history. It gives several thousand foreigners a year the right to live and work in the country if they invest $1m – or half as much in a “targeted” high-unemployment zone – and create at least ten jobs. Several projects have been exposed as frauds. Rich countries are keen to draw a sharp line between themselves and overt citizenship-sellers, but “the difference is increasingly one of degree”. Since the global financial crisis, half of all OECD countries have started selling some sort of visa, residency or citizenship permit. In Britain, the more the investor shells out (up to a maximum of £10m), the faster the track. While the passport industry used to be dominated by small firms, these days it is part of the business of serving “high net-worth individuals”. Providers range from international consultancies to big private-wealth operations. More recent entrants include big accounting and law firms. As it goes upmarket, the industry is rebranding and euphemizing to increase credibility in the eyes of regulators and the media. It insists it is not in the “passports for sale” business, but in “CBI” (for “citizenship-by-investment”) or, even more legitimate-sounding, “investor migration”.

The recent rise of nationalism however has dampened the industry’s spirits. The industry has to wrestle with the widely held view that citizenship is not purely transactional but has an important cultural and emotional component too. The resultant tighter regulation is hitting Chinese demand. Although China does not allow its citizens second passports – those who buy them have to be discreet, for instance by keeping their other passport in a safe-deposit box in Hong Kong – the Chinese are big buyers of most schemes. They snap up around 80% of America’s EB-5 permits. But there are signs that the demand is softening, says Larry Wang of Well Trend, one of the largest of China’s 1,000 or so legal immigration consultancies (there are perhaps ten times as many without licences). Rising living standards at home are part of the explanation, as are tighter currency controls.

4) Insecure overachiever? You’re perfect for the job [Source: Financial Times]
Problem-solving, creativity, intellectual curiosity, energy and, inevitably, “passion”: these are some of the qualities sought by the world’s most prestigious law firms, consultancies, accountants and investment banks. Notably absent from any such list: insecurity. Yet mention to professionals that “insecure overachievement” is characteristic of their tribe and they will give a knowing, if nervous, chuckle. “The best client relationship builders in our firm are insecure. They are so hell-bent on making their clients feel good about them that they work overtime,” says the chair of a consultancy. “Partners are earning over £800,000 a year and the average guy here will be thinking, ‘God, I’m not worth it’,” says the managing partner of one law firm. “We all tend to be such insecure people that we’re all scared all the time,” says another senior lawyer.

Whilst most organisations would rather employ anxious, praise-hungry perfectionists than happy but smug under-performers, professional services firms have acquired a dominant position in the exploitation of ambitious worrywarts, and its poisonous fallout. Cass Business School’s Laura Empson, author of ‘Leading Professionals’, cites a human resources director who went out of her way to hire insecure overachievers for a big accountancy group. Prof Empson suggested she was “like a drug dealer, deliberately seeking out vulnerable people and getting them hooked on the high-status identity” of the firm. The HR director did not deny it. Prof Empson did not study investment banks for her book, but according to her the same insights “definitely apply” to the sector.

One senior partner at a consultancy confirmed insecurity was still a desirable attribute — provided it was channelled towards work for the client, rather than into damage to consultants’ self-esteem. It is a crucial caveat. For all their wellbeing programmes and work-life balance initiatives, this is also the area where big professional employers still risk falling down. One reason is that high-flying worriers are their own worst enemies. The offer of gyms, nutritionists, and “flex days” can turn the associate who does not take such perks into a victim, guilty of not looking after him- or herself. Overtime devoted to the client quickly becomes overwork at the expense of the employee. “It is true that I have sacrificed my family life,” a partner in an accounting firm says, “but, ultimately, I sacrificed not only my family but also myself.” The pressure cooker may cool in future. Tragedies blamed on burnout have sounded the alarm. Policies to promote gender balance are also driving out some unhealthy practices. It is dawning on employers that they must manage more carefully people who choose to work hard and yet feel they have no choice but to do so. Bringing in outsiders who can challenge a culture of overwork can help.

Prof Empson says some senior partners seemed to view her interviews as therapy. Awareness that, in her words, “our economy rests on the fragile shoulders” of insecure overachievers is a small step towards tackling the problem. Still, professional services firms have little real incentive to stop self-doubting strivers from repeating the errors of the past. That leaves only one consolation for professionals: the knowledge that, in any group of their self-assured peers, some — perhaps all — are inwardly as stressed as they are.

5) Well Fargo’s AI defies analysts, slaps “SELL” on Google and Facebook [Source:]
Google, which makes almost all of its money on ads and internet user data, is undertaking herculean efforts to get a grip on artificial intelligence (AI). It’s trying to develop software that allows machines to think and learn like humans. Facebook, which also makes most of its money on ads and user data, is on a similar trajectory, but spreading into other directions, including a “creepy” run-in with two of its bots that were supposed to negotiate with each other but ended up drifting off human language and invented their own language that humans couldn’t understand. And here comes an AI bot developed by stock analysts at Wells Fargo Securities. The human analysts have an “outperform” rating on Google’s parent Alphabet and on Facebook. They worked with a data scientist at Amazon’s Alexa project to create the AI bot. And after six months of work, the AI bot was allowed to do its job and the AI bot promptly slapped a “sell” rating on Google and Facebook.

Human analysts on Wall Street are famous for their incessantly optimistic ratings. They generally only put a “SELL” on a stock after it has already plunged. They’re part of Wall Street’s human hype machine. Their job is to help inflate stock prices and make CEOs feel good so that they will do business with the analysts’ firms. But Wells Fargo’s AI bot hasn’t gotten the memo. Last month, a group led by Ken Sena, head of Global Internet Analyst at Wells Fargo Securities, introduced this “artificially intelligent equity research analyst” or AIERA. Its “primary purpose is to track stocks and formulate a daily, weekly, and overall view on whether the stocks tracked will go up or down,” Sena, said at the time. So “she” did Big Data analysis of Alphabet, Facebook, and some other stocks, and after seeing what’s there slapped a “SELL” recommendation on both stocks and a “HOLD” recommendation on 11 other cherished stocks.

But the bot wasn’t ready yet to replace the human analysts – and the “SELL” rating shows why. Until this bot learns to produce perma-hype, as human analysts know how to pump out so efficiently, she would have to be kept on a leash. “While AIERA does exceed us in capturing and analyzing publicly available data, we like to think we still have an ability to engage in frameworks/themes,” the analysts wrote when they introduced the bot – perhaps already worried about the bot’s potential inability, at least up front, to produce the required hype and BUY recommendations. AIERA’s recommendations are a blatant contradiction to Wall Street’s human hype machine, which has 42 “buy” recommendations out of 47 ratings on Facebook, according to Bloomberg, and 34 “buy” recommendations out of 41 ratings on Alphabet.

6) The price of paid news may not stay high [Source: Financial Times] (
Google’s decision to end “first click free”, its decade-old policy that news publishers have to give away some stories in order to appear high in its search rankings, is only a step towards ending ”free” news. Google (and Facebook, in a token manner) are edging towards something bigger — actively supporting paid-for news and information rather than treating it as a category error. The destructive syllogism that open meant free; that in order to be true to the fluid nature of the internet, publishers had to rely entirely on advertising rather than charging for their content - is fading. Even the idealistic Guardian, faced with Facebook and Alphabet eating all of its digital ads, is passive-aggressively pleading for money. However, there is a caveat. The fact that internet giants and consumers now concede that there is a price to pay for quality information does not mean that the price will be high: instead, publishers will face a renewed challenge. Google’s change of tack is a recognition that free has carried a heavy cost for the news ecosystem, and for Google itself.

So far there have been two prices for news, free or expensive, but this is a curious binary choice. Ease is not the only consumer good, though. News can be good or bad — well-researched or dashed off for the most clicks. Having set the incentives in favour of cheap and quickly made, Google and Facebook, have unleashed a flood of dubious content, from the sensational to the outright fake. Facebook is now tarnished by Russia’s use of fake news to distort elections, while Google faces the problem of the web itself degrading, which makes search less useful.

Not all free news is of low quality — some is just the opposite but platforms have their own reputations to protect. They can provide quite a lot of help to premium publishers. Facebook is making only a modest start, offering to start promoting subscriptions when users have read 10 free stories, but Google is going much further. As well as dropping first click free, it is promising to support subscriptions in various ways. One is using its transaction and payments technology to fill subscriptions, which will be a relief to anyone who has struggled with some publishers’ outdated and arcane systems. Another is to pool its data analysis with that of publishers, enabling them to identify and target potential subscribers.

This could be very useful but it raises big questions about how payment for news will evolve. They are particularly sharp for the publishers that pioneered subscriptions, such as Dow Jones, the New York Times, and the FT. The first question concerns barriers to entry. Small publishers, lacking the marketing and data analytics resources of bigger ones, have been at a disadvantage in building paid businesses. That is one reason why so many have instead stuck with ad-funded news. If Google or others provide technology and data analysis fairly cheaply, they will level the playing field. It will become easier for an array of niche publishers to find their markets amid the clutter. The second question is what happens to the industry’s price structure. So far, there have, in effect, been two prices for news — free or expensive which is a curiously binary consumer choice. Other media markets do not work like that. Viewers pay their cable providers for bundles of networks, and sometimes extra for premium sports and film channels, such as HBO. Paying individually for each channel would cost too much and be too complicated.

As platforms, such as Google start to mediate paid news, it is easy to imagine them becoming bundlers. It is also easy to imagine consumers wanting such a service. A technology executive in California, instead of one subscription to one publication, might take a bundle — some access to the New York Times, some to The Information, some to a local news publication. It is possible to imagine bundling helping everyone, but premium news publishers shudder when they mention it. They fear that it would not cover the costs of deeply researched news.

7) When working from home doesn’t work [Source: The Atlantic]
In 1979, IBM took the lead in experimenting with ‘work from home’ idea when telecommuting was still a novelty. By 1983, about 2,000 IBMers were working remotely. The corporation eventually realised that it could save millions by selling its signature buildings and institutionalising distance work; the number of remote workers ballooned. In 2009, an IBM report boasted that “40 percent of IBM’s some 386,000 employees in 173 countries have no office at all.” Then, in March of this year, came a startling announcement: IBM wanted thousands of its workers back in actual, physical offices again. The reaction was generally unsparing. The announcement was depicted, variously, as the desperate move of a company whose revenues had fallen 20 quarters in a row; a veiled method of shedding workers; or an attempt to imitate companies, like Apple and Google, who never embraced remote work in the first place.

A similar reaction greeted Yahoo when it reversed its work-from-home policy in 2013. That IBM called back its employees anyway is telling, especially given its history as “a business whose business was how other businesses do business.” There’s reason to regard the move as a signal, however faint, that telecommuting has reached its high-water mark—and that more is lost in working apart than was first apparent.  This is interesting considering that according to Gallup, 43% of U.S. employees work remotely all or some of the time. Studies back this phenomenon as well. Letting Chinese call-center employees work from home boosted their productivity by 13%, a Stanford study reported. And, again according to Gallup, remote workers log significantly longer hours than their office-bound counterparts.

Another batch of studies, however, shows the exact opposite: that proximity boosts productivity. Trying to determine which set of studies to trust is a futile exercise. The data tend to talk past each other. But the research starts to make a little more sense if you ask what type of productivity we are talking about. If it’s personal productivity—how many sales you close or customer complaints you handle—then the research, on balance, suggests that it’s probably better to let people work where and when they want. For jobs that mainly require interactions with clients (consultant, insurance salesman) or don’t require much interaction at all (columnist), the office has little to offer besides interruption. But other types of work hinge on what might be called “collaborative efficiency”—the speed at which a group successfully solves a problem. And distance seems to drag collaborative efficiency down. Why? The short answer is that collaboration requires communication. And the communications technology offering the fastest, cheapest, and highest-bandwidth connection is—for the moment, anyway—still the office.

This brings us to a point about electronic communications technologies. Notionally, they are cheap and instantaneous, but in terms of person-hours spent using them, they are actually expensive and slow. Email, where everything must literally be spelled out, is probably the worst. The telephone is better. Videoconferencing, which gives you not just inflection but expression, is better still. More-recent tools like the workplace-communication app Slack integrate social cues into written exchanges, leveraging the immediacy of instant-messaging and the informality of emoji. Yet all of these technologies have a weakness, which is that we have to choose to use them. And this is where human nature throws a wrench into things. Back in 1977, the MIT professor Thomas J. Allen looked at communication patterns among scientists and engineers and found that the farther apart their desks were, the less likely they were to communicate. At the 30-meter mark, the likelihood of regular communication approached zero.

The power of presence has no simple explanation. It might be a manifestation of the “mere-exposure effect”: We tend to gravitate toward what’s familiar; we like people whose faces we see, even just in passing. Or maybe it’s the specific geometry of such encounters. The cost of getting someone’s attention at the coffee machine is low—you know they’re available, because they’re getting coffee—and if, mid-conversation, you see that the other person has no idea what you’re talking about, you automatically adjust.

8) The economics of Richard Thaler [Source: Livemint]
The winner of the Nobel Prize in economics this year, Richard Thaler of Chicago University is widely recognised as one of the chief protagonists of the behavioural economics revolution that has challenged some of the standard assumptions and theories of economic theory. Along with the 2002 Nobel Prize winner in economics Daniel Kahneman, his co-author Amos Tversky and Jack Knetsch, Thaler has pioneered a new way of looking at economics by drawing on insights from psychology and psychological experiments. His doctoral thesis was on evaluating the monetary value of a human life—which is often used by regulators to measure the benefits of interventions that prevent deaths, say on highways or from air pollution. Based on his thesis, Thaler published a paper in 1976, on the theory and techniques of valuing a life statistically. Thaler’s dissertation supervisor, the renowned economist Sherwin Rosen, despite co-authoring the 1976 paper with him, was not quite impressed with the young economist, later telling The New York Times, “We did not expect much of him.”

The “value of a statistical life” that Thaler was estimating was based on ascertaining the amounts that people are actually paid to incur risks in the workplace. When workers face an additional mortality risk of 1 in 100,000, how much more money do employers give them? Even as he was writing a “math-heavy” dissertation to arrive at the answer, he began tweaking the question itself to see if it produced a different response. He started asking people two questions. The first: How much would you pay to eliminate a mortality risk of 1 in 100,000? The second: How much would you have to be paid to accept a mortality risk of 1 in 100,000? According to standard economic theory, people’s answers to the two questions should be essentially identical. But they weren’t. Not close. The answers to the second questions were much higher (often in the range of $500,000) than the answers to the first (often in the range of $2,000). In fact, some people responded to the second question, ‘there is no amount you could name.’ According to standard economic theory, that’s serious misbehaving. It was these results rather than the thesis he ended up writing that paved the way for Thaler’s seminal contributions to behavioural economics.

Thaler’s later work showed that the stark differences in responses to the two questions about payments on mortality risk sprang from the “endowment effect”: people value goods that they have more than they value exactly the same goods when they are in the hands of others. As such, they placed a much higher value on accepting a mortality risk than they did on eliminating that same risk. Thaler along with his pioneering colleagues showed that the mistakes that people made—contrary to what mainstream economists believed were not random. Instead, some such mistakes were predictable and led to systemic society-wide issues, which could be corrected by correcting incentives, or “nudging” people to slightly modify their behaviour. For instance, Thaler showed that people are far more likely to opt in for retirement savings plans when opting in was the default option in such schemes. His work has been particularly influential in finance, helping explain why markets may often over-react to dramatic news. Along with another recent Nobel laureate, Robert Shiller, Thaler has been one of the pioneers in the area of behavioural finance, helping us understand market phenomena that conventional economics could not explain well.

It is not surprising that Thaler is one of the few economists who were not enthused by the “surge pricing” feature of the cab-hailing service Uber. Surge pricing is based on the central tenets of economics, and yet it has faced the ire of customers in several market economies across the world. Thaler was an early critic of this model. In his 2015 book, “Misbehaving: The Making of Behavioral Economics”, Thaler argues that temporary spikes in demand, “from blizzards to rock star deaths, are an especially bad time for any business to appear greedy”. He argues that to build long-term relationships with customers, firms must be seen as “fair” and not just efficient, and that this often involves giving up on short-term profits even if customers may be willing to pay more at that point to avail themselves of its product or service.

In a landmark 1986 study conducted jointly with Kahneman and Knetsch, Thaler showed that community standards of fairness dictated when and how far firms could raise prices. Markets often failed to clear in the short term because such notions of fairness prevented companies from raising prices when demand rose, they pointed out. The study was based on interviews that elicited the views of people on several scenarios where a firm changed prices or wages. For instance, an overwhelming majority of participants considered it unfair of a hardware store to raise the price of snow shovels when faced with a sudden increase in demand the morning after a snow storm. After defending surge pricing early on, Uber has tried to tweak this feature in its app. Thaler’s criticism may be prompting a rethink within the company. Even the Indian Government in its regulations relating to cab aggregators, such as Uber and Ola seems to have stuck to Thaler’s thumb rule of capping prices to three times the base fare (during daytime rides).

9) “Eton for all”: Will robot teachers mean everyone gets an elite education? [Source: New Statesman]
It’s been thought that more ‘human’ professions like doctors and teachers will be relatively secure from the AI threat. However, according to Sir Anthony Seldon, former headmaster of public school Wellington College and current vice-chancellor of Buckingham University, teachers might have reason to be concerned after all. Last month, he said he believed “extraordinarily inspirational” robots would begin taking on the work of teachers over the next ten years. He does not believe teachers will be totally replaced by robots, but that the two will work together. Teachers’ roles will become more pastoral, less focused on the repetitive tasks of imparting information, testing and marking.

When we think of artificially intelligent teachers, we tend to picture a human-like physical robot standing at the front of the class. Such technologies are among those being developed, particularly for very young children. Pepper and Nao, two humanoid robots made by Japanese company SoftBank Robotics, were trialled in two Singapore pre-schools last year with encouraging results. Pepper was able to question children about a story they had just heard, for example, offering multiple-choice answers for them to select on a screen. However, experts believe the first AI technology to be adopted by schools in the UK will be more similar to a chatbot application, or a virtual assistant, such as Amazon’s Alexa that can recognise and respond to speech.

Where AI really excels is in teaching Stem subjects, such as maths and science, at least at the school level. These tend to have a clear right answer, unlike subjects, such as English where topics are open to different interpretations. However, Seldon thinks that AI’s potential goes beyond just basic maths and science. “I think it will transform Stem,” he said. “In science, it will liberate young people to take part in experiments way beyond anything that we can do at the moment. But I think that social sciences will follow five to ten years later, and the arts and humanities ten to 15 years later, because there is learning which can be related by algorithms in the arts.” He adds “Young people will be able to look at a scene from Macbeth in three dimensions, see holograms of actors performing in the middle of the class. Machines will be able to ask probing questions to students to test their understanding of what's happening, and their responses, using voice recognition.”

This sounds impressive but can artificial intelligence really tackle the huge gap between the best and worst schools – or the state and the private sector – when this technology will undoubtedly be expensive to begin with? “I think there will be [a gap between state and private] initially, and then I think there won't be,” says Seldon, whose upcoming book “The Fourth Education Revolution” explores the rise of learning with AI. “As we all know, new technology is very expensive because you're paying for the research and development and the uncertainty, [but] I think the price will come down very quickly. The software you'd be getting in a top grammar school or a top independent school would be the same as in the most deprived region of, say, rural Wales. Schools where they might find it hard to get the best maths and physics teachers.” He continues: “Teachers will become much more the overall organisers, the explainers, and ultimate evaluators of progress. They will become pastoral leaders. A lot of the heavy lifting of the primary work of teaching will take place on a one-to-one instructional basis, between the individual and the machine.”

10) Nobel prizes show how scientific thinkers depend on doers [Source: Financial Times]
About 1.3bn years ago, two gravitational titans of the cosmos collided. The meeting of two black holes - dense objects that swallow nearby light remained unseen but not unfelt, with the embrace sending ripples through the fabric of space-time. These disturbances — called gravitational waves, were picked up in 2015 by a supersensitive instrument in the US called Ligo (Advanced Laser Interferometer Gravitational Wave Observatory). The scientists involved - Rainer Weiss, Kip Thorne and Barry Barish - were immediately tipped to win the Nobel Prize for physics and last week they heard from Stockholm. The following day came the announcement of the chemistry laureates for 2017: Jacques Dubochet, Joachim Frank and Richard Henderson. They pioneered cryo-electron microscopy, which allows biologists to study the structure of molecules by literally freeze-framing chemical processes as they happen.

These physics and chemistry prizes are odes to instrumentation. Both recognise fantastically inventive technologies that allow researchers to investigate matter in completely novel ways. The gravitational waves were detected by their effects on laser light: the pulses of light were squeezed and stretched as the waves pass through them. But the perturbation was only a fraction of an atom wide. That science is able to capture such delicate distortions opens a portal to the universe. The predicted new field of gravitational wave astronomy will potentially unveil details, hidden thus far, of the most cataclysmic events to have occurred in our turbulent cosmos. The chemistry laureates similarly carved out a technological window through which we can look anew at the chemistry of life. Now the technique has been used to assist research into antibiotic resistance and the Zika virus.

These laureates stand on the shoulders of other great figures whose legacies owe as much to their instruments as to their observations. Galileo squinted his way to fame thanks to his telescope; Antony van Leeuwenhoek would not have discovered bacteria were it not for his obsession with a homemade microscope. Francis Crick and James Watson deduced the helical structure of DNA thanks to X-ray crystallography. We sometimes venerate science’s thinkers at the expense of its doers, who are busy building, experimenting, observing, visualising and measuring. In so doing, they can create new fields of scientific exploration. Theorists often rely on experimenters to seal their reputations: the elusive Higgs boson, predicted long ago by Peter Higgs, would have remained a mirage without Cern’s Large Hadron Collider. Such large-scale experiments arise from the efforts of thousands; the Nobel committee may need to reconsider its policy of awarding prizes to a maximum of three people. For now, though, let us salute the technologists and experimentalists who see the horizon — and dream only of building new things to look beyond it.

- Saurabh Mukherjea is CEO (Institutional Equities) and Prashant Mittal is Analyst (Strategy and Derivatives) at Ambit Capital Pvt Ltd. Views expressed are personal.