decision-making on S Anand

White Pebble Black Pebble

Wed, 04 Mar 2026 22:23:29 +0800

When I was in class 8 or 9, our English teacher told us a story I’ll never forget.

There was a poor farmer who lived in a village. He owed the zamindar (landlord) of the village a lot of money.

The zamindar had an eye on his daughter. “Marry your daughter to me, and I’ll forgive your debt,” he said.

The farmer was reluctant. “Please, sir, what will the village say about your marrying such a young girl?” he asked.

The wily zamindar said, “They cannot argue with God’s will. Let fate decide.”

The zamindar gathered the villagers near the river, picked up pebbles of white and black from the riverbed, and told the farmer, “I will put a white and black pebble in this bag. If your daughter picks the black pebble, fate wills that she marry me. If she picks the white pebble, she needn’t. Your debt will be forgiven.”

But without the villager’s knowledge, the zamindar put two black pebbles in the bag.

The farmer’s daughter saw this, and was in a dilemma. Exposing the zamindar force them back into debt.

Instead, she picked a pebble from the bag dropped it “by accident” among other pebbles. “Sorry!” she said. “But let me see which pebble is left in the bag.”

She showed the remaining black pebble from the bag. “I must have picked the white. Fate forgives our debt without marriage, sir.”

I remember this story is because it converts a “no-win” situation into a “no-lose” one – just by reframing the problem.

Whenever I think, “Damn! What a mess!” I hope I have enough wits to remember this story. There are many more black-pebble problems in life than we realize. We just need to be creative enough to drop the pebble and reframe the problem.

Scepticism and Humility

Wed, 18 Feb 2026 22:52:35 +0800

High Scepticism + High Humility = Scientist. Editor. Indecisive. “Let’s test it.”

Good for high-stakes, irreversible decisions. System 2 thinking is slow and effortful. But if you do this too often or too long, you miss the window or other opportunities.

High Scepticism + Low Humility = Critic. Troll. Red Hat. “You are wrong.”

Good for stress-testing and auditing. To prevent/anticipate failures. But it’s toxic and demoralizing if you do it too much.

Low Scepticism + High Humility = Intern. Follower. Cultist. “Tell me what to do.”

Good for rapid learning and emergencies. To learn patterns from a master or obey the firefighter’s orders. But without scepticism, you’re manipulable and a vector for bad ideas.

Low Scepticism + Low Humility = Bureaucrat. Visionary. Fanatic. “I know it.”

Good for action under uncertainty, and sales. Drives a bias for action. Irrational confidence helps transfer beliefs. But fanatics / bureaucrats can accelerate / decelerate dangerously.

We are each of these at different times.

Each has its place.

Things I Learned - 03 Mar 2024

Sun, 03 Mar 2024 00:00:00 +0000

This week, I learned:

You can use slots to stream HTML out of order!
Shane Parrish. Short-term patience podcast
- have a frame of reference to relate EVERY experience to. That helps you evaluate (measure) and learn. That’s part of what Charlie Munger’s lattice of frameworks is about
- when there is a very high or very low interest scenario, low interest scenario then go ultra long term. Issued hundred years when the interest rate regime was very low
- short term optimal is rally long term optimal. So you need to learn to take a loss and look like an idiot to play the long-term game
- grit is a behavior that enables long-term thinking. Short term success gives you the luxury to think about long term
- #IMP power is about optionality. It’s about being in a position where you have the options that can affect the positive change rather than circumstances controlling you. Read Robert greene’s book on the 48 laws of Power
- low leverage enables that
- begin with the end in mind. Always
- how do you think about risk? Well, things do happen. It’s as simple as that
- autonomy and decentralization helps derisk
- do more and more of what works. That’s a powerful way of compounding
- long-term investments are better than frequent trading because you get to reinvest the tax you otherwise would have paid. So unless the alternative is super compelling, stay invested
- if you need to be the person who DOES the thing, you delegate less, leverage list, compound less, because you have to DO. BE A PERSON WHO SETS THE FIELD INSTEAD. The coach, the chess master, the director, patient strategist who Waits for the good hit
Being in Control motivates #Lesson. my cycle tires were flat. I thought it was someone pulling out the air and felt very demotivated. But once I carried my cycle pump, I felt so much more in control and power and felt a whole lot better
SourceGraph is the default platform for private code completion & search
MetaVoice 1B offers voice cloning on American & British accents with 30s training
Qwen 1.5 72B appears to outperform Mistral Medium, making it one of the top non-proprietary models
Llava 1.6 is a substantial improvement over Llava 1.5 and slightly better than CogVLM, Qwen-VL
AI scams are growing. Deepfakes scammed $34m. But voice fake for kidnapping is scarier.
Buildspace’s demo is a great demo of how voice and actions can be used effectively.
demucs does an EXCELLENT job of splitting songs into drums, bass, vocals and others

Things I Learned - 24 Dec 2023

Sun, 24 Dec 2023 00:00:00 +0000

This week, I learned:

DPO is a simpler alternative to RLHF for fine-tuning. Several HuggingFace models use DPO for training
Name2Vec is a potential embedding for names.
Google Knowledge Graph ID powers the Knowledge Graph. If it begins with /m/ it’s the same as the FreeBase ID. This is now available as WikiData. e.g https://www.wikidata.org/wiki/Property:P2671
I tried running Mixtral-8x7b locally (via Llamafile) and on together.ai. It’s good, but far from GPT 4.
Generic computate-intensive algorithms eventually beat domain-specific tuning, because of Moore’s law. Ref
The hidden brain podcast. the mystery of beauty
- Evolution drove us to beauty as an efficient survival mechanism. Understanding the world is one such mechanism. Hence we enjoy maths and chess
⭐ This leaderboard included paid models like GPT4 and Claude and compared them with open models on HUMAN + system benchmarks
Lez Friedman Podcast: Jeff Bezos
- Build stuff that is is ubiquitous that other people take it for granted. The initial idea needs to be that obvious and easy. Like one click purchase or customer reviews
- Build stuff that other people can build on. Internet makes startups possible. Infrastructure is about enabling others at scale
- Decision making approaches: single person decides on two way doors. Deliberate as a team on one way doors
- Conflict resolution: disagree and COMMIT. NO sniping, I told you so, malicious compliance. Avoid compromise. Avoid decision by attrition (most persistent wins).
- People are inherently biased towards hierarchy. So the senior most person should speak last
- We have a happiness bias. Contracted by choosing the unhappier options first
- The map is not the territory. The metric is not the objective. We need metrics. But make sure you know why
- See the world through the eyes of the customer. Use your own product. It’s living their lives that makes customer obsession real. Jeff Bezos called their own customer care to see how long the actual wait time was. It was much longer than the metric reported
- How to prioritize. whatever problems customers will still face in 10 years are the big problems. These are worth putting time into because they are stable in time
- People working on big problems will never get down to the small problems. So have a dedicated team that works only on the paper cuts. It should be a dedicated team
- We co evolve with our tools. We build tools and then our tools change us. It reprograms our brains
- Cut out 10 minutes to the beginning of each meeting for people to read the material. They never reread anyway. This makes the meetings more productive
- Powerpoint is designed for persuasion, not truth seeking. It is also easier for the author than for the reader. Prefer narratives that are focused on finding the truth and are easier for the audience though tougher for the author
⭐ whisper-standalone-win provides a Windows binary for Faster-Whisper. It just needs CUDA and cuDNN installed. Then whisper-faster.exe video.mkv --language=English --model=medium generates the transcript.
LLM use cases by Benedict Evans
- “Every text box on the internet will get an LLM”
- “Infinite interns”
- “Every UNIX function has become a company.” “Every ChatGPT suggestion…”
llm360 publishes models along with training datasets.
In The Age of AI has begun, Mar 2023, Bill Gates says, “In my lifetime, I’ve seen two demonstrations of technology that struck me as revolutionary.” The GUI (1980) and ChatGPT (2022).
Rubeus is a HTTP proxy for multiple LLMs with load-balancing, fallbacks and retries.
GPTRouter is a Python interface for multiple LLMs with fallbacks and retries.
⭐ Token Tally has an LLM Cost Tool that estimates GPU memory required and token cost across cloud providers.

A sense of proportion

Fri, 14 May 2010 08:44:30 +0000

A quote from David Heinemeier Hansson:

So the problem is, a lot of business managers and especially business owners, they have no sense of probability. They can’t fathom that concept. So They treat the probability of 1 to 10 trillion as the same as a 1 to a 100. And like, “We’ve got to deal with this 1 to a trillion probability, because, what if it happens?”

No! Doesn’t matter! I mean, don’t care.

So as soon as that sense of probability spreads, that people can treat that reasonably, I think all this nonsense just goes away.

This lack of proportion, sadly, is at the heart of my every day problems. (Just watch the video!)

Comments

elbin 14 May 2010 5:49 pm: Money matters!

A flaw in rationality

Thu, 03 Sep 2009 08:16:47 +0000

I found this piece from “The Happiness Hypothesis” pretty interesting:

In the 1990s, Damasio found that when certain parts of the orbitofrontal cortex are damaged, patients lose most of their emotional lives. They report that when they ought to feel emotion, they feel nothing, and studies of their autonomic reactions (such as those used in lie detector tests) confirm that they lack the normal flashes of bodily reaction that the rest of us experience when observing scenes of horror or beauty. Yet their reasoning and logical abilities are intact. They perform normally on tests of intelligence and knowledge of social rules and moral principles.

So what happens when these people go out into the world? Now that they are free of the distractions of emotion, do they become hyperlogical, able to see through the haze of feelings that blinds the rest of us to the path of perfect rationality? Just the opposite. They find themselves unable to make simple decisions or to set goals, and their lives fall apart. When they look out at the world and think, “What should I do now?” they see dozens of choices but lack immediate internal feelings of like or dislike. They must examine the pros and cons of every choice with their reasoning, but in the absence of feeling they see little reason to pick one or the other. When the rest of us look out at the world, our emotional brains have instantly and automatically appraised the possibilities. One possibility usually jumps out at us as the obvious best one. We need only use reason to weigh the pros and cons when two or three possibilities seem equally good.

Human rationality depends critically on sophisticated emotionality.

Guess it shouldn’t be a surprise then that models based on rationality fail.

Comments

Nithin 3 Sep 2009 9:23 am: The best thing I read today
Lucy 27 Sep 2009 11:18 pm: Very interesting. Plus, without emotion, wouldn’t life be boring?

Resolving the Prisoners Dilemma

Sun, 17 Aug 2008 12:00:00 +0000

If you’re ever taken a course in Economics, and it discussed Game Theory, you may be familiar with The Prisoner’s Dilemma. Roughly, this is the problem.

Assume you possess copious quantities of some item (money, for example), and wish to obtain some amount of another item (perhaps stamps, groceries, diamonds). You arrange a mutually agreeable trade with the only dealer of that item known to you. You are both satisfied with the amounts you will be giving and getting. For some reason, though, your trade must take place in secret. Each of you agrees to leave a bag at a designated place in the forest, and to pick up the other’s bag at the other’s designated place. Suppose it is clear to both of you that the two of you will never meet or have further dealings with each other again.

Clearly, there is something for each of you to fear: namely, that the other one will leave an empty bag. Obviously, if you both leave full bags, you will both be satisfied; but equally obviously, getting something for nothing is even more satisfying. So you are tempted to leave an empty bag. In fact, you can even reason it through quite rigorously this way: “If the dealer brings a full bag, I’ll be better off having left an empty bag, because I’ll have gotten all that I wanted and given away nothing. If the dealer brings an empty bag, I’ll be better off having left an empty bag, because I’ll not have been cheated I’ll have gained nothing but lost nothing either. Thus it seems that no matte what the dealer chooses to do, I’m better off leaving an empty bag. So I’ll lease an empty bag.”

The dealer, meanwhile, being in more or less the same boat (though at the other end of it), thinks analogous thoughts and comes to the parallel conclusion that it is best to leave an empty bag. And so both of you, with your impeccable (or impeccable-seeming logic), leave empty bags, and go away empty-handed. How sad, for if you had both just cooperated, you could have each gained something you wanted to have. Does logic prevent cooperation? This is the issue of the Prisoner’s Dilemma.

There’s nothing wrong in the logic, actually. The key assumption is that it is clear to both of you that the two of you will never meet or have further dealings with each other again. If you’re never going to deal with someone again (and hence there is no question of retribution or any fallout), you really should cheat.

An aside. During my first few days at IIT, two third years were ragging me about my stance on pre-marital affairs. After trying my best at defending the moral standpoint, I finally confessed that it was only the fear of the after-effects that worried me.

“There’s this beautiful naked girl in your room,” they said. “You are guaranteed no repercussions. What will you do?”

“No repercussions?”

“None whatever.”

I thought for a while. “I’ll flip a coin.” :-)

Anyway, the aside aside, the solution to the one-off Prisoner’s Dilemma is for both people not to cooperate. If contracts are not enforceable, we’re all better off not trading. If there are no cops, we’re individually better off stealing.

But, of course, that’s not true in the real world. Most situations are repeatable, and you do tend to meet people again. Those you cheat may even have a motivation to meet you again.

This is the iterated Prisoner’s Dilemma. Douglas Hofstadter wrote about this in the May 1983 issue of Scientific American in his Metamagical Themas column (which, by the way, is brilliant). While the Prisoner’s Dilemma has a simple solution (don’t cooperate), the iterated Prisoner’s Dilemma does not have a predetermined solution. At best, you can have a strategy. (That can be proven. If there was a predetermined solution, your opponent would know it, and could beat you. One of those cases in mathematics where you are not guaranteed a solution.)

But is it possible for cooperation to emerge in an iterated Prisoner’s Dilemma? Can it beat competitiveness?

Robert Axelrod of U.Mich conducted a computer tournament to find out. He invited strategies from game theorists and wrote them as BASIC programs. Each program would be pitted against another. Every time, it could response with either C (cooperate) or D (defect). Cooperation gets both programs 3 points. If one defects, the defector gets 5 points and the cooperator gets nothing. Both defecting gets 1 point each. Axelrod ran each program against each other many times, and added up the scores.

The program that won was called TIT FOR TAT. It was the shortest program (4 lines of BASIC code). Here’s it’s strategy:

Cooperate the first time.

Do what your opponent does thereafter.

Think about it. TIT FOR TAT starts by being nice, and stays that way, unless you defect. Then TIT FOR TAT punishes. If you repent, TIT FOR TAT forgets and forgives. Interestingly, TIT FOR TAT can never win a game. It can, at best, draw a game, but never score more points than its opponent. It goes for winning the war by losing battles.

That’s four traits:

Being nice
Punishing immediately
Forgiving immediately
Willing to lose battles

After publishing these results, and having learnt a lot about different strategies, Axelrod repeated the tournament. Four times as many entries poured in. This time from world experts on game theory. It also included an improved TIT FOR TAT called TIT FOR TWO TATS, which is an improved TIT FOR TAT that does not fall into a C - D - C - D cycle when playing against TIT FOR TAT.

TIT FOR TAT won again.

Till date, TIT FOR TAT remains an unbeaten individual strategy, and people believe it may be optimal.

(PS: By individual strategy, I mean that there are multiple programs that can team together, losing to each other and making sure that one of them wins. This sort of thing can beat TIT FOR TAT. But no individual program beats TIT FOR TAT.)

In our first term at IIMB, we played a game in our organisational behaviour class, intended to help us understand inter-departmental cooperation (or rivalry). The class was split into two ‘companies’. Each company had four divisions.

The game had 10 rounds. In each round, every division could choose to cooperate or defect. If everyone cooperated, each division made 3 points. If any division defected, it would make 5 points, while all cooperating divisions made 0 points. If all divisions defected, they would all make 1 point. The divisions were not allowed to talk to each other.

The aim was to beat the other company. (Not other divisions, within or outside the company.)

Our company started off with 3 Cs and a D, which quickly deteriorated to 1 C with 3 Ds by round 6. At round 7, it was 4 Ds.

Before round 8, we were all given a chance to have a huddle. A representative from each division would come together and talk things through. We promised to cooperate, and thereafter, it was 4 Cs to the end.

We lost the game. The other ‘company’ had started off with 1C and 3Ds, but had learned to cooperate pretty quickly, aided, in Prof N M Agrawal’s words, by “… Aparajita threatening the other divisions with her glares.”

The reason there’s a Prisoner’s Dilemma is the inability to reliably communicate or enforce behaviour. Having a chat helps. Having laws that punish you helps. Having a bully threaten you helps. The thing is, you need a signal of some kind. And it needs to be an early signal, or you end up waiting till round 8 and lose the game.

If you’re ever in a situation where cooperation helps everyone, but it’s not in interest to cooperate, here’s what seems to work:

See if you can agree to cooperate before-hand
- Have a chat
- Find policies that punishes defectors
- Threaten if required
If not, then try to force cooperation by signaling.
- Be nice
- Punish defection immediately
- Forgive repentance immediately
- Lose battles to win the war

Comments

Dibyo 19 Aug 2008 1:05 am: I really liked this piece. It’s not a new concept to me, and I’ve understood it well before, but the TIT-FOR-TAT part really connected.

Dibyo
(IIMB too, but a couple of years junior - we only heard about Stud Anand)
S Anand 19 Aug 2008 11:03 am: @Dibyo: Even when playing the game at IIMB, a few of us knew about TIT FOR TAT. Didn’t help. Guess there’s a huge gap between understanding and practice…
Abhi 28 Aug 2008 5:33 am: Fantastic piece, very lucidly put.

IITM - Mtech, we should have heard about Stud Anand.
deepak 30 May 2010 7:32 pm: We played the game in IIMB and ended up doing the same stuff and never getting it right. Dibyo, I think it was Prof. Reddy who made us play this game. But then I went to Solvay for Exchange - 2 each from IIMB and A , we tried TIT for TAT first( many teams too many combinations ), didnt help post the huddle while everyone else was trying for Tit for TAT we kept going against to drive home the message. The prof did mention that one enlightened party doesnt help unless everyone else gets the message :)
Prabu 10 Dec 2010 9:03 am: Hi Anand, Was going through your post. Just thought of this algorithm that would beat the TIT-FOR-TAT algo. it would be:
1. Never Co-operate. Now, this algo always either wins or draws individually. Group games are different. Thanks
S Anand 10 Dec 2010 2:56 pm: That’s an interesting point, Prabu: “group games are different”. Totally so. Your Never Cooperate algo, as you pointed out, always wins or draws. Tit-for-tat, interestingly, NEVER WINS AN INDIVIDUAL GAME. You can prove it, but this file is a demonstration: it plays random strategies out against Tit-for-tat. Tit for tat never wins. Maybe the lesson here is a stronger version of “Losing the battle, winning the war”. Perhaps it’s essential to lose the battle to win the war. (I’m probably oversimplifying, or in extrapolating analogies… anyway, just wanted to say: yes, never co-operate beats tit-for-tat on an individual game. Many other such strategies exist too. As you mentioned, group games are quite different)

Wisdom and Intelligence

Wed, 14 Feb 2007 12:00:00 +0000

Paul Graham pens another brilliant essay on Is it worth being wise? It’s mostly about the difference between being wise (right most of the time) versus being smart (being right where few others are). If you’re picking between options, being wise is useful. There is a best option, and you’ll pick it most of the time. If you’re doing something creative, there’s no finite set of options. Then it’s worth being smart. Increasingly, tasks are asking for more creativity, so it may be better to be smart.

Knowing less is better

Wed, 17 Jan 2007 12:00:00 +0000

Malcolm Gladwell argues that knowing less can be an advantage. This is based on a study in which kids in the US were asked which was a bigger city: San Antonio or San Diego. Many didn’t know. Kids in Germany were asked the same. Most knew: San Diego was bigger. Why? Because they’d heard of San Diego, but not of San Antonio.

P.S: A comment mentions that the actual difference in population between these cities is only 2%. So maybe the US kids were right to be unsure…

Comments

texan 29 Jan 2007 4:20 am: Please read the actual pschologist’s blog at http://www.dangoldstein.com/dsn/archives/2006/03/malcolm_gladwel_1.html#note to see the distinction between “city limits” & “metro area”. i or any outsider ( still a US person ) would associate san diego(San Antonio) with its metro area than ‘city limits’. I think the american kids were influenced by the popular saying ‘Everything is big in Texas !!!’ i live in Texas BTW

Filtering vs weighting

Sat, 25 Nov 2006 12:00:00 +0000

I am selecting a CRM package for a bank. I asked my colleagues how they’d gone about it, and got 8 responses. Every single one of them had the same weighting approach: Take a huge list of criteria, assign weights, score each package, calculate a weighted-average score, pick the highest one.

As I mentioned earlier, I think weighting is a lousy method. (See Errors in multicriteria decision making.) You can’t say “I picked this package because it has X, Y and Z features, which the others don’t.” You can only say, “Oh, overall, it has the highest score…”

The scores and the weights are subjective. You spend ages arguing between a 3 and a 4. You can manipulate them very easily. And you end up having to revise the scores many times to get to the answer you want.

Since I now had an opinion, I put my foot down, and said, “Here’s what we’ll do. Let’s make a list of essential criteria. They will all be YES / NO questions. Any package that doesn’t meet any criteria is knocked off. That’s it.”

This may appear simplistic, but it isn’t. You see, at the end of the day, only a few criteria really matter. Ideally, you just pick these, and compare packages against these. Since you don’t know which these are, you make a bigger list, evaluate them all, and then realise the truth.

Sometimes, you have too many criteria. Then none of the packages make it, and you have to sacrifice some of your criteria.

Sometimes, all of them make it. Then you can choose to enforce more criteria. Or maybe not. If all of them meet your criteria, just pick the cheapest one.

Internally, we were convinced of this approach, and took it to the client. Things were fine for a week. Then, complaints started trickling in.

Fear: “I’ve already used weighting in earlier package evaluations. Now, if you use filtering, it’ll make my earlier evaluations look bad…”
Uncertainty: “I don’t know… what if there’s no YES / NO answer? What if we need shades of grey?”
Doubt: What if it lets everything through? What if it rejects everything?

Uncertainty is the most popular objection.

“What if we need shades of gray?”

I always ask: “Any example?”

“Well, you know… it can come up.”

So I give them an example, and explain how it can be broken in to sub-questions.

“Well, yeah… but just to be on the safe side, could we have a score?”

The exercise is still going on. I haven’t seen a valid concern yet. What’s interesting is, everyone is hesitant about filtering, but no one can defend their objection.

Comments

Sai 28 Nov 2006 1:08 am: Anand, while weighting is just a tool, you can’t make decision making a science. Well, i know decision making is called a science by the academia, but if it could be resolved by metrics, then every decision taken could potentially be right, maybe at that point in time. But i don’t agree with that as the results of actions taken are known only much later. I don’t know if i am conveying this correctly. If you take filtering, then sure, you will come up with must haves and you will be able to come down to a few choices. Where i am going with this is irrespective of the tool weighting/filtering, the most you can do is come down to a top 3 or 2. For example most CRM systems today fullfill the campaign to lead to opportunity to quote to order to support process. You will then break it down either to industry based sub-processes or ability to handle volume transactions/enterprise/smb ..so on. My point being you can do this by either method. Finally it’s your gut. Maybe it’s just the sales guy in me talking.
S Anand 28 Nov 2006 12:59 pm: Sai, if you’re saying the methods are equivalent in their outcome, I’d say MAYBE. But with filtering, I can say WHY I’ve knocked off a package. I can’t with weighting. Both eventually try and reflect the subjective process, but filtering does it by trying to identify the EXACT reason you want to reject something, while weighting tries to quantify the feel for it. I see the value of trying to pinpoint the reason. It may be unquantifiable, but filtering forces you to try, and weighting leads down the easy path. But unless we get into specifics, we’d just be talking hypothetically. Let’s have a chat…
novice consultant 8 Mar 2007 11:16 am: I guess this will be a two way approach. You start with elimination process using set of questionnaires and Yes/No responses. This will help you to narrow down to tools which meets mandatory features. After that you can use weighted approach to zero in on the tool.

Errors in multicriteria decision making

Mon, 09 Oct 2006 12:00:00 +0000

I talked about my approach for multicriteria decision-making, and mentioned that it was fundamentally flawed. Here’s why.

The charts above compared two industries. The bigger the area, the more favourable the industry. The underlying assumptions being:

The criteria are comparable. (Points at the same level are of comparable importance. Twice as large is twice as important.)
All (and only) relevant criteria have been included.

In this particular example, I know for a fact that both these assumptions are invalid. And in every case I used this methodology, the assumptions fail.

You won’t draw the criteria to scale. We used revenues and growth as two parameters, and marked each industry as high, medium or low. The scale for revenue was Rs 100 cr, Rs 500 cr and over Rs 500 cr. The scale for growth was <5%, 5-10%, >10%. We picked this scale in order to fit the range well on these graphs. Not because Rs 100 cr of revenue was worth about the same as 5% of growth. And yet, that’s the implicit trade-off this graph is asking us to make.

We also had very qualitative criteria, like “Capability” (KSF), and they were compared head-on with growth and revenue. Using qualitiative criteria is not a bad thing. But when the visual makes you trade-off capability against Rs 500 cr of revenue, I feel queasy.

You will miss important criteria. Usually, the process for identifying criteria is bad. “Think of every criteria you can” was our standard approach. In this instance, in our first iteration, we had a dozen parameters. We showed it to the client. They said, “Look, our Chairman likes these industries a lot. He doesn’t like that bunch. We’re much more likely to focus on the ones he likes.” And that’s absolutely important! We ended up adding a “Passion / vision” based on the fit with the company’s existing businesses, and that proved the deciding factor.

Another time, I built an entire model on which project to outsource based on 10 parameters. (It was everything I could think of at the time.) The one that I missed was, “When is the project starting?”. It turned out that this was the most important criteria. In fact, it was the only important criterion. If I’d simply said, all projects starting after 1-June-2006 can be outsourced, I would’ve been 90% right.

You’ll keep the irrelevant parameters. This is the worst of all. Even after we learnt which the important criteria were, we didn’t throw away the useless parameters. We never throw away hours of work, even if it’s useless. So the model keeps bloating, and the irrelevant criteria influenced the shape of the graph more than the relevant ones.

Another problem is that this methodology cannot answer questions concisely.

“Why did you knock off Industry X?”

“Oh, because on a cumulative score against revenue, growth, lifecycle, capability, passion and 10 others, it scores less than 45 points.”

A good answer should be short. For GE, it would be “You’ll never be number one.” For HP, once, it would’ve been “It’s not where we can excel technically.” For Warren Buffet, it may be “I don’t understand the business.”

After these experiences, and based on hindsight, I’ve come to believe the following about MCDM (multi-criteria decision making):

Remove irrelevant criteria. Usually a few criteria make the decision. The rest don’t matter.
Filtering works. You don’t optimise in MCDM. You’re trying to do well against criteria that are often not comparable. You’re better off if you filter out unacceptable levels of criteria, and treat what’s left as acceptable.
Use a decision tree. Don’t compare options. This is the basis of fast and frugal heuristics. It keeps focus on the important criteria, and makes the process easy to implement / explain.

I’ll let you read up on fast and frugal heuristics. I’m convinced it’s the best way to make decisions based on multiple criteria in the scenarios I’ve worked on.

Comments

Shirali 10 Oct 2006 11:49 am: How about BCG Matrix?
ND 10 Oct 2006 3:25 pm: Ask client (decison makers or those close to them) for the important criteria after the first cut and prune the list Remove irrelevant criteria and possibly assign weights! I’m uncomfortable of areas under a spider chart. Prefer to use “moon phases” that are backed by some data analysis. Comparison is essential for an “either- or” decision (Should I outsource or not?). Decision trees work when its an “open mind” situation (What kind of applications should I outsiurce?). Endnote - BCG matrix appears a star… it’s a dog’s world after all ;-).
Sandeep 11 Oct 2006 11:54 am: Anand, I buy your argument about comparing qualitative and quantitaive measures. I had to do a similar excersise for one of my projects. I used a weighted average model.What I did was 1. Identified all the relevant factors to grade each industry, as agreed upon by the necessary stakeholders 2. Assigned weights to each factor…again with stakeholder agreement 3. Graded/ranked all the industries by each factor and totalled up a weighted average number. So finally I had one number per industry, to do my comparison. Isn’t this method better as compared to representing on a wheel chart. Your thoughts….??
Jawahar 9 Oct 2006 12:00 pm: Hai anand, can you mail me some links on multi criteria decision making and which method is best in multi criteria decision making ? though you have told weighting is wrong,its hard to see how not to use weighting in decision models like AHP so can you throw some light ?

Knowing when to stop

Wed, 21 Jun 2006 12:00:00 +0000

Mathematics, marriage and finding somewhere to eat has a simple solution to all these problems. Whether you’re hiring someone, or picking a partner, or finding a house – or any problem that requires you to pick the best among N choices – here’s the rule.

Scan the first 37% of choices. Then pick the first one that’s better than anything you’ve seen so far.

How I buy gadgets

Sun, 26 Mar 2006 12:00:00 +0000

I’m a cautious gadget freak. I love buying gadgets, but think a lot before buying them. Invariably, I use spreadsheets to help me decide. I try to buy only those gadgets that are right for me at the cheapest possible price, and I look at two things: features based on usage and breakeven.

Usage-driven buying

I pick the features I want based on my usage. For example, when I bought my first mobile, I listed the my most likely uses for the phone:

I’m in the car (e.g. 2 hr drive to airport), and want to catch up
Emergency calls (means, carry the phone always)

So I need high battery life (at least 2 hours). I need low weight, if I’m going to carry it around. I don’t need colour display or MMS for my usage pattern. Then I ran through all available mobile phone options, filtered them against my criteria, and picked the cheapest (Nokia 3310).

Another example was my digital camera. The reason I wanted one was:

I can take a lot more photographs and print only those I want
For low light shots, take multiple snaps, so at least one will be OK
I can just take one snap and print it, and not have to complete a roll

So my camera should be light (to carry around and take lots of snaps), have a high ISO rating and flash (to work well in low light), and needn’t have much memory (I transfer it to my laptop pretty quickly).

Having identified such features, I compared models (Internet / visit shops) in 2002.

Product	Price	Size	Flash	Mpx	Zoom	Mem	Comment
Kodak DC3400	16500		Y	2	2x		No – 2x zoom not enough
Canon S10	20000	Small	Y	2	2x		No – 2x zoom not enough
Sony DSC P50	20000		Y	2	3X	4MB	No – too little memory
Nikon 775	19000	Small	Y	2	3x	8MB	OK
Fuji FinePix 2600	15000	OK	Y	2	3x	16MB	OK
Olympus D-230	15000	Small	Y	2	None	16MB	No – No zoom
Nikon 885	27500	OK	Y	3	3x	16MB	Too little manual control
Canon G1	40000		Y	3	3X		Too expensive
Sony DSC S85	40000		Y	4	3x	16MB	Slow shutter
Canon G2	45000		Y	4	3X	16MB	Too expensive.
Olympus C4040	45000		Y	4	3x		Too expensive

I finally picked the Fuji FinePix 2600.

Breakeven

I had a normal camera. Would a digital camera be economically worth it? For a normal camera, the roll costs Rs 2.5 (Rs 90 / 36 shots), developing costs Rs 2.8 (Rs 100 / 36 shots), and each print costs Rs 5. Total cost per photo: Rs 10.3. I don’t need prints, I see pictures on the computer. The digital camera cost me Rs 20,000 including customs duty. So I break even when I take about 2,000 pictures. That sounded feasible, so I switched to digital in 2002. (I’ve taken about 2,800 snaps since.)

For similar reasons, I also decided I didn’t need a colour printer. Given my expected usage, it would have cost me Rs 34 for a single 4" x 6" colour photo printout. I could get the same at a shop for Rs 8.

Recently, I bought a DVD writer. DVDs cost about the same as CDs in bulk. (I bought a 100 DVD pack for 14 pounds, and 100 CDs for about the same.) A DVD stores 6 times as much as a CD. So for every DVD I burn, I save the cost of 5 CDs, about 70 pence. A DVD writer cost 50 pounds. So after burning about 70 DVDs, I’d break even. Once I’m through with my pack of 100 DVDs, I’m guaranteed breakeven. (I’ve burned about 25 DVDs till date.)

Tracking

I don’t stop there. After buying, I track my usage. Where I’ve done a breakeven, I try to track quantitatively. Otherwise, I track my usage pattern (high / medium / low). So far, my best return-on-investment has been on my webcam and mic, followed by my digital camera, CD writer, video camera and DVD writer. The worst have been my TV tuner card (I didn’t really record many movies), and my second mobile phone (turned out I didn’t really use GPRS).

I once started doing this sort of analysis for my clothes, but stopped… maybe I was carrying this a bit too far…

Comments

Dhar 28 Mar 2006 8:24 am: You probably know it already, but using a camera at high ISO rating will give you grainy pics. Instead try using low shutter speeds, low aperture with a good tripod.
Dhar 28 Mar 2006 8:25 am:

I once started doing this sort of analysis for my clothes, but stopped.
Dhar 28 Mar 2006 8:26 am: Thank God for that! Using a spreadsheet for analysing what clothes to purchases! You are an uber-geek.
Arun 28 Mar 2006 11:19 am: Holy cow!
S Anand 28 Mar 2006 1:39 pm: Yeah, I stick to low ISO with a pocket tripod these days. I do wish there were a camera that would work at night without a tripod!
Ashwin 28 Mar 2006 6:57 pm: Olympus or Sony cybershot 7.2 MP(DSC P200) which is better? can any one suggest which is an all rounder in performance?
Dhar 4 Apr 2006 5:51 am: For camera’s that work at night, try those with Optical Image Stabilizers. I believe Lumix is one of the inexpensive cameras that features OIS.
Philip Wilkinson 27 Nov 2006 6:33 pm: wow - that’s impressive. I think you qualify for being a Crowdstorm Elite member if you’re interested!
Eating more for less | s-anand.net 19 May 2011 7:26 pm (pingback): […] that add less calories per gram. Usually, when browsing stores, I check these manually. But being a geek, I figured there’s an easier […]

Demand draft fees

Tue, 21 Mar 2006 12:00:00 +0000

Once, we were looking at whether banks made money on demand drafts (DDs).

DDs are costly. 90% of a bank’s costs are people-related, and it takes a fair bit of time (hence people) to process DDs. If you pay for DDs in cash, it costs even more because the teller has to count the notes.

To recover this cost, banks charge a fee. The fee increases with the size of the DD. A DD for Rs 10,000 may cost Rs 50, while one for Rs 100,000 may cost Rs 200.

But apart from the fee, banks also earn float on the DD. Let’s say you go to a bank, pay Rs 100,000, and take a DD. You mail the DD to someone, who cashes the DD three days later. The bank has your Rs 100,000 for 3 days, and earns the overnight interest rate at around 5%, netting Rs 41 in the process. This float is significant for large DDs.

Our client bank was making a small loss on DDs. Every DD less than Rs 50,000 caused a loss (even after including float). And 3 out of every DDs was smaller than Rs 50,000.

Then we had this bright idea: let’s lower fee for large DDs, attract of them, and get more float income. DDs above Rs 50,000 are profitable. So big DDs are worth going after. 80% of the float income comes from the top 22% of DDs. So surely, the big DDs are worth going after. Float income increases forever, whereas fee income is capped. So big DDs could absolutely be terrific.

We were thrilled. Here was a revolutionary counter-intuitive idea: have lower charges for DDs to get more money. We kept talking about it to our client. But at the end, we didn’t suggest it. It got left behind the conventional idea of increasing the fee for small DDs.

We were a bit disappointed, and kept cursing the conservatism of public sector banks. Goes to show how the bright young consultants can be naive. For, as it later turned out, the bulk of DD revenues is really fee income (88%), not float income. Had we lowered the fee income, there’s would’ve been no chance for the float income to make up for it.

Why did we miss that? A couple of reasons. The simple one was, though the float income increases forever, doesn’t beat fee income until the DD is about Rs 2 crores. DDs typically stay with you for a few days, and you can’t earn much interest on that.

The other reason was subtler. We had assumed that the float income for a DD of Rs 100,000 is 100 times that of the DD income for Rs 1,000. But the float income does not increase linearly! Someone who gets a DD for Rs 1,000 doesn’t mind waiting a bit to present it, but someone who gets a DD for a lakh would walk to the bank the very same day. The chart below shows how long customers wait to cash DDs. The X-axis is the size of the DD. The Y-axis is the number of days they wait. It shows a clear diminishing trend.

Lesson: Conservative bankers might make more money not listening to hotshot consultants.

Comments

Shreyas 27 Mar 2006 10:22 am: Very insightful case study! But did increasing the fees for smaller DDs help boost the profits? Did it not reduce the number of customers taking DDs?
S Anand 27 Mar 2006 12:08 pm: We didn’t measure that. But even if it reduced the number of customers it would have (in the long run) increased profits, since they were losing money on every small DD sold! They would be able to shift someone from the DD section elsewhere, and avoid having to recruit a new person.
ronnie 21 Mar 2006 12:00 pm: Hello i like to join and i wish to be a member of demand draft so mail me pls
Walter Atkinson 21 Mar 2006 12:00 pm: I was looking to this information and was helpful…ok Best Regards Walter http://www.surveynew.com Premier Paid Survey Company.
ritu raj 17 Nov 2008 7:32 am: what doc need to be presented to the bank for the dd of 375000 to be paid in cash?
uss 8 Jul 2011 6:42 pm: but there is no dd charges for current account in private bank.ll it cost loss to the bank
Vignesh 23 Oct 2012 9:22 am: Beautifully written. I liked your articulation.
pradeep kumar 16 Jun 2015 3:29 am: This article is very nice and informative. Came here while searching for something related and found it very informative. Thank you very much.
Donga Satyanarayana 28 Feb 2017 8:20 am: Some private banks are fee DD charges allowed with simple amount deposit. But our Bank is world wise national Bank . This Bank is some lakhs of crores rotining services. Better to allow free DD charges atleast a limited amount. Thanking you

Herbert Simon on Information

Wed, 14 Dec 2005 12:00:00 +0000

Quote by Herbert Simon on Information:

What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.

It sounds quite like the Scientific American article The Tyranny of Choice which says that after a point, more choice causes unhappiness. The satisfaction of picking the best choice is less, because the second best is almost as good. And you’re more likely to not pick the best – because there are so many choices – and will regret it more often.

Comments

Anonymous 14 Dec 2005 9:52 pm: date is wrong
S Anand 15 Dec 2005 12:37 pm: Just fixed it. Thanks!

Acts of commission rather than omission

Thu, 27 Jan 2005 12:00:00 +0000

Thinking, a book by Hardman and Macchi, says people would much rather let bad things happen, than take a risk to stop them:

Decisions with identical outcomes are judged as worse when they result from acts of commission than acts of omission. For example, most people are reluctant to vaccinate children against a potentially lethal flu when side effects of the vaccine can cause death. Faced with a flu epidemic that is expected to kill 10 out of 10,000 children, most people are not willing to accept a 9 out of 10,000 risk of death from vaccination, and the median acceptable maximum risk is 5 in 10,000. Apparantly, killing a child with a vaccination (that is, an act of commission) is perceived as worse than causing its death by failing to vaccinate (that is, an act of omission).

We can make better decisions sub-consciously

Mon, 30 Sep 2002 12:00:00 +0000

A neurological experiment indicates that we can make better decisions sub-consciously, even if we can’t explain why.