Category Archives: Economy

Concorde, digger wasps and sunk cost


Recently came across some interesting examples on Concorde fallacy – aka sunk cost fallacy. The fallacy which makes you look silly for all your bad investments. Not sure they teach it in management classes though, do they? They should.

Concorde fallacy means a person/organisation continue to spend/consume resources/ funds/effort on a project/product with a sole rationale that already a great deal of resources/capital/effort has been poured in, even when tangible evidences show that there is no economical viable end results. In other words sunk costs should not influence your further decisions on investments; if they do then it is sunk cost fallacy.

Now the reason it is notorious as Concorde fallacy is due to an unjustified pursuit of a failed project by French and British government. Concorde was a defense aircraft, half way through the development of which there were evidences suggesting Concorde will never be economically feasible. Despite of that, governments continued spending on it with only reason “a lot has been spent on it already”.

British Airways Concorde in 1986

British Airways Concorde in 1986 – through Wikipedia

Let’s talk about shoes – Let’s suppose you have perfectly working formal shoes. Since people around you notice that you haven’t contributed for golden arrow for a long time, and you visit a showroom to buy new ones. Now, a smart ass salesman sells you a pair double the cost of your current shoes. But on 16th day she starts to hurt your feet, but you can’t take it back since there is no visible damage on the product. What will you do?

  1. You would still throw the old, working, comfortable shoes to attic and choose to wear brand new one, because you need to utilize all money spent on it. If it continues to hurt you, Karma to blame.
  2. You would decommission newer one and continue to use older one. Again, you can blame it on karma for money wasted.
  3. Go shopping again. Golden arrow will be extremely happy and karma never gets tired of taking blame.

If you are answer is 1) sunk cost fallacy 2) poor fellow like me 3) crazy shopaholic.

Let’s come to that interesting example I promised. Concorde fallacy is not just business philosophy; it is of interest to scientists as well. Apparently it’s not just humans who display such behavior; there are examples from biology books too.

Sphex (aka Digger wasps) insects are known to defend their nests with disproportionate amount of energy and rigor that they had spent to build them. In other words, for these wasps under attack, it would be wiser to forfeit and build a new nest, leaving pride aside. May be bad education on economics, eh?

(On related notes to wasps, but not on sunk cost itself)

Lets give it to them, digger wasps aren’t exactly the brightest folks in insect kingdom. They are known to show OCD as well. They are so much concerned about security of their nest, they become obsessive and compulsive. This is straight from Wikipedia:

Digger wasps - through wikipedia

Digger wasps – through wikipedia

Some Sphex wasps drop a paralyzed insect near the opening of the nest. Before taking provisions into the nest, the Sphex first inspects the nest, leaving the prey outside. During the inspection, an experimenter can move the prey a few inches away from the opening. When the Sphex emerges from the nest ready to drag in the prey, it finds the prey missing. The Sphex quickly locates the moved prey, but now its behavioral “program” has been reset. After dragging the prey back to the opening of the nest, once again the Sphex is compelled to inspect the nest, so the prey is again dropped and left outside during another stereotypical inspection of the nest. This iteration can be repeated again and again, with the Sphex never seeming to notice what is going on, never able to escape from its programmed sequence of behaviors.

Service charges, taxes and Facebook hoaxes


Every time I dined out, which is pretty much every weekend, I ended up paying ~30% extra on items, which I did not fully understand. There were VAT, service charges, service tax and on top there is tip! 30% is huge amount, it can easily buy me couple of coveted dishes, for which I generally have ‘reserve’ apatite even after a full meal.  I paid every time and returned hungry.

Recently came across a facebook post telling me what I did was wrong! Full content of the facebook post is pasted bottom of this post. It claimed India restaurants charge service taxes on top of total bill amount rather than just service charges.  This is that hallelujah moment, where you realize you’ve been cheated but you are not alone.  Generally I don’t believe facebook posts, but this post is telling me just what I wanted to hear.

So basically, so far I understood:

  • Service charge is optional
  • Service tax is on service charge rather than full amount.

Next first thing I tried is one of those fact checking sites, like this one. Unfortunately Hoax or Fact site declares it FACT! But if you see the explanation is about service charges rather than service tax it self.

But all joy was short lived when I read what I did not want to hear. Apparently bill was right, they were according to law, which include “don’t dine outside”. read this for complete understanding on service tax   – Service Tax in Restaurants – What the law really says!

1) Service portion in an activity wherein goods, being food or any other article of human consumption or any drink(whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant – 40 %

2) Service portion in outdoor catering wherein goods, being food or any other article of human consumption or any drink(whether or not intoxicating) is supplied in any manner as a part of such outdoor catering – 60 %

Finally, let me summarize

  1. Service tax and service charges are two mutually exclusive overheads on your bill
  2. Service charges are ‘almost’ mandatory tips, will be distributed with all employees of restaurant (technically).
  3. Restaurant has obligation to let you know that there will be service charges, even before you dine/order. In case no such display or abysmal service, you can refuse to pay that (technically)
  4. Service tax, on other hand, goes directly to government, will be 40/60% either on top of total food bill, which includes VAT.
  5. Never trust facebook post on first look.

Happy dining out with your inflated bills !

—————————————————————————————————————————–original content

SERVICE TAX At Restaurants – VERY IMPORTANT!!!
Interesting. I find restaurant bills often so confusing. I just give up and pay the amount shown n the bottom line. Perhaps we shouldn’t.

Incidentally, I also resent the inclusion of Service Charges in restaurant bills, because it assumes that I was satisfied with the service. Just a matter of principle. Service Charge should be something I leave behind at my personal discretion. I recently demanded that the service charge be removed as the service was non-existent. After a short – very short! – Discussion, it was removed. About Service Tax….. Be aware

service tax

service tax

This happened at the restaurant. Let me explain. We had been to several restaurants recently. I observed that “service tax” was being misused in the way it was being charged to customers.

Let me give an example.
– – – – – – – – – – – – – – – – – – -
Food and Beverage = Rs. 1000.00
Service Charges @ 10% = Rs. 100.00
Service Tax @ 4.94% = Rs. 54.34 (on F&B + Service Charges)
VAT @14.5% = Rs. 145.00
Total = Rs. 1299.34
As per the definition – “Service Tax can be charged ONLY for the services provided to the customer”.

Now, see what is happening here in the above example. Service Tax should be charged only on the Service Charge amount i.e Rs.100 ONLY, and NOT on the entire amount (1000+100). In this example, the customer should be charged only Rs 4.94, whereas he has been charged Rs. 49.00 extra. Where does this money go? Only the restaurant owner and the chartered accountants who work for them know.

• So, I have started asking them the questions – and am surprised to see the reaction from famous restaurants. Either they say: “Sir we cannot change the format of the bill – so , we will recalculate and tell you the revised amount. You may pay only that.”

OR

• “Sir, you do not need to pay the Service Tax amount itself”!! I now have 3 to 4 restaurant bills, but for which I have paid only the service tax on the service charge and NOT on the total amount.

Every bill MUST carry the TIN number and Service Tax Number, if they charge it. So . . . , I ask for the Service tax number if it is not available in the receipt that they provide.

As we cannot go to any government official and ask them to get this right – because of our system. Please remember – we cannot change any political leader – but we can change ourselves. If we change ourselves – things will change. Please do share this with every one of your friends and known people. Ask for the right tax calculation and Pay only the tax which is supposed to be paid. Verify every bill and receipt that you make payment on.”Please share if you think its worth”

Delhi free water – 5 things wrong with it


Delhi government under Arvind Kejriwal has kept its first promise, while media is watching it closely. Or is it other way round? – Since media is watching Delhi government kept its first promise?

Delhi water problem

Nothing will change for these, who actually need water (image credits to indianexpress.com)

By free water and cheaper electricity, as I understood, as supposed to be achieved through the efficiency through bringing down corruption, fixing wastage, suppress mafia and improve operations scientifically. Apparently answer is none of the above, instead it’s a socialistic populist freebie.

I am not impressed so far, in fact I am worried on what’s coming next. Here, let me list down 5 things which, I think, are wrong by the way it is implemented

  1. Some detailed, the money for free water is taken out of from the profits made by delhi Jal Board in past years. The Idea is, profit out of public money, should go back to public, for free! Remember India 40-50 years back? Never_dream_of_profit policy? This is version 2.
  2. What happens after this profit in coffer wears out? They either will have to stop free-water flow or raise money through taxes. Either way, won’t be free anymore!
  3. What about houses which aren’t in water grid? They don’t have free water now anyway, later point these guys need to pay for something they aren’t exactly benefitting from. Double trouble!
  4. One of the feature least thought about is, If a meter consumes even a litre more than ‘free’ limit, entire consumption is charged! There are no slabs. This means dilwale Delhi people can no longer host any guest who baths daily.
  5. Free-water does not translate to availability of it. Honestly, I still wonder, what is the bigger problem in Delhi? Not having water round the clock? Or paying for the service who brings it to you?

A tick on free water, electricity next. Without even an audit, 50% tariff reduction is written on stone. Let’s see how they mess this up?

It’s India-Pakistan all over again, in Sudan


South Sudan voting for its independence, and we will have a secular country in six months, in one month we will come to know about it! I see it as India-Pakistan of Africa with one country with single defined state religion/language while the other being multicultural and secular (and corrupt). Whatever it may be, I congratulate south Sudan (or the name they call it in two months) all the very best.

All southerners need to do is to turn up at least 60% and vote at least 51%, and boom! There is very little chance that South will vote for unity (after all things happened) that would be unfortunate. Good news is, so far they dint find anyone who wants to vote for unity (look at us! Celebrating defeat of unity :-) ). There is also a tiny chance that north will deny the independence for south (as happened in Burmese election). But for the time being let’s not put this idea into their head.

sudan vote symbols

I will be celebrating it with a Champagne, in February, so will billion others around the world. This probably will be most celebrated divorce ever, for a million reasons. A small fraction of those million reasons I can think of are:

  • Peace! After couple of million killed over couple of decades.
  • Home rule, spending its own money on their own country!
  • There will be roads, schools and hospitals in south! Which rest of the world built centuries ago? (Fact: First tar road out of any town in South Sudan being laid in 2011)
  • Multi-cultural! Good to have no dominant culture which decides how rest of the tribes can be flogged!
  • There is international community to help newborn country. BTW Did I mention George Clooney is my favourite actor?

Once advice for South, don’t be precious on Abyei region. We have a similar situation here, we call it Kashmir.

Something to feel good about in 2050


Something to feel good about in 2050, while we cant afford a kg of onions in 2010 :-)

how China, India and Brazil will overtake the West by 2050

GDP projections to 2050: how the rankings change.

Read the complete article on “how China, India and Brazil will overtake the West by 2050″ in Guardian datablog.

One more interesting presentation on all 200 countries.

Credits : Hans Rosling’s 200 Countries, 200 Years, 4 Minutes – The Joy of Stats – BBC Four