Recently came across some interesting examples on Concordefallacy – 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.
Concordefallacy 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”.
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?
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.
You would decommission newer one and continue to use older one. Again, you can blame it on karma for money wasted.
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:
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.
Alright, name of the game is “find the relevance”.
Hint: This is snapshot of today’s Times of India. The news is on auction of 2G spectrum.
Now, GO.. your time starts now. What is the relevance between news item and the girl ?
Answer: If you read the caption real close, it quotes, telecom companies playing “wait and watch game”. And the girl, is “waiting” !!! Get it ? That’ the relevance. It was total coincidence that she was scantily clad.
Okay, if you really liked this game, I have one more for you. Now guess what she is selling? (I wouldn’t have got it right with a million chances)
Here you go, couple of quotes on wives!, How she should behave and how not:
कार्येषु मन्त्री करणेषु दासी रुपेषु लक्ष्मीः क्षमया धरित्री
स्नेहेषु माता शयनेशु वेश्या षट्कर्मनारी कुलधर्मपत्नी
Translation : Work efficiency like a counselor, work ability like a maid, as beautiful as goddess Lakshmi, forgiveness like earth herself, friend like a mother, and in end of the day like a courtesan – are the six expected virtue of a wife.
Translation : One who pick the quarrel, one who steals her own money, one with infidelity, one who talk about the faults of her husband, one who eats before her husband (?!?) should not be accepted, even if she bore 10 sons for you.
Please note: these were written roughly couple of millenniums ago. So, please consider the social context of 200 BCE before (or while) judging. I am still searching for sources, perhaps its the same guy who wrote women don’t deserve freedom.
To be brutally honest, I did not expect Arnab would manage an entire interview without loosing his cool, especially none of his questions were answered. I would have lost my cool on 3rd “RTI” or “empowerment”.
On interview itself, I was curious how strongly Arnab wanted “nation to know” on how strongly Rahul wanted “empowerment“. So, I pulled complete transcript from here and used Wordle to create tag cloud. This is what I found:
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.
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
Service tax and service charges are two mutually exclusive overheads on your bill
Service charges are ‘almost’ mandatory tips, will be distributed with all employees of restaurant (technically).
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)
Service tax, on other hand, goes directly to government, will be 40/60% either on top of total food bill, which includes VAT.
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
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.”
• “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”
Formula one, I still opine, as nothing more than hamsters running over wheels. It’s pointless, waste of time, money and talent. There are at least 10s reason why I still hate it. Go ahead and prove me wrong.
It’s not sports: Don’t call a bunny-turtle race, a sport. You give same car to all drivers, and then we’ll talk.
It’s not race: What kind of race needs one of its competitors to slowdown due to team order? It’s like Yohan Blake asking Usain Bolt to slowdown because Jamaica said so.
Crashes: I was told spectacular crash will be spectacular to watch. Even I was informed movies like Death Race is inspired by races including F1. If is true, its really sad.
It’s not exciting: Around six blokes always ahead of game, the rest always behind. I take a nap, take a shower, grab a coffee and browse back to the channel – they will be still racing in same race in same position!
It’s a pit race: By the sound of it, races are won in pit stops rather than tracks. It’s like cricket is won in dug out, not field.
Expensive: Considering you’ll only see start, finish and one glimpse per lap! Even 1$ is expensive if the deal is to sit there and yawn.
Technology: I was also told, money is being put into good use of invention automobile industry. A $500mil a year for each team from last so many years, I had expected some alien car craft! They still breakdown at signal.
Rich-men sport: How easy is it makes an entry for a team? Suppose you do, how many years you need to compete to make a single point on board?
Hype: F1 is nothing more than a ponzi scheme of sports world with blown up go-karting. People follow because it is uncool not to follow. It’s a fashion statement.
F1 geeks: They irritate me every day with specifics of turbo engines, rpms, cylinders and other part which never amused me!
Update 25/01 : Due to a lot of good friends of mine objected the wording of #3 on crashes being spectacular, I have reworded it to have less exaggeration. But content remains same. I cant believe you never heard about it. One example right away, this author explains the romance between danger and dependency of F1 revenue on it. He writes :
……No one, myself included, wants to see drivers die, but by eliminating the potential for death (as nearly as possible), the danger which led to the popularity of the sport is lost.
The remaining glamour, without the danger, is empty and superficial—glamour for glamour’s sake—an endless parade of celebrities shuffling up and down the pit lane and drivers throwing their cars into turns knowing the risks have been diminished should they get it wrong.
I still stick to all other points, unless convinced otherwise.