 Hi, good evening, good afternoon, good morning, wherever you are joining us from, my name is Abhijit Bhaduri, thank you for being with me and I can promise you a wonderful next 60 minutes are going to be really super. I am working here in out of Bangalore as a leadership coach, I also work with organizations as a social media strategist, but what really I look forward to is the conversations that I have with some of the most interesting authors, economists, film stars, all kinds of people who have been on my show as I think about it from CEOs to sports people and well today I am going to talk to you about this book. Actually I have this person who has written this book, so maybe I should give you a little heads up about what Sudipta Sarangi is all about. Professor Sudipta Sarangi is actually teaching economics, economics at Virginia Tech University and at Virginia Tech he is also the head of the department and he has got this fabulous book, he is besides being a really super accomplished economist, he has worked with the World Bank, FAO, multiple other places and he is a globetrotting guy, but what actually makes him really interesting is this book where he is trying to take really complex ideas of economics and turn them into really easy to understand ideas that things that you and I can use, so let's get started and I am going to invite him. Professor Sarangi, thank you so much for being with us and I am delighted to have you with us on this particular show, which city are you joining us from? Greetings Abhijit and I am joining you all from the mountains of southwest Virginia, place called Blacksburg, Virginia. Alright, okay, so look at the comments that have started coming in, Vinit Vikram says another kick-ass live session, oh of course, so no pressure Sudipta you have to live up to this expectation that our viewers have and there is somebody who is joining us from Micah, we heard you when you were there as part of the month-end session and looking forward to a stimulating conversation, super, so let's get started. By the way, I was telling people about this book that you have written, a couple of things that really got me intrigued about this book, first of all you got some really impressive people, Arvind Subramaniam says that it's daring, illuminating and entertaining, yeah so that's him, one economist and then you also have Kaushik Basu another sterling economist of our times, he said great things about you and then when you look at this book at the back, the back cover actually has some more interesting things, why are all the good mangoes exported from India, why should we pay our house help more, why should we hesitate to reach out for that last piece of cake in a gathering, why should we, I'm just curious because wherever things like that happen, when there is just one piece of cake which is there, why do people hesitate, I certainly hesitate, you know, you don't want to look like the person who's being greedy, but tell me more about that, why is it that people hesitate, so the heart of this lies something very important called the epistemology of knowledge, okay and the epistemology of knowledge is a field of study that's at the intersection of philosophy, computer science and economics, it tells us when we know something, so my explanation for why we leave the last piece of cake is first I have to distinguish between when we do that, so if we are in an office setting or you are with relatively unknown people or acquaintances then you're going to do that, at home you don't do that, okay, at home you probably fight your siblings for that last piece of cake or that last samosa or gulag jamun or whatever it is, right, so this is not at home, this is with people where it is important to tell them that you are not greedy, that you care about others and that you are polite, but the story doesn't end there, what really matters is that if you take away that last piece of cake, people know you've taken it away, but if you leave it there, you have told people that you are not selfish and everybody that leaves it there is telling the others that they are not selfish, but that doesn't help, we need to know that the other person knows you're selfish, by leaving it there now I know that you are not selfish and you know that I know you're not selfish, that is important, if you don't know that I have understood that piece of information, there is a problem, right, and so this chain that I know that you know that you know that I know can go on, right, so everybody knows that everybody knows that everybody knows that we are all good people and kind people, that's why we need to leave it there, otherwise you could say when nobody wants to eat it, put it in the refrigerator, we don't do that, we leave it out there for everybody to see so that everybody knows that everybody knows ad infinitum that they are good people. So if we don't do this, this causes many problems. So there is a question from K. B. Shriram who wants to know if this is game theory at play? Absolutely, I wouldn't call this game theory at play, this is more like knowledge, understanding what is an event, we're trying to make people understand that this is what happens, I mean for example, people have studied sociological culture, so why do we have round tables at meetings? We can all acknowledge each other, we can create that awareness, right, so there are other things like religious ceremonies like Native American Kiva, again that's circular, you can also think of there are movies where you find that there is an attempt to create knowledge, so the Byzantine general problem in computer science, those of you who are familiar with computer science is a version of that. Please educate me, what is the Byzantine general problem? So the Byzantine general problem is very complicated, I'll give you the simple version, so there are two generals, the Byzantine general problem is a generalization of this, there are two generals who are parked on two hills, okay, and they have their armies, the enemy is in the valley in between, okay, so general A sends a message to general B, let's attack tomorrow at 6am, we have to coordinate the attack, otherwise they fail, right, but the messenger has to pass through the enemy lines, so there's a small probability the messenger does not make it, okay, so now general A sends the messenger, but given that the probability that the messenger doesn't make it, generally it doesn't know if B got the message, so it must confirm the message, right, so that message has to go back, but then again because the possibility that there is a failure, he may not make it, so B must know that A got the message, which means A has to send confirmation back, so that's why if you go to WhatsApp, a messenger, it shows message delivered, it shows message read, otherwise you don't know that the other person has understood what you want to communicate with them, oh absolutely, those two blue ticks are vital, you know, so yeah, I remember somebody was talking about this example of one of the family WhatsApp groups, so it says that, you know, the cousin, so this is one family group of lots and lots of people and this person sort of gets a call from one of the cousins and says that very clearly, you know, you are no longer a friend of mine, you don't care about your cousin, because when it comes to the other cousin, you wished the person at six o'clock in the morning and I know that you saw this message at six o'clock because I saw those two blue ticks, but you wished me only at 10 o'clock at night, so there you go, so this is exactly, now we all know what we know, right, and this is at the heart, so you know, if the generals don't know what time they attack, it will fail, so you can imagine this is a big area of study, and so the Byzantine general problem is about n generals, sure, sure, sure, it's more complicated, yeah, so you know, when I went to college and I studied economics as well, for me, economics was, you know, at that point of time, it was all about very large problems and, you know, this, you talk about demands of like this and that, I mean, you know, a lot of it, but when I read your book, you know, I read it like a person who's a layperson, and I found that this book was really fascinating because, you know, from everything that I look at, you know, like I look at this, the chapter that opens up is this little story which is about pens in the pocket, why do we carry pens in the pocket? My God, I mean, I just, so why do we carry pens in the pocket? You should tell our viewers because I found that really fascinating, so why do we, what does that mean? So the idea of pens in the pocket, I mean, I'll tell you the chapter. Is it a good thing or not? Because then I'll put a pen in my pocket and is it a good thing? I will argue it's a good thing. I'm going to leave it here. Okay. I think it's very important, although I'm not sure that you need to do that. We'll come back to that in a minute. Okay, I'm going to take it over. No, keep it, keep it. So my point is that of course, you know, nowadays, it's not very popular, but this time when I was growing up and with this is, you know, pre-liberalization in India, this is a very common thing, you know, people like to carry pens and, you know, Waterman and Parker, you know, some of these names that you would hear, Mont Blanc, you know, very prized possessions. And for college students, there was the Chinese versions like Wingsung, Hiro. Actually, I found that you can even go on eBay now. And so, you know, a friend of mine were having a conversation about these times that you can go on eBay and find Hiro and Wingsung pens and so on. So they would have these little cartridges and, you know, they were, they were better than the average fountain pen, Suleka, you know, you have the Indian fountain pen, Kamlin, Suleka ink, these are things probably most people today don't know. But there was a reason for this. In pre-liberalized India, jobs were scarce, education opportunities were even scarcer. Okay. Why? Because we didn't have the private sector in education. There was only one sector. Okay. And so, what matters in those days was given the scarcity of job, think about a prospective employer and think about a bunch of people who come out, say, look, I have an engineering degree. The employer has no idea about who to hire. You can say, I'm best, I'm better than that person, I'm better than that person. How does the employer say, you know, your engineering ability is not written here, right? It does not flash to the employer. This is the best person. So there's no way for the employer to judge these people. So one thing that people can do in such a situation is what exactly the Peacock does, right? The Peacock has bright plumage because they're fighting over mates. The P-hens are definitely looking, right? So they're not looking, they don't look very beautiful. They're just very ordinary looking birds, but the Peacock has bright plumage. So that's the same idea. You want to signal or you want to let your employer know that you are a person of high ability. That is why you go seek education. That's what it matters, right? And the higher the quality of the education institute you have gone to, the better is the signal. And actually the education might not be relevant, right? So you can do an engineering degree and then go into IAS to show that you have high ability because engineering and then did IAS. Engineering degree may not be relevant to IAS. So signalling requires us to invest in showing our ability through some other strategy which has to be one, costly and two, it may not even be relevant to the job at question, but it tells the employer this is what you do and that's the idea of signalling. So in pre-labilisation India, the pen in the pocket was a signal of people's ability that they belonged to the educated class. Then I should remove it because I certainly don't have any ability. So I'm going to remove this. No, I think in your case it's slightly different. So I think what we were saying is that in the beginning, when it is very hard to distinguish between people, signalling is very important. But somebody who has already proven themselves, they don't need to do this. You've already signalled your ability. So we know about you. But no, no, no. So I just think that look at the lovely comments that have come in. There's somebody who actually says, it's amazing to see Sarangi live. I'm his Aikh Labia. And you also have somebody talks about love those hero pains and Professor Priti Shroff says, hello from Micah. And so a whole lot of people who've joined in. And there's also Rangaraj and Raghvachari says writing instruments market is in bad shape and the schools are closed and all of that. So, but you know, I just, you were talking about can I throw out a puzzle for the audience? Yes. I will not answer it today. Some future day. Okay. Okay. Because of the Aikh Labia comment. So Dronacharya asked Aikh Labia to give him his thumb. Correct. There's a reason why Dronacharya asked. Why did Aikh Labia agree? I want a rational answer for why Aikh Labia agreed to give his thumb to Dronacharya, knowing what it would do to him. I will not answer. I will not dwell on this. I want to leave people with this puzzle. Okay. So just to do a quick recap, Dronacharya was the person who was teaching the princes, whether it was Korams and the Pandams in Mahabharat. So he was the Guru. He was teaching them archery. So as you know, so you got to sort of hold the bow and arrow. So when the people held the arrow and they would need to hold it like this with their thumb and forefinger. So when Aikh Labia was not accepted as a formal student, but he learned nevertheless, put a statue of Dronacharya and he sort of learned it. And when he proved his ability through another example, his Dronacharya said, if you really think I'm your Guru, then you need to give me your thumb as Guru Dakshana, as a payment. Now very clearly there are many of these things which we can explain. So we have some people who are actually trying to respond. Aikh Labia always had a signal that he was better than Arjun and that worried Dronacharya perhaps and his severed thumb became a signal to the outside world that such a thing had happened. K. Sriram says it would help him get employed. So that's one. Tathagata Chatterjee says, Sriram, did you see Professor Sarangi laugh at that answer? So very clearly one hint is that that's a signal. It's a signaling device that it's not the correct answer. And Tathagata Chatterjee says signaling his dedication is bigger than the achievement of the field and there are some others. Aikh Labia had the perception that he can still do the same things without requiring the thumb and maybe this was a signal for that. So let's not get distracted because I was just trying to also read that you've got signaling and what incentives and I'm trying to read the next one. Product differentiation. Yeah and then you have price discrimination. But you're having a class clearly. So we are on to the first one very clearly signaling. So explain to me in simple terms signaling if I understand that it's a way of telling somebody that I matter. Is that correct? And in some senses when we wear a watch, I mean there's one of the examples I give people that when you wear a watch, you actually don't need to watch from the functional value because there are hundreds of places your phone you can use to get the time or that you can ask people. In India we ask for directions liberally. You have multiple clocks in the home, your microwave or car and all of that depending on where you are operating. You have many things. At the same time I think it's just also a way of telling people that I can afford this. I also think that when you know Pranav also has an answer which I think Pranav Singh says he might as well do the same thing with the other hand. I'm going to presume that what you mean is that he might as well use his other hand to be an archer and not top of the other thumb as well. I presume that you meant that. But why do we need to signal? I mean so is an MBA degree a signal or is it a actual? So as I said, so part of the reason you already explained. So the key idea here is that there is asymmetry of information. Some people know some things the other people don't and that for to put people on the same level or to stand out from the others you need to create a signal. For example, I mean why do people in the police wear uniforms? Clothes make with the man. So for law enforcement to be taken seriously, I mean if I just go and claim I'm a policeman and I'm not in the uniform you won't take me seriously whereas the person who's actually wearing the uniform will be taken seriously. So again we say I mean just as you said watch matters. So clothes matter, school uniforms matter. There are all these reasons for why these things matter. So the best example I think in modern India is Oyo. What did Oyo do? Oyo basically said look there's a whole bunch of hotels and we don't know their quality. I'm going to create a certification template and certify them. That way I have helped these little hotels signal their quality and then you can judge the price quality ratio for yourself and go. So the key idea behind signaling is that it should be costly. If everybody can replicate a signal then it's noise. You know signal to noise ratio is important. So signal to be costly and it has to reveal something about the person that's trying to get a trait, a message or an idea across. So it can be a trait, it can be ability, it doesn't have to be ability. Doctors go to medical school to show that they have degree. So you go to a better medical school to show that you have a higher degree and often and this is very true. It's a sad thing but if you have come through in India the quota system or affirmative action, many times there's a social stigma attached to it. Because people think that okay this person went through a quota that's like an opposite signal. So they somehow tend to associate lower ability with that. It need not be true. So there the noise to signal ratio is not quite sure because it's confounded by a third factor. Okay so if I were to just summarize you are saying that when we display our educational credentials we are signaling to the job market that we are great sort of, so we are very qualified. We are better than the others. So if you say that you've got a PhD, by the way you did not put Dr. Sudipta Sarangi in your name, I just noticed that. So why are you not signaling that you are an accomplished economist because you don't need to? That's one thing also. I think it's not convention. I think it's not convention and I'll be very frank here. So there is a gender bias. Okay so women often in many disciplines don't tend to be taken seriously and I have seen this in my own life. They will refer to the male colleague as professor and they will refer to the female colleague as miss. So you will see that when you are on Zoom and so on you will see many academics use female academics do stress the fact that they have a PhD because they need to. By virtue of the fact that I am at a university and I'm a full professor I think that information reveals I must have a PhD. You must have a PhD. So perfect but on the other hand you are not writing Dr. Sudipta Sarangi is making me feel a lot more equal which otherwise would have never happened. I would have felt miserable that I'm talking to somebody who's so accomplished you know you've got really fancy accomplishments and I'm just so envious you know but now when you don't write Dr. Sudipta Sarangi I say that okay he's not all that great. So this is another counter way to signal greatness which is why when the billionaire actually tries to wear a pair of torn jeans that's another signal that you know I'm like you I don't think that I'm a billionaire and no big deal I'm like you. So all right. You know most successfully done by Donald Trump right I mean some analysis of his language use shows or at some point people had analyzed his vocabulary usage on his speeches. It seems like he was using something right 600 to 1000 words not bigger whereas by contrast Hillary Clinton's was a very big range right. Why because he was trying to signal to his electorate that I'm one of you look I talk the same way you do. Yeah yeah I was reading that in one of the books that an anthropologist has written so she talks about the fact that when someone makes a grammatical error the educated people laugh at this person but in some of the jobs like a politician's job it is actually a massive advantage because then you're telling people I'm like you. So you know I'm not one of those fancy people who are wearing ties and boots and all suits and all that so then you know when the professor wants to create a difference between let's say himself or herself and the students you sort of you know flash that but you know in some cases you don't flash that so there are very accomplished person can do a reverse signal you would wear you know very simple clothes so you could sort of do I want to say something here because you pointed out something very interesting when we have fresh PhDs okay you know fresh PhDs may not be very different from the students they are teaching in age so we routinely tell them on first day of class you need to create the distance otherwise they will not take you seriously so we tell them dress formally for the first few lectures you know wear a suit if you're especially important for women that wear formal attire be very serious later towards the end of the semester you can joke but in the beginning we need to establish this boundary that I am not you because right maybe I'm two three years older than you but you know what I have a PhD I've done all this studying and now I'm teaching you so you're absolutely right this is very important and early on in your careers this is more important so so to be taken seriously which is why at the campus I notice when people go for job interviews even if it means borrowing a jacket from somebody and you know wearing that I think that's what I did you know I borrowed somebody's jacket because I didn't have a suit so I wore that and then went across for the interview you say that and then as soon as you are done with the interview you take take off the tie and jacket and you notice in many of the cultures of organizations the you know they have a formal best code I mean bankers investment bankers etc it builds trust that okay you know this person can handle my money or for that matter you know another thing that I was thinking of is imagine that one of your loved ones is going in for surgery and your surgeon you know has been brought in because he or she is an accomplished person and you see a whole lot of tattoos and nose rings and all of that it may not have any kind of a bearing on the qualification or skill but it can worry some of the people yeah so I think okay so that's that's a great what can what can let's say somebody who's not had a great track record yet early stages of career on a LinkedIn what are some of the things that people can do to signal that they are better than the others what are some devices so I would say you know in today's world there are some opportunities which did not exist before right so for example showing micro credentials but again you want to be careful here you want to invest in micro credentials that are expensive because you know if this is a free micro credential what's the value right I mean if you can get a certificate by switching on the computer and let the course play and while you are you know I don't know having a glass of whiskey or cooking dinner or whatever you know that's not going to count so if you need to build up then what you can do is go for micro credentials go for things you can show your strength first of all you should know your strengths that's very important self-awareness is very important so invest in things that will show your strengths and try to get certification all right because certification that's that's the beauty of micro credentials they don't take a lot of time but screen related to signaling is the idea of screening right I can talk about that if you want so look at these opportunities vet them carefully and go for the ones that the market will value don't just spend your time and money in anything and everything just because it's right right right and then try to present information in a way that's easy on the eyes I think it's very important that whatever information you're putting out how it looks on the screen you should look at that you should print it and look at that so this is one of the first lessons I learned in my phd my advisor has an extremely messy office you cannot enter we don't have nobody has meetings in his office we have to go somewhere else so one of the first things he told me was imagine so you know as a phd you write papers right so you know that's that's your main job so you write research imagine that the person who has to read your paper has an office like this okay like his office and your paper is competing for attention in that space that's what you need to keep in mind so when you're writing your resume that's the issue employers are looking at hundreds of applicants yours must stand out so all the important information that's what I tell my students those who work with me all important information should be visible in 30 seconds to the naked eye whether it's in the print version or on the screen if I can't see what distinguishes you in 30 seconds from the others then imagine consider yourself buried in the pile of papers in Professor Hans Holler's office okay okay all right and and you know there's an interesting comment here Shyam has written that a friend of mine always used to wear full-sleeved shirts to hide his arm tattoos you know so that is a reverse way of you know hiding the signals because if you have a tattoo here it's sort of different conclusions absolutely and wanted to hide it so as to not stand out so signaling works both ways and in one of the interesting dimensions so just to reset the room you know I'm talking to Professor Sudip the Sarangi he is the author of this absolutely fascinating book that I've finished reading it's called The Economics of Small Things and we've taken a bunch of examples from that you know it's a free flowing conversation but I'm just you know we we talked a little bit about signaling and I'm sort of trying to look at the second word which is there which is also something that I'm deeply curious about which is incentives and when you look at incentives why you know for HR people I know that it matters a lot because as you devise let's say sales incentives you know so you create compensation systems the stock grants you know which sometimes the startups will say we can't pay you a lot of money and cash but we can give you stock grants and you know in one year's time we'll be bigger than Google and Apple combined together and so then you are going to be like multi-billionaire so decide where you want to park your you know private plane so those kind of dreams when they sell it's it's also a way of incentivizing people to join them to give up what they would have otherwise been worried about and you know it's a way of de-risking in some sense but when you look at that how do how do you describe incentives what is your view of incentives so I think as all economists will tell you and in fact one of the things that I think that's very careful that modern economics very carefully distinguishes itself from sociology for example is the understanding that we sociology tends to think of human behavior in the collective as the group economists tend to think about the group but more importantly that behavior is down at the individual level so we want to think about how the individual behaves and so and that's another issue that relates to sort of leftist or Marxist economics is that often the unit of analysis is not the individual it's again the group of the collective and which is not to say that they don't get things right they do get things right but by missing out on incentives which drive individual behavior you miss out a lot so for example as we all know everybody responds to a higher salary package but incentives don't necessarily have to be pecuniary you can have non-monetary incentives so give me an example of a non-monetary incentive incentives so in the universities for example office with a window corner office because the corner office is big right so people fight over a corner office you know or office with a window and I'm sure this happens everywhere as soon as you create a high rise there is always fight for cubicle versus office there is always fight for corner room windows or employee of the month right what is employee of the month the whole idea is that you work in a group or you are I mean if there was if there was only you and another employee employee of the month would have no meaning because who are you showing that off to you can say we're customers so maybe but the real value of employee of the month in the sense that it motivates people to work harder is that it's a way of recognizing people amongst their peers right I mean what what is competitive sports I mean why do we give an Olympic medal why why does it have so much value it has so much value because you're recognized as the winner amongst a group of people and also you are recognized as a winner your country recognizes you and all of that right so so that's why non-monetary incentives which are cheap ways of doing this but work just as effectively are important so you know and then of course we know about you know incentivizing people through monetary incentives one of the oldest ways of monetary incentives is share cropping right so think about share cropping what does what does the zamindar tell the sharecroppers zamindar says says you bear you know you do the labor you get the crop and I will take a certain percentage of it now there are certain advantages to this because what you're doing is you're actually sharing some of the risk because if the crop is lower if the output is lower you're also getting a lower cut whereas if you give a fixed incentive like you have to give me you know this many quintals of rice then you're not sharing in the risk okay but of course sharecropping can be extraordinary so these are ancient ideas of incentives to get people to work when I give you share cropping then you say okay if my output is higher then I get to keep a bigger part the flat incentive is not a very good idea there but the final word that I would like to stress on incentives is to say that incentives can have very unintended consequences right so one of the there you go that was what somebody has said just now in the comment that unintended consequence you are incentivizing a behavior it's sort of you know gets you know unintended circle so what kind of give me an example of unintended consequence that you have said yeah so I'll pick an old example and a new one so and both are in the book but you know you can find many so in so this is the book awesome go ahead thank you so there's something called the cobra effect the cobra effect I'm saying this because so that when you when you you know get all the royalty from all these extra scenes you will incentivize me for you know promoting the book you know so I just hope that's going to happen so guys remember if you read that book and buy the book remember to tell professor Sarangi that you know it was recommended and I need to get a percentage right no talk to me about the cobra effect the cobra effect this is a story from the British Raj it says that in Delhi there were too many cobras also the British believe and they decided to incentivize people you know in and around Delhi you bring me a dead cobra and I give you money so unfortunately what happens people you know you guard so people in and around Delhi they started rearing cobras at home then they would kill a cobra and take it to the British government and say look here's a dead cobra give me money okay so now in in Delhi so this this is not verified but in but in Vietnam this this has been studied by a historian and documented in Vietnam the problem was rats in Hanoi and so the French decided to pay money for dead rats yeah and so people started keeping rats at home but what happens what is the really bad part at some point the government realized wait a second we screwed up this is not really working so they abandoned the policy what happens when you abandon the policy you might end up with more rats than you had before because people let go all the rats yeah what are they going to do now there's no point in keeping those rats at home and feeding them and killing them so let go or you know if you're rearing snakes do the same thing the modern story is happened in during the middle of the Sudanese civil war so there's a group in Switzerland which felt very bad for what was happening to women and children in Sudan so they said you know what we're going to so what was happening is one group was keeping the victims the losers as slaves even women and children right so the one that they took over the other group they would keep them as slaves they said you know what we're going to buy freedom we're going to go and buy the freedom so we're going to free these slaves by paying money as you can imagine what it did it increased the incidence of slavery it's a little bit like Santa and Banta writing a contract and saying you know today I'll be your slave you buy my freedom then tomorrow I'll take you I'll be your slave right and so you buy my freedom is this something so somebody has a question here Shriram wants to know that if there are incentives does it always happen that individuals that try to game it is of course I mean Shriram are you not trying to game incentives that are offered to you tell me not yeah and I'm answering on his behalf I'm sure he is giving it so no I think you know you talked about the cobra story I actually have written about it in my book you know mediocre but arrogant and the sequel you know so we have that story there which says that you know Cobra's except for the fact that I think I've talked about it in the context of a tribe called the Irulas who actually do you know but they manage snakes and all that stuff so so we've talked about that one of the things I would look at is do incentives work within the family and you know so a lot of parents say that when you when you when you do this you know you get a certain kind of a grade or you you know get a certain rank in school or college you get a certain incentive whether it's financial that you get better pocket money or you get a cycle or this or whatever is you know a PlayStation PlayStation today's kids want PlayStation and things like that but okay yeah yeah and and and then you know these incentives also it depends on so the incentive must be something that the other person deeply desires because if PlayStation is not something that I care about then it doesn't incentivize me so there's a precondition to that but does it work within the family when parents sort of do that yeah I think it works I think incentives work with everyone but I have very strong views on this right so in fact I even have a friend who does the following with the daughter she actually creates these types of incentives so different things and she also makes her understand the tax system so every time the kid earns something there's also a tax which the household that takes away from her right so and then she manages her own savings or whatever but I don't want to so I think that everyone has certain things that they have to do and and you know like for instance my job is to teach and and you know I don't want to incentivize myself for teaching my daughter okay that that's part of my responsibilities or making sure that she gets on the bus in the morning so I'm not going to incentivize so I have defined for my daughter a set of tasks for which she cannot be incentivizing incentivizing getting good grades is not something I mean incentivizing that's her job but every day when now you know after one and a half years where you are back in the university I'm actually sitting in my office in the university so every morning I think I have to look for my car keys I have to look for my glasses and I have to look for the watch and the phone if she helps me with those things I am willing to pay her so that's not her job so we have clear demarcations about responsibility like you know doing laundry or folding her clothes she don't want to get paid for that but if she finds our phone helps us in searching for those things then she can get paid so if you really wanted to you know again going ahead with this whole process of incentives that means if you really wanted to incentivize her for something that maybe you pretend to forget your phone and then you know she can fight it so that's another way you can game the system exactly so you can have the gaming of the system not just by you know a process of the person who's going to get the incentive but also the one who's doing it as she can game the system so you know a lot of sales incentives are designed like that that you launch a new product and the people are already you know they are they are going to sort of buy that or when you know when let's say when you when you sell you know luxury products sometimes you know you find that one of ways it's done is do you make the entire thing so there's a combination of signaling which is that it's at a very high end mall it costs a lot of money it's out of reach so it is you know aspirational that you see some very fancy you know the influencers who are saying that I use this particular shirt and therefore it can be you know something coveted yeah it's something you want to covet yeah so in which case how do how does it change brands I mean is branding necessarily about incentivizing behavior or is it a signaling process or a differentiation help me understand that well what does branding do okay so so branding you know I think they're all kind I mean all these aspects are there right so so just to take off from the you know what we call conspicuous consumption or or weblen goods right so this was named after an economist called Thorstein Weblen he he wrote a book called the theory of the leisure class it's a fascinating book very hard to read because you know it's written at the turn of the 19th century so the English is kind of old fashion he used to be a professor of economics at Cornell but fascinating book so Weblen is the one who talked about conspicuous consumption and status goods and luxury items and and and the theory of the leisure class that's exactly why it's called the leisure class aspirational goods right so if you really think about the beers who used to at one point when Soviet Union existed they basically had a diamond monopoly but the collapse of Soviet Union and the diamond monopoly has eased a little but D beers came up with the idea diamonds are forever why because if you think about the advertising tagline there are two elements built into it first don't get rid of your diamonds that helps them keep the monopoly right so if you buy diamonds you you you have to hang on to them the second they are forever right so you need you know other things are not forever the diamond is forever so you need to buy them okay so this whole idea for example of a of an engagement ring that it has to be diamond this is just created in the market this it did not have to be a diamond you know so so this is this is part of creation of goods by creating an artificial scarcity or perception by playing with a perception but they're very simple other reasons right so you can think that you know you know Maggie why why do I need 50 flavors of Maggie okay because different people have different tastes I for instance hate broccoli and will not eat anything that has broccoli remotely near it okay but I would like Gobi so I'm quite happy to eat cauliflower right so so just a simple point that Gobi and broccoli are first cousins you know that yeah first cousins that's why I'm saying it is just the same cauliflower different green color and it's called broccoli and you hate it see look at the signaling process sorry I interrupted your train of thought absolutely not yeah so no no taste why is there absolutely absolutely different things I'm willing to swear my life on it so since my point is simply that you know different people have different tastes we need to create a product range of varieties right so that we can appeal to when you come into the store again going back to asymmetric information I don't know what exactly you will like but I want your money okay so so suppose you know the ice cream seller down the street is offering vanilla but I know that vanilla is not everybody's favorite flavor so what I do I say you know what I'm going to offer vanilla and chocolate both so people who like vanilla will get maybe split up 50 50 between the other guy and me but then people who like the chocolate they will all come to me so I gain a much larger share of the market so that's the idea behind differentiating your product which is why I was saying that when you're creating your resume you need to differentiate yourself especially if you're an entry-level person you need to differentiate yourself from the rest of the pack you need to stand out in some way and you have to see how to do it one way to do it in today's world is micro credentials but volunteering is another thing finding mentors you know are great mentors that's important and and so on but at the end of the day the product has to be there it cannot be just you know a fake product and there are interesting stories about product differentiation for example you know the FedEx one day delivery the overnight delivery and the afternoon delivery they both come on the same plane okay but the guy when he brings your morning delivery he doesn't bring your afternoon delivery to you because if he did what will everyone do they'll say why would you pay for extra exactly if you figure this out they know that look I mean we all know that it comes with the same plane so let me just pay for afternoon delivery I'll get it in the morning anyway that's why FedEx has to make sure that they hang on to your packet and only send it in the afternoon right so similarly you know in the old days for so I think this was the 486 microprocessor for those of you who remember it that used to come with a built-in math coprocessor okay and in some models to make it cheaper they would shut off so the chip was already built in the software would install would shut off the math coprocessor wow okay so firms because it was cheaper to put the same chip into everything instead of designing different chips so you put the same chip in but you shut off the more the math coprocessor so that you can sell it for cheaper because some people cannot afford that price and they sure want it if I don't if I am not going to be doing you know have any heavy calculations quote unquote from those days which probably now takes a second you know I just do it that way so product differentiation has a whole range of issues built into it Baskin Robbins 31 flavors yeah absolutely so and also if you look at it you know frequent flyer mine so you know so it just encourages loyalty in some way or amazon does you know amazon prime membership that you will get it you know the next day for free I mean your payment is already built in ahead of time but you get a feeling that I'm getting it free because you know in one or two months you've forgotten that you've paid a certain amount of and if you brand it as you know a membership fee rather than a advanced collection of let's say delivery fee then it just suddenly changes everything yeah I think that when you look at you know for a for people who are freelancers you know so what can they do to you know differentiate themselves because you know when an employee says I work for so and so company the brand of that company rubs off on me as a as a freelancer I have no such brand then what so is that personal branding more important for let's say the gig workers or freelancers then let's say employees or it's both no I think it's important for both because you know you know so I can tell you I write every now and then I write in Indian newspapers it's not easy because I don't know the editors and so on if I send them send them but now you know I know several of them but you know if I send them a cold piece by email they will just not publish I mean for them I'm a freelancer right and you know it's just difficult to get something in unless somebody recognizes you so once you build up a portfolio I mean you know that's the other problem the digital is is that communication has become cheap and and so people don't screen at all but if I could once I show a portfolio then people you build up a reputation you you build up some sort of you know collection of works right so artists right you know Vincent Van Gogh has this wonderful portfolio it's no longer alive but you would not have difficulty getting hired today so I think freelancers you have to have something that distinguishes you from people who have so you know freelancers are cheaper that's their advantage but they have to have something that gets their foot in the door and that gets them hired in the first place and they need to distinguish themselves if not for anything from other freelancers because there's competition in the market for freelancers so it's important for everybody yeah which is why when you go to a new neighborhood you want to find out all the services in the neighborhood you kind of say who are the good doctors who are the good pediatricians who are you know do you have a great medicine shop so all of these services today you know they are created through these whatsapp groups where people will say you know I I have a tailor I recommend I have this one I recommend so does it mean that product reviews are important because you know that's one way in which you are getting that in a generic way so LinkedIn therefore says you've got recommendations from various people yeah is that one of the ways in which you can differentiate that you've got recommendations from various people yeah so I think I think what you know what you're getting to is the idea of a referral system more generally speaking so you know that's again one way of distinguishing yourself from others right so which is why the small sellers on Amazon even after you buy the product will send you personally when saying can you please evaluate my product right so if you read the book you should go on Amazon and give it you know write a review or give it a rating or whatever right so I need an incentive I need an incentive to do that so unless you are going to send me the share of that extra royalty you know I have no incentive to do that I've just heard from you because you know it's written there signaling incentives product you know differentiation and you also you know there's another piece that you've written price discrimination I wanted to just get an idea of that you know because last eight minutes so I want to also ask you about your favorite books three or four books that you recommend to people but no tell me about what is price discrimination price discrimination is it can basically take place in two ways right or three ways where the most perfect type of price discrimination is when every buyer comes in and the seller is able to charge that buyer whatever they're willing to pay and this is very difficult because the buyer is not going to tell you why should they tell you I'm willing to pay up to this much because then you are the sucker they take all the money away from you so that happens only in a world of perfect information or when the buyer can look into your head and read your mind and so on so let's rule that out so other ways of price discrimination is to sell the same product at different prices how do we do that senior citizens discount right so we know that not everybody may have the same ability to pay so for example retired people have a different ability to pay say from compared to abhijit or or or say compared to my students or professors or me right so all my students right so he and I we have employed we have jobs we can pay different we can pay a different price than say person who's retired or a person who's a student doesn't have a job so firms will do things like show your senior citizen card that's proof right it should not be transferable of course what they also need to make sure that they're limited so that the senior citizen cannot buy 100 version you know 100 in units of the thing and then sell it on the secondhand market right so price discrimination so you sell the same product at different prices to different people or you sell the same product but give quantity discounts right so you know if you buy the if you buy 10 of the same kurta then it becomes cheaper or nobody buys 10 of the same kurta but say t-shirt right if the companies if you buy 50 or coffee mugs right so if you order a thousand of these coffee mugs then it's cheaper right so that's that's one example of price discrimination the other way of doing price discrimination is to offer quality right so I don't know what the consumer wants but I say I offer business class and I offer economy and you know the the idea is that the economy class should be sufficiently uncomfortable or uncomfortable to make people want to travel in business because the ideas you don't want to make people in economy suffer that's not the reason the real reason is you want to make the person who's willing to pay the high price for business class not want to travel in economy because if you make it you know be sufficiently comfortable this guy is going to say what the heck that means there's not much difference between economy and business I just pay the business economy ticket and travel in economy so you really want to make the higher end product higher end otherwise nobody is willing to pay for the higher end product the difference between them is not very high then people will go for the lower end product so that's some sense is the problem that you have with something like premier economy which is kind of just marginally more and then you know all that you have it's a very little limited differentiation but there are still people who would be willing to pay that extra amount why not take it I guess is the way the you know the alliance is looking at it yeah so for example in the US what premier economy does very often because now all checked-in baggage has to be paid in the US what premier economy does is gives you free checked-in baggage okay okay so you know then you say okay then I don't have to pay for the baggage so I get a little better seating a little wider and a little bigger but I also get my bag checked-in free in that extra so so things like that and then you know if you have a loyalty membership then it earns a little more points so so there are multiple ways to do that fabulous you know I I'm just curious to know so that I don't miss the question what is it you know what are two or three of the books that you recommend people should read you know what would be some of the books that have really impacted you and it doesn't have to be books on economics you know because and but it could be anything what would those be so you know I I read I read all over the range and and you know I I still read you know comics and I read fiction non-fiction when I get less and less time for example so I'm not going to probably name authors I'm not probably going to name books but I'm going to name some authors so for example I really like Calvin and Hobbes okay yes I'm very fond of Calvin and Hobbes one book that I read recent in recent years in the last few years that I would that I I will say I really like is Peter Frank open history of the silk roads why because I'm a network theorist and and the history of the silk roads to me is a history of the world written from the perspective of networks because what what he is basically saying in that book is that the silk roads is what bring new goods ideas and also new diseases okay okay so that's how diseases travel exactly if there was no trade I mean think about COVID if there was no trade if every country was an island by itself with no links then nothing would happen so so I think so so that's non-fiction and I really like it so Old Man and the Sea it's a very thin book Oh Henry writes I mean I think oh Henry Hemingway Hemingway understand yeah Hemingway in my mind is a fascinating writer because his sentences are short they are crisp and and very powerful so Old Man and the Sea to me is one of the most powerful books ever written it's very short you you mentioned oh Henry I certainly think that his short stories are fabulous fabulous fabulous short stories but I just want to you know at the end of all of this I just also want to really talk about you know all the things think of the all the things that people are saying so Joy Das Varma says that these are very thought-provoking insights yeah I totally agree and you know just want to tell the people that next Wednesday there is no LinkedIn live but we have to make up for it we've got two amazing guys coming in you know on eight and nine so just so you know you're going to have two people so we will make up for it but also what to say thank you so very much to Professor Sudip Sarengi and this is the book that he's written I really recommend check it out if not for the economics insights it is certainly you know it is something that you should read because it just shows such incredible you know simplifies a lot of really fancy ideas which so many economists have written very complex books I find them really sort of worrying that they are so complex but this is a great book I really enjoyed reading it and I think you will enjoy it too thank you so much for joining in Sudipta it was lovely chatting with you thank you