Winter School 2020: Day 6- “Experience-based Decision Making”– Dr. Hersh Shefrin, Mario Belotti Chair, Department of Finance at Santa Clara University’s Leavey School of Business, Dr. Dirk U. Wulff, research scientist, University of Basel, Dr. Sumitava Mukherjee, Assistant Professor, Department of Humanities and Social Sciences, IIT Delhi

On January 18, 2020, Dr. Hersh Shefrin , Mario Belotti Chair, Department of Finance at Santa Clara University’s Leavey School of Business, delivered a lecture on “Climate change and severe bounded rationality.”  Dr. Shefrin began with the two schools of thought that exist about the concept of bounded rationality and raised questions on what are the cues that can help us in decision-making. He started with the science of climate change and the complexities involved in studying radiation, the greenhouse effect, and our understanding of it. He shared examples of few examples where research work predicted the severity of climate change that we are observing now. Dr. Shefrin discussed the relationship between climate change and economics. He explained the sources of climate change and the dangers of having a fossil fuel-based economy. Dr. Shefrin also narrated a few examples of climate change impact on the insurance market and discussed how climate change could be leveraged from a business perspective. He also discussed the political response to climate change detailing how the understanding is manipulated by words and recognitions heuristic could be used to build a better understanding. For example, the shift from the word “Global Warming” to ” Climate Change” among others may influence the understanding of the severity of climate change. Dr. Shefrin concluded by stressing that awareness with proper information is the key and a well-structured carbon taxation policy will be required to address the issue of climate change.

Dr. Dirk U. Wulff, a research scientist at the University of Basel, began his session by talking about search and its complexities. He explained the value function curve and prospect theory by Kahneman and Tversky. Dr. Wulff than moved on to the central theme “Description-experience gap” by engaging the participants in an activity. He used the activity to explain the robustness of the gap and how choice differs in description and experience situations. He explained that small samples, recency, and probability weighting are the three reasons for this gap, and discussed each in detail. He also identified the moderators to this gap- the problem structure and the probability of the rare event. Dr. Wulff concludes that the gap is robust, the largest drive is the sampling error, but there is a gap beyond sampling error.  Recency is robust, but it may not contribute to the gap. He also further discussed the drivers of “search.” Dr. Wulff concluded that people’s exploration is highly complex, and some behavior is reflective of high order learning about the environment they are in.

Dr. Sumitava Mukherjee, Assistant Professor, Department of Humanities and Social Sciences, IIT Delhi, delivered a lecture on “Measuring prospective experiences about gains and losses.” He deliberated we have different feelings about the same losses and gains. To accommodate these feelings there are different theories that shape value function for different gains and losses. Dr. Mukherjee discussed the prospect theory developed by Kahneman and Tversky. An important component of this theory is the loss aversion concept connected with the fact that losses loom larger than gains. He explained that loss aversion is very important and has many real-world applications. But there is evidence that does not support it. For example, for small gains and losses, we observe the opposite results. Dr. Mukherjee argued that one possible explanation could be the use of different scales for feelings measurement (bipolar, unipolar and comparative). Dr. Mukherjee concluded by demonstrating that loss aversion is observed only for high amounts for all scales. He determined for price changes with provided reference point we do not observe loss aversion at all. Some examples from the real-world also don’t provide evidence for loss aversion.

Later, in the afternoon, Dr. Dirk U. Wulff conducted an interactive and creative workshop. He used the workshop to build on the topics covered in his earlier lecture. Dr. Wulff introduced the participants to a simulation where they controlled various parameters like sample size, coefficients of loss-aversion, recency preference, noise, etc. to minimize mean square error for a hypothetical dataset. He used the results to explain that there is a preference for small samples, neutral value function, neutral probability weighting which causes the gap. Dr. Wulff argued that experience triggers more accurate judgments than descriptions of the phenomenon, and hence people prefer experience over description.

Winter School 2020: Day 5 – “Modelling Heuristics” – Dr. Jan Woike, Research Scientist, Max Planck Institute of Human Development, Germany and Dr. Ozgur Simsek, Senior Lecturer, University of Bath, UK

Day-5 of the fourth annual edition of Winter School took place on 17th January 2020. It commenced with a talk by Dr. Jan K. Woike, a research scientist at the Center for Adaptive Rationality (ARC) at the Max Planck Institute of Human Development. The theme of the session was “Approaching Simple Heuristics with Computer Simulations,” and its purpose was to provide a bird’s eye view of the potential role of simulations in drawing insights on simple heuristics. The simulated models represented some part of the reality at a level of abstraction, which could be helpful in finding some latent traits of simple heuristics.

Dr. Woike explained that while using simulations in this context, they only act as tools and need to be discarded if it is found that they are not useful. He discussed the employment of simulations in certain specific cases. One such case involved studying social decision making and the interactions of simple cues in a complex environment. Some other cases discussed involved unveiling the hidden information of our assumptions, performance in known and unknown environments, and the usage of computer simulations as statistical tools.

The next session was a lecture on the “Ecological Rationality of Simple Decision Heuristics” by Dr. Ozgur Simsek, a Senior Lecturer in Machine Learning at the Department of Computer Science at the University of Bath, UK, who earned a Ph.D. in Computer Science from the University of Massachusetts Amherst in 2008. The author engaged the audience by presenting two piles of gold, silver and, bronze-colored coins on the screen and asking them which pile of coins would have higher financial worth, given that one does not know the value of coins. Intuitively, students suggested the higher value of gold as compared to silver and bronze, which Dr. Simsek used as a cue to explain the concept of Dominance – both Simple as well as Cumulative. She also discussed the Linear Decision Rule and showed the application of the decision rules in Artificial Intelligence.

This session was followed by a workshop on the theme “Classification Challenge 2020,” conducted by Dr. Jan K. Woike. The participants were divided into eight groups, who were given artificial and real-world data sets to classify. Each group was required to solve as many classification problems as possible in the given time. The task was to identify the category to which the unclassified items belonged and place them in the right one. This could be done by identifying certain simple principles based on which the items were grouped. The key was to use appropriate heuristics such as fast and frugal trees and simple linear models. Most groups were able to solve at least two of the problems they had chosen.

The day ended with a Poster Session held at the TAPMI courtyard.

Winter School 2020: Day 4 — “ Heuristics in the Wild” by Prof. Kavitha Ranganathan, Associate Professor (Finance and Strategy) at TAPMI, Prof. Konstantinos Katsikopoulos, Associate Professor at the University of Southampton, Prof. T T Niranjan, Associate Professor at the Indian Institute of Technology (Bombay) and Prof. Madhu Veeraraghavan, Director – TAPMI

On January 16, 2020, Prof. Kavitha Ranganathan, Associate Professor (Finance and Strategy) at TAPMI, commenced day four of the fourth annual edition of Winter School with a lecture on “Heuristics for financial-decision making”.

Prof. Kavitha began with an overview of the various contributors to the concept of bounded rationality and elaborated on the views of late American economist and political scientist Herbert Simon. She then delved into the evolution of heuristics and its associated methodological principles. Two specific heuristics — satisficing and anchoring — were discussed in detail. Prof. Kavitha then demonstrated that satisficing and anchoring heuristics play a key role in the behaviour of actors in the Indian stock market. She argued that the 52-week high price serves as a good anchoring heuristic for small-cap companies in the stock market.

During the next session, Prof. Konstantinos Katsikopoulos, Associate Professor at the University of Southampton, delivered a lecture on “The Art and Science of Transparent Decision-Making”. He explained that an environment of uncertainty is also highly unstable — a phenomenon he termed as ‘wild’ — and how trade-offs occur between accuracy and transparency.

The two main arguments he presented in the session were “Simple rules do well in the wild” and “Transparency is a key value”. Dr. Katsikopoulos cited various examples in support of these two arguments, from which three important ideas emerged. First, it is difficult to be transparent with complicated models and, hence, simple rules should be used. Second, whether (big) data can lead to an ‘a‑theoretical’ space as machine learning has been criticized for being ‘a‑theoretical’. Third, transparency and accuracy need not have a trade-off — it was possible to be both transparent and being accurate.

Prof. T T Niranjan, Associate Professor at the Indian Institute of Technology (Bombay), delivered a lecture titled “Crying Wolf and a Knowing Wink: Deliberate bilateral information distortion in supply chains” for the third session.

Prof. Niranjan addressed the cohort on how the Nash Equilibrium arises out of information asymmetry in supply chains. Here, one party is strategic, and the other party knows that it has been receiving distorted information. He said the phenomenon was called the “bullwhip effect” and explained it through Supply Line Underweighting (SLU) which occurs at an aggregate level. However, explanation at an aggregate level could be misleading as there could be a drastic divergence at individual levels, Prof. Niranjan explained.

The discussion then moved on to bilateral information discounting, which explained the phenomenon at an individual level. Prof. Niranjan further spoke about related propositions that were converted to hypotheses and were tested in controlled lab environments.

The day was concluded by Prof. Madhu Veeraraghavan, Director – TAPMI, who conducted an academic writing workshop on “How to get published in a peer-reviewed journal”. Participants received “pitching sheets” with subheads such as a working title, a basic research question, and contributions, which they were required to fill with details.  These sheets were then used for conducting the workshop.  Prof. Veeraraghavan demonstrated the importance of having catchy titles and highlighting the contributions and key motivations behind research projects. He elaborated on the strategies on how to get research projects successfully published in good quality journals. According to him, the abstract should be short and concise, the core study of the paper should emerge early on, and most importantly, the contribution of the research work should be clearly defined as it’s one of the primary criteria which decides the publication of the paper in a top-tier journal.

Winter School 2020: Day 3- “Models of Bounded Rationality”– Dr. Shenghua Luan, Principal Investigator- Risk and Uncertainty Management Lab, Chinese Academy of Sciences, Dr. Ozgur Simsek, Senior Lecturer- Department of Computer Science, University of Bath, United Kingdom, Prof. Sanjay Kallapur, Professor of Accounting, Indian School of Business, Hyderabad.

On January 15, 2020, Dr. Shenghua Luan, Principal Investigator- Risk and Uncertainty Management Lab, Chinese Academy of Sciences, conducted a session on “History of Fast and Frugal Heuristics” as a part of the 4^th edition of Winter School. Dr. Luan began the session by explaining the concept of heuristics. He went on to discuss the views of post-cognitive revolution scientists who argued that even though heuristics may solve a given problem, one cannot be sure of the accuracy of such a solution. He threw light on this view by discussing the key takeaways of Amos Tversky’s and Daniel Kahneman’s seminal paper “Judgment under uncertainty: Heuristics and biases” (1974). Tversky and Kahneman contended that people use a limited number of strategies which may lead to severe and systematic errors.

Dr. Luan also explored the alternative view of the German psychologist Gerd Gigerenzer, who proposed that heuristics help in reducing the computational costs and lead to a decision- making process, which is quick, economical and accurate. He concluded the session by discussing the various methods – take the best heuristic strategy, probabilistic mental models- that can be used to choose the appropriate heuristic and the means to apply them.

In the next session, Dr. Ozgur Simsek, Senior Lecturer- Department of Computer Science, University of Bath, United Kingdom, addressed the cohort on “Models of Bounded Rationality”. She commenced the session by describing the process of how to define the comparison problem. She then elaborated on the different heuristic models, commonly used for decision- making for such comparison problems. For these models to work effectively, two important parameters need to be identified for each cue- the direction and the ordering of the cues.

Dr. Simsek also demonstrated the different measures that indicate the efficiency of the heuristic models in comparison to linear regression methods and other machine learning tools. She illustrated different statistical results indicating that these models are accurate even when the training data set is very small. She concluded the session by giving examples that provided insights on how simple heuristic models can also be important and very useful for solving problems in a quick manner that delivers a useful result given the time constraints.

The final session for the day was conducted by Prof. Sanjay Kallapur, Professor of Accounting, Indian School of Business, Hyderabad, on the topic “Intuitive Statistician”. Prof. Kallapur suggested that instead of testing using statistics and probability, one can opt to arrive at inferences intuitively and quantitatively. He acknowledged the popular opinion shaped by Amos Tversky and Daniel Kahneman that humans have poor skills in statistics and probability. The Linda Problem was introduced in the session to explain the troubles humans have while calculating probabilities.

To further emphasize the opinion, Prof. Kallapur pointed out that Lynn Hasher and Rose Zack also proposed that people can encode frequencies more accurately as compared to probability predictions. Towards the end of the session, he presented the availability heuristic; a mental shortcut that relies on immediate examples and the conjunction fallacy; the assumption that multiple specific conditions are more probable than a single one.

 

 

Winter School 2020: Day 2 – Risk Literacy – Dr. Michelle McDowell, Research Scientist and Prof. Shyam Sunder

On 14th January 2020, TAPMI had the honour of hosting Dr. Michelle McDowell as a part of the 4th Winter School. Dr. McDowell is a research scientist at the Max Planck Institute for Human Development and the Harding Center for Risk Literacy. She shared her insights on the risk literacy challenges that we are currently facing. Risk is often required to be communicated in statistical measures but should be done keeping in mind the audience to whom it is being communicated.

Dr. McDowell stressed the importance of being transparent while sharing information especially in the case of reporting scientific data. She argued for using natural frequencies rather than conditional probabilities and discussed three ways to train people to use the priors. She took the example of the medical field and explained to the audience how the ability to correctly analyze, interpret and communicate statistical data is important, especially for the physicians.

A workshop was conducted to help the audience better understand the new ideas in risk literacy, where Dr. McDowell guided the participants on design considerations while presenting data. Participants learned how to use their creative and technical skills to present data in a transparent manner. The session ended with enthusiastic participants presenting their own ideas.

TAPMI also invited Prof. Shyam Sunder, from Yale University, who addressed the audience on “What we know about the human attitude towards risks”. Prof. Sunder is the James L. Frank Professor of Accounting, Economics, and Finance at the Yale School of Management and Professor in the Department of Economics. He started the session by first introducing two operationalized definitions of risks talked about the general concept of measuring risk and its limitations. Raising a subtle but deeper philosophical issue associated risk and uncertainty, Prof. Sunder explained that both of the concepts use general probability theory as a measure.  However, in the real world, most, if not all, events cannot be assigned probability values.

He proposed an alternative of moving away from dispersion-based measures of risk and lean towards loss/harm conceptualizations of risk. “We should seek an explanation in observable opportunity sets, instead of unobservable Bernoulli functions”, he concluded.

Winter School 2020: Day 1- Nudging and Boosting – Dr. Ralph Hertwig, Director, Center for Adaptive Rationality – MPI for Human Development, Mr. Arun Maira, Former Planning Commission and Chairman of BCG

 

On January 13, 2020, Prof. Ralph Hertwig, Director, Center for Adaptive Rationality – MPI for Human Development, addressed the cohort on “Nudging and booting and the science of engineering good decisions” in TAPMI Winter School of 2020. He began by emphasizing how the policymakers draw insights across disciplines of Behavioural Economics and Psychology to arrive at meaningful decisions.

Prof. Hertwig elucidated the idea of bounded rationality by explaining two approaches to policy intervention being the Nudging Approach and the Boosting Approach. While the Nudging Approach is aimed at targeting an individual’s behavior, the “boost” approach is aimed at inherent competencies. He then exemplified the Nudging Approach by stating how it has been designed to steer an individual into a particular direction while preserving the freedom of choice.  He gave the example of the layout of healthy and unhealthy food in the school cafeterias that can be designed to encourage students to adopt healthy eating habits.

Prof. Hertwig then elaborated on how the Boosting Intervention ensured personal autonomy and explained how boosting empowers one’s competencies. He concluded his presentation with a discussion on Dweck’s mindset theory about how a free mindset is modeled at nudge while the growth mindset is modeled at boosting and that the human mind has the capability to grow beyond the established boundaries despite committing mistakes.

This was followed by a session conducted by Mr. Arun Maira, Current Chairman, HelpAge International, Former Planning Commission and Chairman of BCG, who conducted a session on “Policy-Emerging: Thinking and acting within an open system”. He passionately shared his personal experiences and learnings through the years by observing how individual decision making is guided by one’s unique set of emotions, beliefs, and values.

Mr. Arun Maira highlighted the importance of aspiration as a necessity for change. Every system or individual develops a unique learning system. He concluded by stating four important disciplines to stimulate progress for an individual. Firstly, he encourages an in-depth observation of people’s beliefs and needs. Secondly, he suggests systems thinking which is essentially a helicopter view. Thirdly, he encourages individuals to consider and understand all aspects of the system in order to initiate change. Thirdly, he encourages ethical reasoning which is primarily reinforcing a belief of how “I exist for the universe” instead of “the universe exists for me.” He concluded the talk by stating how one must learn to learn and bring growth to the system.

 

 

 

 

International Day Celebrations at TAPMI

On 20th and 21st December 2019, International Day (I-Day) was celebrated in TAPMI campus to develop a comprehensive and integrated international outlook in students. Guest lectures, a grand feast with international cuisine, thematic competitions and poster presentation by students were the highlights of the celebrations.

Mr. Chandrasekar Radhakrishnan, Vice President – Strategy & Insights, Coca-Cola India & South West Asia was invited to the campus to deliver a lecture on ‘Leadership in 21st Century’. He advised the participants to reflect on personal values in their leadership style. Courage, resilience and empathy are key to navigate the challenging and ambiguous landscape that businesses have to face these days, Mr Radhakrishnan said. Good leaders should give purpose, vision and mission to disruption. He believes that leaders need not be dominant in executing their roles. He encouraged the audience to learn when to give up and when to stand by one’s decision.

Students learn different aspects of International Business as part of the curriculum in TAPMI. The global economy is more or less like a battlefield for a domestic company. This interconnected world not only offers thousands of opportunities to companies but also several real-time challenges. The International Business is an interdisciplinary course that links concepts from macroeconomics, finance, organization structure, consumer behavior, operations, logistics and human resources in terms of setting up and running an enterprise on an international front. I-Day was a grand culmination of the course as it provided many avenues for students to showcase their skills and knowledge gained in the course.

Students are exposed to international trade theories, monetary system, FDI, foreign exchange market and global capital market to gain perspective especially for a financial manager who is overseeing investment opportunities, budgeting and cost-cutting. Overall strategies of global standardization, localization, transnational and international showcase the importance of addressing local responsiveness and cost reductions. Similarly, entry mode strategies like direct exporting, licensing, franchising, partnering, joint ventures and Greenfield are highly critical for people in senior-most positions in the company. Managing global human resources and R&D is a huge challenge in itself. These are key learning points from the course that the students implemented in their FAS based projects on a foreign country which is among the top 50 countries in terms of GDP.

42 student groups presented their analyses of 42 different countries through posters in the Café Biosphere area of the Students Centre on the campus during I-Day celebrations. The participants detailed macroeconomic performance, factor endowments, regulatory frameworks and industrial policies, cultural traits, unique business practices, bilateral trade agreements between India and the selected country, cross-border acquisitions and selected companies operating in the country. The colorful and vivid posters made the atmosphere festive by adding the cultural aspects of countries from around the world.

Cultural Committee of TAPMI conducted a fireless cook-off competition. About 15 teams of 3-4 students participated with zest and vigor to cook dishes from international cuisine without using fire. Mexican nachos, Italian spaghetti, American apple pie and lemon tarts and other delectable delicacies prepared by students were judged by Prof. Sulagna Mukherjee and Prof. Preeti Tiwari. The winners of the competition were team Outliers, Ms. Ambika Gautam, Mr. Utsav Bhandula and Mr. Venkat.

Arranged by the Welfare Committee of TAPMI, a banquet with international plat du jour added flavours to the I-Day celebrations literally and figuratively. Russian salad, middle-eastern buttered rice, Italian pasta and garlic bread, American roast chicken and English trifle

and plum cake for dessert were served to TAPMI fraternity. Indian palates devoured intercontinental cuisine.

The I-Day celebrations transformed the campus into a global village. Mark Twain wrote, “East is East and West is West, and never shall the twain meet”. With globalization, not only the economy but culture and traditions have crossed borders. People of all ethnicities now stay united in the realm of international business. TAPMI experienced this unity in diversity in the extravaganza of I-Day and students, in particular, got a glimpse of international careers in store for them.

AXE THE TAX – A Tax Planning Session by Arthnivesh

On 12^th December 2019, the club members of Arthnivesh conducted a session on tax planning for the student cohort of TAPMI. It began with an introduction to taxes and their types, after which they delved deeper into income tax by relating it to the components of the salary. One of the hosts, being a CA, explained in detail the concepts of “previous year” and “assessment year” in tax computation.

The hosts then went on to describe the various tax slabs and also which parts of the income are taxable. Various deductions under Section 80C were also discussed to provide students with an understanding of how to avail tax benefits. One such example was the NPS, along with its recent developments.

Towards the end of the session, the hosts gave the students a brief and simplified example of how to use various websites to compute one’s own income tax. To conclude, a fun quiz was conducted for participants to self-test their learnings and takeaways.

OPS DIARIES 2019 – PHASE 2 – GUEST LECTURE BY MR. ARUN BHAT

On 9^th November 2019, the TAPMI Operations Forum conducted the second phase of Ops Diaries – its Alumni Series. Mr Arun Bhat, a 2016 pass out of TAPMI, who is currently an Assistant Project Manager at Coffee Day Beverages, addressed the students of TAPMI in a session on Supply Chain.

Mr. Bhat, who takes care of 21 branches of Coffee Day Beverages, is an expert at Supply Chain Management and Analytics. He enlightened the students on the full cycle of the supply chain and also briefly covered key words like indent, procurement, main store, branch store, defective returns, scrap and rework that are commonly used in the field of operations. He also spoke of the importance of stock keeping units and safety stock in any industry.

Mr. Bhat then talked about how he believes that the future of supply chain lies in digitisation, which is most widely being used in the aerospace sector currently. He explained how SQL is the most frequently used tool in the domain of operations and that some others that are commonly used are “R” for indenting and Tableau for visualization.

He then concluded by giving the students insights pertaining to supply chain processes and challenges in the present along with future possibilities that can be more easily solved through digitisation. To give an example of such a challenge, he cited the scaling issues in machines in places like Himachal Pradesh due to the hardness of the water in that area. Such issues, in his opinion, can be better examined through analytics.

OPS Diaries : Guest Lecture: “Bizops In Online Aggregation Industry” By Mr. Kausik R, Business Operations Head – (Swiggy)

On 09 November, 2019, Mr. Kausik R, Business Operations Head – Swiggy addressed the batch of TAPMI students about ‘Bizops in online aggregation industry’ as a part of OpsDiaries 2019 organized by the Operations Forum

He tested our awareness of operations in our real life through a quiz. He highlighted the basic problem that most of the companies in the online aggregation industry are attempting to solve which is the movement of living and non-living things from one place to another.

He explained the common factors in the ecosystems of these companies and the triggers that would influence the purchase decision of a consumer in a chaotic marketplace.

He illustrated the components in this three-way marketplace model: seller, customer, logistic partner which is the platform involved. He explained the order journey and the equilibrium stages in this marketplace and also the main challenges faced.

Further he explained the various techniques used by Swiggy to overcome these challenges. He spoke about the importance of Business operations and product operations as the backbones for expansion of any online aggregation company.

He concluded the session with insights to the student community for a better understanding of the industry and operations as a career choice.