Why Reservation is a Bad Idea

Atanu Dey presents the most coherent arguments that I have come across on why the government’s plan to introduce reservations in higher education in India is a bad idea.

Allocating quotas and reserving seats for economically backward classes (and for other historically discriminated and disadvantaged groups) in higher educational institutions is economically inefficient, morally wrong, strategically flawed, and tactically ineffective. The policy does not help the underclass and ends up victimizing both the underclass and the so-called privileged class. The policy epitomizes what is called a lose-lose solution, while foregoing a win-win situation.

Wharton’s Business Plan Competition

Knowledge@Wharton
asks readers to figure out which plan won. Among the plans:

iBroker

If you have bought a home, a mortgage broker may have ripped you off. At least that’s what the team behind iBroker believes. That’s why it wants to create “the Expedia of the mortgage industry,” says team leader James Thottam, a Wharton MBA student. Expedia is a popular online broker of airline tickets and other travel services.

Numerous websites link borrowers and lenders. But despite what their ads may imply, they don’t necessarily give consumers the best deal, Thottam says. Some sell only their own loans. Others act as referral networks and simply pass customers’ names to brokers or lenders for a fee. And the typical broker “has complete discretionary power to choose what rate to quote the consumer, earning a higher ‘commission’ for a higher rate,” iBroker points out in its plan summary.

iBroker would submit its customers’ credit information to the same loan clearinghouses that most brokers use to generate mortgage quotes. But instead of selectively disclosing fees and terms, it would lay out all loan quotes and their costs, rates and points. “We are talking about bypassing the broker and linking the lenders directly to the consumer,” Thottam adds. “You would be able to do your own loan online.”

Why Business Needs More Geeks

[via Atanu and Anish] Businesspundit writes:

2. Geeks like to experiment. I have sat in countless business meetings that were all talk. Rather than trying things to see what worked, we talked in circles for weeks only to end up doing nothing. It is quite different from my days as a digital circuit designer.

When I wrote VHDL for FPGAs, you could experiment. If we didn’t know the best way to do something, we could try two different implementations. There was no shame in failure or missing the mark because we were always learning and iterating. No one ever nailed a design in one try.

In business though, there are too many people afraid to move forward. Failure can be a career killer, and the inertia factor makes it easier just to keep moving along the way you already are. An entrepreneur friend of mine doesn’t consider it a failure when he gets out of a business, because as he says “I try businesses on like most people date. I’m trying to figure out what I like and what I’m best at.” If business had more geeks, there would be a more experimental culture in business that would help make everything better by focusing on what works and encouraging small scale tests.

Gaming Future

The New York Times writes:

…Even while the traditional home console market has become at best choppy, nontraditional game sectors are thriving. Around the world, sales of games for mobile platforms like cellphones are booming, and the success of the Nintendo DS, a dual-screen hand-held game machine, has become the company’s brightest spot.

In addition, PC gaming is resurgent, thanks mostly to the popularity of richly detailed online games like World of Warcraft, which is on pace to generate more than $1 billion in subscription revenue this year from its more than six million members.

So the main challenge for game companies and the industry as a whole at this week’s convention, known formally as the Electronic Entertainment Expo, is to demonstrate to gamers, retailers, Wall Street and journalists that they have realistic plans to capitalize on next-generation consoles and to take advantage of the emerging opportunities.

Online Education

WSJ writes:

While overall higher-education enrollment in the U.S. is virtually stagnant, online enrollment is skyrocketing, and the recent repeal of a federal rule requiring colleges to provide at least half of their instruction on campus will boost it more. By early 2008, one out of 10 college students will be enrolled in an online degree program, Boston-based market research firm Eduventures estimated last year.

Public schools are driving much of the growth. Overcoming skepticism among some faculty members, state universities are capitalizing on their traditional advantages — quality education at affordable prices — to attract a nontraditional student body: online learners who often live out of state. What’s more, the online programs generate millions of dollars that can be ploughed back into university operations.

TECH TALK: Fooled by Randomness: The Philosophy

Business Week had a review of the book and a profile of Taleb in October 2005:

“I’m not saying that everything is random,” he explained in a wide-ranging two-hour interview in a Manhattan coffee shop in mid-October. “But that we often see causality where there may be none.”

So how does an appreciation of randomness lead to successful trading? Take the coin-flipping example one step further. It might be tempting after a string of 20 heads-up coin tosses to think that you have a knack for turning up heads. You might be willing to wager that the 21st coin toss would also come up heads. Truth is, odds are still 50-50 the next coin toss will come up tails.

In the same way, argues Taleb, just because an investor has beaten the market for 10 years doesn’t mean he will continue to do so. The same goes for the track records of companies, economic cycles, and almost any financial market. “The past is not predictive of the future,” he says. His mantra is that if something really terrible could happen to financial markets, it probably will at some point, and investors need to be prepared or risk getting wiped out.

Taleb calls such unanticipated events “black swans,” in reference to philosopher Karl Popper’s observation that just because you’ve seen 100 white swans doesn’t mean that a black swan doesn’t exist. “My basic message is, don’t cross the river if it’s an average of four feet deep.”

Perhaps the best profile of Nassim Taleb and his approach comes from a profile in the New Yorker by Malcolm Gladwell in 1992:

For Taleb, then, the question why someone was a success in the financial marketplace was vexing. Taleb could do the arithmetic in his head. Suppose that there were ten thousand investment managers out there, which is not an outlandish number, and that every year half of them, entirely by chance, made money and half of them, entirely by chance, lost money. And suppose that every year the losers were tossed out, and the game replayed with those who remained. At the end of five years, there would be three hundred and thirteen people who had made money in every one of those years, and after ten years there would be nine people who had made money every single year in a row, all out of pure luck. Niederhoffer, like Buffett and Soros, was a brilliant man. He had a Ph.D. in economics from the University of Chicago. He had pioneered the idea that through close mathematical analysis of patterns in the market an investor could identify profitable anomalies. But who was to say that he wasn’t one of those lucky nine? And who was to say that in the eleventh year Niederhoffer would be one of the unlucky ones, who suddenly lost it all, who suddenly, as they say on Wall Street, “blew up”?

Taleb remembered his childhood in Lebanon and watching his country turn, as he puts it, from “paradise to hell” in six months. His family once owned vast tracts of land in northern Lebanon. All of that was gone. He remembered his grandfather, the former Deputy Prime Minister of Lebanon and the son of a Deputy Prime Minister of Lebanon and a man of great personal dignity, living out his days in a dowdy apartment in Athens. That was the problem with a world in which there was so much uncertainty about why things ended up the way they did: you never knew whether one day your luck would turn and it would all be washed away.

Nassim Taleb decided that he could not pursue an investment strategy that had any chance of blowing up.

So, the question is: what can we as entrepreneurs learn from Nassim Taleb? Is it all about smarts or luck?

Tomorrow: Lucky or Smart

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