What the hell happened??

Manohar: Meera, I think this house is really not that good for us to go on bidding till we get it!!
Meera: But, think about it. Any home we get to see in a good school district as this is not going to be undersold meaning not get a bargain unless it's been in the market for several days as against the CMA predictions...
Manohar: yeahhh, but I still think we really shouldn't jump in, let's take a risk with this bidding thing.
Meera (finally answering after thinking it through): Okay (sigh)

This is one of the N conversations Manohar & I have had in the last few days on the subject of home buying. Things finished, we got to know through our realtor that this house was in contract and we decided to move on. Well-- infact Manohar did right away but not me. Being a person who doesn't really brood or regret decisions once taken, I was really angry to realize that I was still hung up on the same thing. After some introspection I found that I wasn't angry that we lost this house but moreso that I didn't try to put forward my point as much as I would have liked to. It infuriated me all the more when I thought back to that moment.

It's been 3 days now and I woke up with the same old feeling of forlornness looming in the horizon. Manohar believed that I would get over it in due course of time but still very surprised about me being so upset over something as trivial as this. I came into work, went in to meet my boss.

Boss: I am not sure whether you heard the news....
Me: head shaking vigorously to indicate 'no' and a shoulder shrug
Boss: You know Ms X...she had a stroke last night...and her eyes clouded over
Me: blinking, I sat down and looked at her. It just couldn't be. I had just met X last afternoon and she 'seemed' ok to me.
Boss: I am not able to concentrate on anything at all. I am thinking of all possibilities and can't seem to find one which will comfort me.

Here was my boss pouring out her heart saying what all she felt and I just sat there trying to digest what was being thrown at me. Oh! is she ok? were my first words
A few more exchanges on how and what had happened and X's condition now made me slowly filter out whatever my boss was saying.

Ms. X , a good friend and colleague of mine whom I have known for the last 1 year had just had a stroke, a capillary having bursted in her brain coupled with blocked arteries. The doctors were not able to administer blood thinners to her at the moment since it could affect her brain. She was strapped to a bed in the ICU and was still conscious, talking. Her only question everytime she woke up or saw a doctor come in was "Is my baby ok? I won't lose it, will I??"

I still remember her face when she told me Friday last that she was 6 weeks pregnant. I was so happy for her since I knew how much she had wanted a baby. And then this....

The impact of this news kind of jolted me out of the blue. A good friend in the ICU, having suffered a stroke and here I am brooding over a mere housebid. My eyes finally clouded over and I joined my boss by borrowing a kleenex.

Life and happenings has a weird way of putting things in perspective I guess.

X, wish I could see you walk out of your room and we can have our usual mundane chat over chocolates or something..

PEACE

Tipping - My take

Since this topic has generated a lot of interest, i think it is worth examining a little more. Let me get into the motivation behind tipping. I start with the premise that tipping improves economic efficiency.

Think about an individual trying to purchase a good. Most stores allow you to return the goods purchased within a time frame, therefore reducing the need for any form of customer "monitoring" prior to purchase. You can always buy the good and if it is of inferior quality, return it.Now think about the service industry. Can you give back services rendered by your dentist, if you feel he has not done a good job? Obviously not. This is where reputation acts as a medium for contracting. In the case of firms, reputation in terms of service quality is important for current and future consumption, especially because poor service tends to have a contagion effect on patronage.

Now given the firms position, the proxy for service quality is generated by the person attending to the customer. The person attending to the customer can either put in high effort or low effort (for ease of exposition, let us just look at the two polar cases). If he puts in low effort, it directly harms the reputation of the firm. Hence incentivizing the worker to choose high effort is imperative, from the firms perspective.Therefore the question now arises as to what tools are available to the firm to induce high effort from the worker? One obvious tool is monitoring the activities of each individual. If workers are found shirking and not delivering the high effort outcome, they can be punished, therefore directly influencing their behavior. Obviously this is costly, which implies that it has a proportional effect on service cost which naturally leads to pricing distortions, which again has a negative effect on patronage.

Given that the firm might find it costly to monitor and there are no indirect or direct incentives for the worker to provide high effort, the likelihood of the customer being hit by bad service is quite high. Therefore what are the options staring at the consumer? One potential solution is go to court. Litigation risk is an important factor modeled into the risk of any firm. Consumers have the right for quality service and can go to court to ensure that they are satisfied. But would you go to court for poor service in a restaurant? Again the expected costs will exceed the benefits. Another alternative is explicit contracting between the consumer and the worker. That would again be expensive and difficult to enforce. Given that there is no control over the number of consumers, the number of such contracts that each worker has to enter into will be numerous and hence this system will be inefficient.

Given this situation, in equilibrium, it is optimal for the buyer to pay even if he expects bad service. In the absence of any tipping practice, the price of the product will include a premium for service quality. Therefore regardless of service quality the consumer ends up paying the full price. Essentially the market for service quality just collapses, very much in the same way as the market for lemons (used cars, Akerlof's nobel prize winning work).

Suppose we introduce tipping into the model. The proposition is that, instead of inherently pricing service quality, let that be a random variable tied to service quality. In the setting mentioned about it can play the role of providing a good equlibrium. Suppose we make tipping discretionary on the part of the consumer, which is contingent on service quality. The burden of proof (from a legal setting) no longer is applicable. All the consumer has to do is reduce the tip or pay no tip at all. Hence the consumer ends up paying just for the product and not for service quality. The firm gets back its money for resources spent and does not have to spend any additional resources on monitoring or paying the waiter for service quality. In effect, the consumer and the firm are better off. In this situation, the worker is automatically incentivized to provide quality service or face the likelihood of not receiving any tips, thereby lowering his utility.

The role of the firm needs to be stressed in this case. The firm while setting the price can now remove the service quality aspect from the pricing, therefore reducing the overall price. Hence this saves any ex-post negotiation, which can prove to be costly. For instance consider the case of a restaurant. Assume that the service is poor. Then one option is just pay and keep quiet. However if you want to ensure fairness, then there should be a discount on the menu price for poor service quality. The question is how much should the discount be. This becomes a matter of negotiation between the firm and the consumer and the potential solutions are not bounded. However if service quality is not priced and it is purely discretionary in the form of tips, the firm is not affected and neither is the consumer. The consumer still pays for the food and can choose the magnitude of tipping based on the quality of the service. Now note that in such a situation the equilibrium can be distorted by the consumer because, regardless of the service, he can choose to maximize his utility by not tipping.

Now comes the issue of tipping limits. Given that there are consumers who dont tip regardless of the service, the limit of 15% is kind of like a social norm to force consumers not to play that equilibrium move. Another potential thought could be like insurance. While several people will adhere to the 15% norm, some will not. Therefore the ones that do subsidize the ones that dont.
In effect, it serves more like a psychological tool trying to persuade consumers not to misuse the fact that they can get away without paying for service quality.

The Tipping point?

Since the topic of tipping has in a way been like the tip of the iceberg. Here is some information about tipping. Starting from the history of tipping- to what makes people tip more- to current tipping customs in different countries- to what services require tipping- to the tip of the world.

http://people.howstuffworks.com/tipping.htm

A curious snippet nestled somewhere in the link above:

..restaurant servers pay taxes on 8 percent to 10 percent of their total receipts, not the actual amount of tips they earn. If you don't tip them, they are actually losing money because they're paying taxes based on the amount of your meal. The management works under the assumption that most people tip 15 percent to 20 percent. This makes it easier at tax time, but it's bad for the waiters if they have a lot of customers who don't tip..

Tipping Etiquette

I went to a restaurant today with my friends (none other than the usual suspects). At the end of the lunch came the usual question. How much should we tip? Honestly, I have never really been a big fan of tipping because as I grew up, I very rarely went to restaurants where tipping was a norm. After coming to US, I did see that a tip of 10-15% is common and in a sense, mandatory (unless ofcourse the service was terrible).

My cultural and social background is one thing. But, rationally, I started thinking about why someone should tip a waiter/waitress. One of the common story that I have heard over and over is that, the waiters are paid minimum wage or in some cases, less than minimum wage and that, tips are their only main source of income. Does that mean one should tip? Does that qualify tipping as a charitable act? Do we tip people in other professions who get minimum wage the same way? By paying generous tips, arent we encouraging the restaurant owners to recruit people with even lesser wages? When a person accepts a job, isnt it implicit that thats what he qualifies for? Do people who wait assume a minimum payout through tips? Assuming each waiter/waitress serve atleast 5-6 tables during peak time, and looking at the average eatout cost, are they really worth it for the tips they get? Interestingly, restaurants which serve cheap food dont get tips (McDonalds or Burger King). So, are we paying for those who work in expensive restaurants? If so, that doesnt make any sense to me.

The other part of me thought about the service that they provide and tried to reason out if there is a relationship between the amount of work done versus the tips paid. Unfortunately, it still didnt make any sense to me. Does opening up a $100 wine bottle different from opening up a $20 wine bottle? But, when we pay tips, we look at the total amount (including sales tax) and pay the tips as a percentage. If all we care about is good service, shouldnt we have a norm? A person serving 100 burgers to 100 people at McDonalds (assume 99c burger) is going to get nothing when compared to a waiter at an expensive restaurant who opens up a $100 wine. Does that make sense?

Well, I am certainly up for encouraging good work, and possibly, give some bonus as a token of my appreciation. I think it should come from my heart based on the service. But, I certainly dont think that there should be a set limit on what one should tip. I remember this incident from when I was a kid. If we had a cake which was equally split between all of us in the family, I always tried to take the smallest share. You know why. I usually got the sympathy from everyone else which resulted in everyone giving a piece of their cake to me. Guess who got the lion's share at the end... I am not saying that waiters are getting their lion's share, but I sure think there is a big inequality that we dont think of and a big irrationality that is considered the norm. Well, that's just me....

Seinfeldian thought

After yet another coma inducing carbohydrate laden dinner, plopped senselessly in my favorite imitation position of a water buffalo, I was watching a rerun of Seinfeld. Fans of Seinfeld may recognise this episode- its the one where people close to him compete for a speed dial position in his phone. Hilarious and it made me think is there something vaguely similar we do in real life and it turns out perhaps....

Email... many claim its the next best thing to sliced bread. Some claim bread supercedes it, a detail that I prefer to think of as nitpicking. I don't need to be evangelical about the merits of email. As a matter of fact its so pervasive that people had to invent a word called snail mail to refer to the traditional paper route.

It has a catch though- an important often missed detail. When you are mailing your friends, what sequence should you follow for their names? This single orderly (or not) decision has left behind more bad feelings than even bad breath. The uninitiated may just choose from their address books- this was good while it lasted, because it implied alphabetical order and people with names starting in 'V' where resigned to the fact of having their names show up in the end of a scrolled list. Then came gmail with name completion- thrilled with this new feature the novice started typing out names from memory and effectively jumbled the well thought out alphabetical design. Friends were spurned- anger and confusion resulted. My name is Akash- how could my name come up in the middle of the list? Am I not his closest friend? We were buddies from high school and yet Vikas comes before me in the list? Akash would write indignantly back to Bharath with his name near the end of the list. Bharath gets upset- Did I do this on purpose? no! I was so enthused by gmail- thats an innocent mistake... Broken friendship glasses everywhere. Email the knight in shining armor promiser of connecting friends around the globe fails.

The careful emailer realizes there is no easy solution to this ungodly mess. He jumbles up the name list- making sure he remembers who comes first and who goes last. Next mail he reverses them- everybody gets a fair chance to head the list. Cycling of job roles. He is proud in the knowledge that justice was handed out with an iron hand.

Mr. Justice finishes up his recent blog, posts it and opens with anticipation his next mail from his close buddy and is dismayed to see his name near the end of the list......

Lady Prudence & I

I looked in the mirror, and spotted two strands of white hair this morning. I know I have always had one strand that grows out of the same spot in my scalp with bull-headed determination, no matter how hard I try to uproot it, but the second one was new.

Now wait a minute.....wait a minute!

I was supposed to be wise by the time the gray hairs came! I have always wondered how the hair would know when I became wise enough for the colour change to start. Now, I see that the hairs just give you some time, and hope Lady Prudence has taken her turn and shone her brilliant rays on you. If you were goofing around while it happened, well...sad luck!
Assuming Lady Prudence follows a round robin style to make fellas wise, I would have to wait around with graying hair to get wise. All this while folks around me can look at my graying coconut, and assume I am wise.

Hmm....now, that's sounds enticing. I could offer a ton of advice that sounds more convincing than it really is, thanks to my "wise look". There is one problem - I need to get friendly with some younger dudes/dudettes who are willing to take my advice. Teenagers are out, since they don't listen to advice. I am quite young myself, so I would have to target my advice at audience aged > 19 and younger than me.

For those of you who have read this post probably know, that even if Lady Prudence scorches me with her rays, there is no way I am getting any the wiser. So, I shall live in harmony with self, few white hairs and a song on my lips!

Farewell...

Once in a while, I get this sudden realisation, or rather, a weird feeling of being transported back in time. Images of the past just zip through me as we see in movies. I see friends and people who were once part of my all day activities. Nothing ever happened without their notice or involvement. They were part of my life. And then, I come back to reality, where I find that all those images just vanished from my life. I dont even remember when I met them last. Did I ever know that I would never be meeting them for the rest of my life when I met them for the last time? Did I ever tell them how I felt about them, or the special bond of friendship that we shared? Is it just the way of life? Interestingly, there are people whom I thought I would never meet and even went as far as to pen them a farewell note, some of who I am still associated with...:)

Do we all share what we feel about our close friends and what we really think about them? Do we take it for granted and assume that they will be with us for the rest of our life? I had a friend back in college name Swaminathan, nick named as Centum Swaminathan because he mostly got 100 in math. Very smart guy with a pure heart. He called me up to wish me for my marriage. That was the last time I ever talked to him. Yes, sadly, he passed away. It just happened all of a sudden and I realised that I lost one of my very good friend. We all know that stuff just happens and nothing lasts for ever. But, I think we usually dont take the time to think about it. I think, we should exchange how we feel about people close to us atleast once in a while. Though I think that feelings and emotions are difficult to convey in verbose terms, I still think there is an element of expression that is essential, for, we never know...

MAYA

No its not MAYA !! Its all in the brain !! Yes, the image is not moving !!

Emden Mahan

None of my Tamizh litterate friends could give a good meaning or origin of the word Emden. Saumya's dad gave an interesting story of a W-II German ship called Emden that fired on chennai and ever since the word Emden has been used for a daring deed or person. Looks like he was 100% correct. Here is a cut/paste from wikipedia about Emden

---------------
Two German light cruisers were named after the city, one in World War I -- SMS Emden, and another built after WWI -- Emden. Nowadays, the fifth Navy ship named after the city is in service.

During her commerce raiding in the Indian Ocean in early WWI, SMS Emden sailed into the Bay of Bengal on India's eastern coast and fired two cannon shots at Fort St. George located on the sea front of Chennai (formerly Madras); there were no casualties. The ship then sailed down the east coast of Sri Lanka (formerly Ceylon). A Boer wildlife official, HH Engelbrecht, was jailed after being falsely accused of having supplied meat to the cruiser [1]. SMS Emden also sank a Russian cruiser in Penang harbour in Malaya. On November 9, 1914, during a raid on the Cocos Islands to destroy a British telegraph station, Emden was trapped and destroyed by the HMAS Sydney.

Nowadays, the fifth Emden ship is in service. The frigate of the German Navy was built in 1980, and started its service in 1983. It was the first of those five ships named after the city which was also built there (at Nordseewerke shipyards).

To this day in some parts of south India, a particularly daring and capable person is referred to in the vernacular as "Emden". In Sri Lanka, "Emden" is the bogeyman with which mothers scare their children and is used to refer to a particularly obnoxious person.

Beware Ebay Shoppers...

Whenever I heard of scams, I used to think of such incidents as stories and that it wouldnt affect me. Yesterday, I got an email from ebay which said that I had sold a bunch of golf clubs to someone at a price of $429.00 and that I had to ship the item. I havent even logged onto ebay for over 8 months. So, I immediately rushed into looking at my account. I found that there were around 15 items that showed up in my selling list and 1 item was sold already. I immediately changed my password for the account, reported the problem through ebay's security center and cleaned up all the information I had in the account. While I was doing it, I found that the address and name on the account was of Sherry Vaughn (god knows who) and a maryland address. I tried to change the address and wasnt able to do so. Apparently, ebay gives some shoppers a shopping icon which enables them to market as high volume sellers or something like that. If you obtain an icon, you cant make changes to your address for 10 days.

While I was doing all the security measures, I also emailed the buyer telling him that it was a fraudulent transaction and that he needs to contact ebay asap if he doesnt want to lose his money. He mailed me back today morning saying that the money cleared off his bank account. Now, I was worried. Do you know that you cant get hold of an 1-800 number for ebay or amazon very easily? I searched all over the website and found that they have a chat-line using which you can get live chat assistance. I waited for 10 minutes for an agent to come online and she helped me with the situation. She cleaned up all the fees (commissions as part of selling the item). She also blocked my account. She said that this could have resulted because of some phishing mail that I might have responded to. As you are probably aware, there are emails posing themselves as paypal or ebay. If you logon, the perpetrators get your password and use it later to post some expensive items, which upon sale routes the money to one of their personal accounts or get the money in terms of a cashier cheque. Anyway, it was a scary experience. To be fair, the customer service representative from ebay was very helpful and informative.

Take aways... Keep changing your passwords to online accounts every 3-6 months. Dont enter your passwords by following a link from the mail or otherwise. If you have phishing enabled in google toolbar, it will alert you when you reach a page which is not where you intended to be. Dont even open emails from people that you dont know. And, just be aware of the risks and be cautious.

The Secret

Watch this 20 minute clip. Interesting Concept.
This Movie link is moved to another blog (as this was playing every time, we open this page). You can view http://ybsandiego.blogspot.com

What is 401k or an IRA anyway?

It used to be a mystery whenever I heard of the term 401k or IRA. As far as I know, many shy away from it mostly due to ignorance. I went from shying away to blindly investing to understanding the investment. Not that I am an expert in 401k or IRA, but, I think I do know the fundamentals of its operation. Thought of sharing it with you folks and hearing back your perspectives.

Well, the fundamental premise on which 401k and IRA is built is retirement planning. Assuming a meagre 2% inflation, your expenses at retirement will be roughly twice that of what you spend today. Remember, when you retire, you wont be earning any money. The standard amount that you would earn through social security will be a pittance and not guaranteed (as you are probably aware, social security would go negative in 2042 or earlier). This means that you will have to save money. No other way...:(.. How much does one need to save? It is a tough question to answer. It depends on the kind of lifestyle that you want to lead. For example, if you own a house at the time of retirement, you could probably shave off a big chunk of your expense that you spend today. Health care will be a killer. Now, for most of us, we get it covered through our company insurance policies. At the time of retirement, you have to pay for it yourself.

Anyway, the point is, there are several ways to save money towards retirement. Two of the popular schemes are the 401k and IRA. What is special about these schemes is that is the type of benefits that you reap. 401k allows you to contribute upto $15500 per year (pre-taxed income). The contribution is also tax exempted. You pay the tax only when you take the money out. One could invest the 401k contributions in different mutual funds arranged by the companies. The interest or earnings that you get out of these investments are also tax-deferred, meaning you dont pay the tax till the retirement. So, money grows tax-free throughout. When you withdraw the money at retirement, you pay tax based on your then income (which will hopefully be less and hence lower tax bracket). In many cases, the company matches the 401k contributions upto a maximum of around $2500-$5000. In such cases, it is a no brainer to invest in 401k since you get 100% return on your money. Based on the seminars and studies, the consensus seems to suggest that maxing out (contributing the maximum possible, $15500) is the best choice since the interest compounding can have significant impact over many years.

What is an IRA then? It is Individual Retirement Account and can be setup by an individual in fidelity or charles schwab or any of the major investment firms. One can contribute a maximum of $4000 (between Jan to Apr of the new year, you can still contribute upto $2000 for the previous year quota, in case you missed it) in this account. Here, the investment is under your control. This means that you can choose to invest this money in Stocks or Mutual Funds or Bonds. Upon resigning from a company where you held your 401k account, the entire amount can be transferred to an IRA so that you can get control over it (this is called a Roll-Over and there is no limit to how much you can roll over). Here, the tax-deferral benefits are not as straightforward as 401k since IRA is based on income. There are 2 common types and they are (i) Roth and (ii) Traditional. Most of us may not qualify for a Roth IRA if both husband and wife are married and filing jointly. If your individual income is less than $95000 or joint income is less than $150000, you qualify. Otherwise, you dont. The advantage of Roth IRA is that, you contribute after tax money and when you get back the money at retirement, you dont have to pay tax on the contribution. But, you do pay tax on the earnings generated. In the Traditional IRA case, you wont qualify for a tax deduction either. Your single income should be less than $55000 or joint income should be less than $100000 in order to get tax exemption. Otherwise, you dont qualify. The above rules give only one option, which is, you can invest upto $4000 of your after-tax money and have the earnings grow tax-deferred. At the time of retirement, you will get your contribution back without tax and earnings taxed based on the tax-bracket at the time of retirement. I think it is still better since this investment is under your control.

One of the prime question that people often ask is, if can this money be withdrawn at any time... The answer is yes. You will have to pay tax and also pay a penalty of upto 10% for the money withdrawn. But then, this is retirement money and even if you return to India, the money can be withdrawn from there and you will be subjected to corresponding taxes. If you really need to, you could take a loan of upto $50000 from the 401k account. The cool thing is that, when you take the loan, the interest that you pay goes to your account since you are the lender... Irrespective of what dimension you look at, I strongly think that everyone should contribute the maximum towards your 401k account. It is a great investment scheme and has tremendous impact over time. One of the commonly held perception among humans is that, most of us think we wont get old...:) Not that we dont know that we are going to get old, but, we seldom think about it or plan for it. Unfortunately, time doesnt stop ticking..:)

Resolutions

I have never been a big fan of resolutions, especially on new years, atleast not the person to let others know what my resolutions are until I achieve it. But, this year, I thought I will jot it down just so that I can plan on something over a longer period of time. By telling it to a bigger audience, there is a high chance of me having a pressure to achieve it. Okay, here goes the top 3...

i) Travel to atleast 2 different countries that I havent travelled before.

ii) Run atleast 1000 miles by this year end. This includes running atleast 2 marathons. (Last year, it was around 550 miles)

iii) Get a motor bike license and probably own one. At the least, start biking to work if weather permits. Part of my initiative on global warming...:)