Pinned Post - Flipkart vs Amazon Series

Flipkart and Focus 4 - Beware the Whispering Death

The fourth part of my series on Flipkart and its apparent loss of Focus and its battle with Amazon appeared in DNA on April 20th, 2015 . ...

Apr 19, 2009

The Logic of Life-2

In my previous post, The Logic of Life-1, I reviewed the book The Logic of Life: The Rational Economics of an Irrational World. I gave the book two stars, and said that the best chapters, in the book, relatively speaking, were "Is Divorce Underrated" and "In The Neighborhood". I have excerpts from the second chapter in this post.

In the Neighborhood - Economics of Not Being Stabbed In The Street
A major underlying theory used in this chapter is one on models of racial segregation, developed by Thomas Schelling, winner of the 2005 Nobel Memorial Prize in Economics. I must point out that Schelling shared the prize for his work on game theory and not not for his work on these models. Using a checkerboard and nickels and dimes (I think, or maybe pennies), Schelling showed that even a very small preference to have neighbors like themselves could lead very rapidly to a neighborhood that was almost completely segregated.

You can read a lot more about Schelling at his Wikipedia entry, or at his Univ of Maryland faculty page.
These are the titles of the relevant papers:
1. "
Dynamic Models of Segregation," Journal of Mathematical Sociology, Vol. 1, 1971. (Abbreviated version appeared as "Models of Segregation," in The American Economic Review, Vol. LIX, No. 2, May 1969.)
2. "
A Process of Residential Segregation: Neighborhood Tipping," Racial Discrimination in Economic Life, Anthony H. Pascal, ed., Lexington Books, D.C. Heath and Company, Lexington, MS, 1972.
Even though each person makes rational choices, the result can be something that none of them wanted; you might say that rational behavior by individuals can produce irrational results for society. [page 110]
"A very small preference not to have too many people unlike you in the neighborhood, or even merely a preference for some people like you in the neighborhood ... could lead to such very drastic equilibrium results that looked very much like extreme separation." In other words, mild causes could lead to extreme results. [page 114]
It seems that such analysis could be used for not just predicting what happens when people have preferences along racial lines, but also along other preferences that are binary in nature. For example, seating arrangements in a class could be one example, where in many classes it turns out that boys and girls are clustered separately, or eating arrangements where vegetarians and non-vegetarians are clustered separately, and so on. There may be a substantial body of literature along these lines as one would suspect, but I haven't looked around.

Good though this chapter is, a drawback, and indeed a drawback that seems to surface with several of the chapters in the book, is that the applicability of the arguments is often severely limited to only rich, developed countries. When you take the author's arguments and try and apply them to a developing country like India, they just do not make much sense.

Take this statement:
... why one location is for millionaires only and another, perhaps very near, is dangerous, boring, and poor. [page 118]
In Mumbai (Bombay) million dollar homes in Cuffe Parade or Malabar Hill or elsewhere are almost next door to slums, large slums at that. Napean Sea Road (now called L Jagmohandas Marg I believe) in Mumbai is very, very close to a huge slum. In Bangalore the multi-million dollar valued houses in the gated community of Palm Meadows do not have any other equally highly priced gated community close by. Some run down tea stalls and shops selling flooring tiles and plumbing equipment were all that Palm Meadows had for a neighbor. In every Indian city you can find such examples, where the localities meant for the super rich are often sharing space with run-down houses or slums.


Certainly lots of externalities are at play here, like a very ossified and non-transparent real estate market, government regulations that have hindered rather than helped real estate development, not enough incentives for low cost housing development, lack of urban planning, lack of new cities to share the burden of an increasing inflow of a rural population into urban centers in search of better opportunities, and more. So, while Schelling's theories are certainly valid and useful, what is not seemingly understood by Harford is that Schelling's theories seem to be applicable only to developed countries where many of these externalities are either minimized or non-existent to a large extent.

So once you start thinking of contrarian examples when reading the book, your mind will not stop with just one. Read on and you come across this excerpt in the same chapter:
It is yet another example of a positive externality: When I go to the park, I not only make it more interesting for other people, I also make it feel safer. That may attract more of them and they will make me feel safer. Empty streets are dull and feel dangerous, so they stay empty. Bustling streets are interesting and safe. Is it any wonder that they are bustling? [page 120]
Yes, an empty street or park is certainly not a safe place to spend any amount of time if you can avoid it. But here also your mind goes to a relatively new global phenomenon: terrorism. Or riots. These typically happen in or around the busiest of streets. Take the terrorist strikes in Mumbai on 26/11/2008. Or the World Trade Center strike in September 2001. Or the London attacks in July 2005. And so on. The terrorists did not strike in a deserted part of town. They chose the busiest parts of town. The poshest parts of town. The most parts that "felt" safe to people.

A person's perception of safety is likely to be affected by his assessment of which security threat is likelier. A terrorist strike is much less likely than a mugging or robbery. Yet the fear of a terror strike is likely to cause a person to assign a much greater probability to it than to a mugging. Hence, for an increasing number of people, a bustling street may not seem as safe as a quiet one. Every additional person frequenting a busy, hustling street, actually makes is less safe in this case.

The third example is when the author talk of how high rise buildings make the streets less safe.
There was more than aesthetics at play when a high-rise was built. These tall apartment buildings tended to lift eyes away from street-level and make the streets more dangerous [page 120]
They (Glaeser and Sacerdote) discovered that residents of big apartment blocks were more likely to be victims of crime and were more likely to fear becoming victims. And it wasn't because: large blocks are often for public housing: The size: of the building itself was the problem. [page 121]
... Each additional floor in your building increases your risk of being robbed in the street or having your car stolen by two and a half percentage points-if your building has twelve stories rather than two, your chance of being mugged rises by a quarter. [page 121]
This argument is again very contextual. If you talk of western countries, of developed countries, it could very well hold true. But, move to a developing country, where population is also likely a huge imperative, and the argument becomes a lot less tenable. Countries like India and China do not have the luxury of houses for everyone. Apartments, high-rises are the answer. They leave a lot more open space, parks, playgrounds for people to use and enjoy than if everyone lived in houses, or low-rise apartments.

Secondly, think about it for a minute. In a country like India, the streets are almost always bustling with people. Lots of people. An increasingly prevalent urban development trend is to have well appointed high rise apartment buildings in cities, as opposed to independent houses that were the norm till not so long ago. Read the newspapers and you read of murders, muggings, and more crimes being reported from these independent houses than from high rise apartments.


Before I state the reasons, I do want to be clear that I am making two assumptions here. The first is that coverage in newspapers is a reasonably accurate measure of the true level of crime in a city. And second that there is no under-reporting of crime from high rise apartments.

Why do more crimes tend to happen in houses than apartments? The first reason could well be that there are simply a lot more houses than apartments, and if the distribution of crime is also proportional, you are simply going to have more crimes in houses than apartments. The second reason is that apartments have a lot more eyes focused on its ingress and egress points. A security watchman or watchmen makes every visitor make an entry in a log book. A gate acts as a further barrier for the would-be criminal before he can get to a house. Nothing of the sort for most houses. The gate is unlocked. There is frequently no watchman. Shouts and cries for help from one houses will not reach the neighboring house. Not so with apartments.

The probability that a criminal may be spotted before or after the crime by other people can itself act as a deterrent to many would-be criminals. In developed countries like the US or UK apartment complexes have automated entry systems, with no watchman or a pair of human eyes making note of every visitor who comes in or goes out.

No authoritative or scientific study seems to have been done for developing countries, so the number of two-and-a-half percentage points quoted from the "Glaeser and Sacerdote" study hold true only for the developed world it seems.

The Logic of Life: The Rational Economics of an Irrational World
  • Paperback: 272 pages
  • Publisher: Random House Trade Paperbacks; Reprint edition (February 10, 2009)
  • Language: English
  • ISBN-10: 0812977874
  • ISBN-13: 978-0812977875
Review in the New York Times

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