Kevin L, Author at Kevin Low

Value functions

Economics assumes that people respond to incentives. And that requires some degree of rationality. Yet the interesting thing is that rationality is just perhaps one form of value function where we frame certain incentives as the metric that the agent is interested in and values. Revealed preference theory basically assumes rationality to pin down the preferences of people based on the choices they make.

Yet if we adopt the idea that there’s a value function, then rationality doesn’t even have to hold for the notion – that economic agents respond to incentive – to be true. Because if someone is “mad”, then it may just mean that he or she has a certain value function that lacks certain features or patterns which are consistent.

So it could be that their value function are not monotonic when mapped to specific features of a product or experience. This is to say that they may like their noodles to be extremely soggy or extremely hard, but not in-between. So to some extent, their value function is a U-shape when map on the extent of noodle sogginess. This type of ‘inconsistency’ can be seen as lacking rationality when it comes to certain money-based decisions. But mathematically, they can always be described and simply opens up more ways we can analyse these problems.

Transition from truth

We learn things in school only to learn at the next level of school that what we had learn was not exactly true. Each time, our simplistic view of reality gets increasingly replaced by a more sophisticated and nuanced view of the world. But not just that; there are ‘truths’ we learnt in school that eventually gets surpassed by new findings and they become untrue.

Or take for example some theories and ideas in social sciences; they evolve with our understanding of society, culture and economics – which means they’re not as timeless and can shift from being once true to becoming untrue. (In economics, an example would be the Phillips curve relationship between inflation and unemployment – a relationship that broke down the more Central Banks tried to take advantage of it.)

So how do we know and observe when a piece of idea, knowledge or conventional wisdom makes that transition from being truth? What measures can we take to insulate ourselves from that? How should we think about ‘truths’ we hold dear to our hearts or subconsciously in our minds?

Magic of going through the bad

If you think you are not good enough to do something, then ask yourself if you’ve been bad enough. I recall a time when my English was really bad. Actually it is still bad. And so is my writing. But I never let ‘my bad’ stop me; it is precisely going through being bad that one can be good.

And this animation by Danny Gregory puts that message together nicely. Enjoy.

Going back to objectives II

What happens when people at the ‘grassroots’ level of a system tries to solve a system problem, or deal with the symptoms and consequences of a systemic issue? How often have we asked this question and consider how pervasive such a problem archetype is in our modern society?

Corporate change and transformation department should be framing questions this way to uncover projects they can work on. Far too often, there are departments operating at ‘corporate’ or ‘strategic’ level of the company just trying to find easy-wins lurking around the organisation to create some kind of change project. The small projects that affect one or two stakeholders can be better dealt with by themselves. Collecting problem statements on the ground may not be the best because ‘the ground’ tend to contextualise problems within their own scope of work or scope of influence. When they do point out something that is more systemic, it is overwhelming or that they point to merely a symptom of underlying problems.

The corporate strategy department needs to hunt down problem statements by considering first what is the objectives that the company is trying to achieve overall, and what are some of the internal elements of the company that is hindering it from achieving its objectives. That would be more useful corporate change. Solving problems that prevent what existing department perceives as hindrance from them doing ‘their work’ may not always be optimal because ‘their work’ can be a function of the existing silos of an organisation and not exactly meeting the overall objectives of it.

Going back to objectives

What happens when you are ‘stuck’; what exactly does it mean to feel stuck. Is it more about not making progress? If so, then progress towards what? You can’t get stuck if there’s no sense of destination you are trying to get to. And having no destination is not the same as being stuck. Because not knowing where you want to go means it’s perfectly fine wherever you are! Stop thinking like you need to go somewhere if you’re alright with here and now.

If you’re not alright with here and now, and unsure where you need to go, then it’s not about getting out. It’s about figuring where you want to go. And figuring out where you want to go has more to do with rethinking about your objectives. Your objectives for life, for lifestyle, for your work, your career, your relationships and all. Reflect on what is it about the here and now that is uncomfortable; consider what you know you want, and what you don’t know you want.

The same applies to problem-solving. When you feel that you’re not progressing towards the solution, and hence ‘stuck’, it’s time to revisit the objectives. What are you trying to do exactly? Have you contextualised or defined the problem in a way that narrows the solution set such that you are missing out things that can get you your objectives anyways. For example, if you are looking to hammer a nail into the wall, and you contextualise the problem as you “needing a hammer” then you essentially ruled out solving the problem by using any other equipment.

Revisiting objectives helps; and that’s also why it is sometimes difficult to deal with higher level issues by contextualising a problem within a silo-ed context. That would be a good topic of discussion for another day!

A new space

Something to be revealed perhaps a little later but I’ve just made a massive move to a new environment and new space in my life. I’ve uprooted myself and shifted to another country, one that is not unfamiliar but definitely new for me to experience work and life differently.

One of the reasons is to disrupt the patterns that had been laid down over the years, but more significantly during the pandemic. I had become somewhat imbalanced in terms of my life and focus. This is an attempt to restore the focus. Not by making things easier for me but actually by making it harder. Sometimes, I think reducing our ability to take on more allows us to be more focused on what it is we really need and want to hold on to.

The new space for my life hopefully also grants fresh ideas and inspiration especially to set me back on the path growth in multiple dimension rather than just striving in a single dimension in life.

Clumsy versus poise

Grace, elegance, poise, all somehow points to some kind of balance, or equilibrium whereas clumsiness implies a degree of imbalance, tension at play which can result in awkwardness.

In many things, we strive for the beauty that poise brings but in order to get there, we often have to go through the awkwardness and tension. It doesn’t mean things are going wrong, but the journey to an equilibrium is only possible along the lines of disequilibrium. It is a matter of whether circumstances naturally guides the state of affairs towards the equilibrium or that somehow other forces needs to be at work to enable it.

You don’t necessarily get to glide towards poise; and along the way, there’s going to be a lot of difficulties. The experts are able to make it look easy because they have been in that state of clumsiness for far longer, far more than you have been. If you’re not able to get through the awkwardness, there’s no way you’d be able to find your way to grace. Others have it easy not by going through more ease, but through more difficulty.

Institution economics

I spent some time during my masters studying institutions and the economic effects that institutions have. By institutions, I mean established ‘laws and practices’ as much as governing rules, systems in place that organises economic activities. These rules and practices have huge impacts on economic development.

Acemoglu et al (2001) was a famous study on the long-lasting effects of institutions and on the economy. I thought it was interesting to take a bit more of a meta view on these topics and discover the forces that sometimes lurks in the background in ways we don’t realise.

Our state of the markets and the economy needs to be thought through the lenses of the institutions we have evolved, the incentives around them rather than just short-term fire-fighting. The shortest route to the near-term outcomes we want does not ensure the outcomes persist. And because these days we tend to think that we can monitor and dynamically ‘guide’ things to a desired outcome, the more we create unnecessary build-up of tensions as we choose to ignore the impact of current institutional structures we have laid down. These we must not ignore.

Case on climate change

It’s almost surreal that the explanation of climate change, its far-reaching consequences and the warning of the lack of action as well as the foresight on the reluctance to switch from fossil fuels is so cogently made in 1985 before the US Congress.

And today, we still have what we have happening in the US. Meanwhile, other developing countries are massively adopting green energy, unlocking the opportunities and growth which comes from the energy transition.

The economic downsides of displacing the traditional, carbon-intensive activities were huge in 1985, but compared to the manner we allowed the activities to have expanded till today, humanity seemed like it’s dancing towards the edge of the cliff.

Calmness in a storm

So everyone in Singapore were talking about Shou, the CEO of Tiktok who went to face the interrogation by the congress. He is a Singaporean and we were all pretty proud of his performance.

That clearly wasn’t easy; he was being talked over, treated rudely; most of the people interrogating him had speeches of their own where they needed him to fill in the blanks rather than genuinely expecting answers. I thought Adrian Tan’s observation that Shou was often the calmest person in the room of people who were interrogating him was interesting.

While the hearing remains inconclusive, there was little mistake that the US is entering yet another cycle of active state intervention into business. It is strange that issues being put across the table confused data privacy issues, responsibilities of a tech company management, geopolitics and business ownership.

Our institutions today are highly complex and sophisticated. Even the concept of ownership in a business is made so complicated by unbundling of the various rights that are traditionally attributed to owners, then dishing them out to various parties.