From the Executive Editor

From the Executive Editor

These are trying times. They are also optimistic ones. Read our cover story to find out the wrongs, and workable solutions to be richer.

These are trying times. They are also optimistic ones. Today, extreme uncertainty and overflowing hope co-exist in our minds. There’s an intuitive feeling that this will be India’s century. The expectations of a double-digit GDP growth in the future, the Indo-US nuclear deal and the making of Indian MNCs are pointers in that direction. Simultaneously, we are plagued with thoughts of double-digit inflation, high interest rates and an economic slowdown. These latter indicators remind us that India still has a long way to run before she can rest and catch her economic breath. Indians have learnt to live with such duality and twin-truths for thousands of years.

However, the negatives now will have an immediate impact on us. Our earnings, spending, and savings will go awry. So will our expectations for the coming year. We can do nothing about it as uncertainty, unlike risk, can’t be quantified as it arises from an “imperfect knowledge about the way the world behaves”. A recent article in the New Yorker felt that uncertainty leads to herding, where “humans ... herd together for protection”. Herding leads to a feedback loop, where, as more people take a decision, “the more certain others become that there must be a good reason to do so (even if they don’t know what it is).”

So, all of us will commit a blunder, i.e., if we haven’t till now. Don’t think that since you are smarter than others, you will escape this trap. It can—and will—catch everyone off guard. It has happened in the past. A paper by Annie Murphy (University of Leicester) describes how a “welleducated and successful merchant” from the Sussex town of Rye, Samuel Jeake, violated “the perceived codes of rational behaviour” between 1694 and 1699. He was driven by the herd instinct. “He made decisions based on limited information and he allowed his emotions to determine the timing” of his decisions. He applied “different decision rules to each aspect” of his finances. Jeake lost money.

Many have already made the same mistakes in these uncertain times. One bought five properties, hoping to sell four within months and finance the fifth with the profits. Another followed the herd and invested in IPOs at the wrong time. And a third is confident that despite a slowdown, his variable pay component of nearly 15% will be intact. They—and you too—need to read the cover story to find out about such wrongs, and workable solutions.