The Economics of Relationships Part 2: ROI (Expectations)

In the first part of this series I talked about NPV of a person and how it changes with respect to each relation over time. In this attempt I would like to explore how the concept of Return on Investment (ROI) holds good for Relationships. I will reiterate here that relationships could be in any form; partners, family, friends etc.  Also, in an attempt to compare the concepts I may have exaggerated some things and you may not agree with me.

In business, the purpose of the "return on investment" (ROI) metric is to measure, per period, rates of return on money invested in an economic entity in order to decide whether or not to undertake an investment. While making a decision to invest, the “expected” return on investment is taken into consideration. If the expected ROI is low compared to the Cost of Capital or the Internal Rate of Return (IRR), you may not invest. If the expected ROI is higher, you most probably will invest. So you can see that “expectations” play a big part here. And if these expectations are not met, you lose money and are disappointed. There may still be a chance to withdraw the investment and stop the loss. But that is not always possible.

Now drawing an analogy with relationships, to make any relationship work, we invest a lot of time and emotions and sometimes money too (although counting money when it comes to relationships is frowned upon, and for good reasons). Maybe subconsciously or sometimes consciously we try to gauge what return on this investment is possible. Just like the investment, the return is also intangible and so measuring it is difficult. But generally speaking, the ROI in this case is success or failure of a relationship.

So here you “expect” certain things to happen. You “expect” the person to behave in a certain way, do or say certain things, react in a certain way. You get into the relationship with a certain set of expectations (Returns). When you compare this expected ROI with the actual ROI, you are in for a pleasant surprise or a disappointment. Things are nice and sunny as long as these expectations are met. Some buffer for variance is generally assumed. But when the person starts to fall short of these expectations or some things totally out of expectations start happening in a relation, you feel the gloom or see storm clouds brewing. That’s when you say that the relationship is turning sour, or things aren't working out. It causes great mental anguish to you and you may start behaving irrationally or simply drift apart and go silent. You can pull on till the expected ROI drops down to match the IRR. If it drops further and goes below the IRR, we clearly enter the negative returns territory.

I forgot to mention that unlike business, these expectations are generally not documented or discussed. It is something in your mind. The person may guess some things because of your level of understanding with each other but some things remain unknown. And when these expectations are not met the problem occurs. If you look at the case of finding the correct life partner, consciously and subconsciously you do consider many things like emotional compatibility, intellect, physical attributes, financial stability and maybe potential for future cash flows (basically NPV). But depending upon the stage of the relationship and many external factors, it may not be possible for the person to meet all your expectations. Just as you would study the health of a company, fund or market and revise your goals and modify your portfolio, you need to think about what you are expecting in a relationship. Now, having no expectations seems to be a great solution; in that way whatever you get is a bonus. But being humans, this is not practical. So a good way to deal with it is to revisit your expectations from a relation from time to time and revise them, bring down the Cost of Capital/IRR and start viewing the relationship from a revised perspective. This can go on till expectations reach NIL. Beyond that we can only start dis-investing, withdraw from the relationship, emotionally, bit by bit, because you now know that the relationship is going sour. Many a times, it is not possible to back out from this investment you have made, due to the very nature of human relationships. Finding a way to make the investment work, to get the best possible returns is the only way ahead.

Mind you, in some cases the exit route exists and people do choose it because that’s the best option at the given time. That’s when you see broken friendships, divorced couples and estranged siblings or parents.  But it’s a painful route and losses are huge. The pain in withdrawing out of a relationship is like an exit load on a mutual fund investment. So I think the smart way is to manage your investment better. Make an attempt to see the side of the other person. Maybe it’s a temporary slack or maybe it’s something that has changed for life. Do not assume things and draw conclusions. Try to find facts and if the situation in your relation allows it, have a talk to set the expectations. But doing so will definitely spare a lot of mental anguish and a possible drift. Maybe you can also see your relationship actually making a U shaped recovery.

Investment in anything is a big commitment, especially long term investments. Simply investing and sitting on it without monitoring can be risky business. You need to be vigilant and make the right moves at the right time to get your “expected returns”. Analogies can be fun. It gives a whole new perspective to look at things. Economic theories assume a rational human. But comparing the success or failure of a relation with economic concepts fails where human irrationality comes into picture. If we could think of every relation in economic rationality, building your relationships portfolio would be a whole new game.

First step towards the difference I can make...

Last year in my post titled "Can I make a Difference?" I had mentioned my desire to do something worthwhile in this life and ended my post by saying "When and how to make a difference is a question I’ll always keep open and I am hopeful that I’ll find an answer soon". I still do not have an answer to when and how but now I probably know the answer to 'where'. It will be somewhere in the field of education. 

I think education has the greatest impact on a person's life among other factors. It makes the person self reliant and makes him a contributing factor in the economy of the nation. In this process, he gets the opportunity to improve his own standard of living and to break out of the shackles of poverty. The closest example I have seen is that of my former housemaid's children who got educated and lifted their family out or poverty, helping their mother to retire in dignity. 

I have been among the very fortunate ones to get all the education I wanted. All the courses, projects, exams, great friendships in the process... It all has surely been a fascinating journey. And not to mention that this is going to be a lifelong process out of classes too. It has helped me grow as a person. I want to make sure that someone else gets the benefit of this privilege I have had. So now my next mission is to figure out the 'when and how'. I am envious of the people who know what they want to do and are already on that path. I have tried to take some baby steps and want to see where they take me. Let's see how that goes... 

A Few Good Men

Kids are often asked this question.. "who is your idol? who would you want to be like when you grow up?" Honestly, I never had any single idol till date. But there have always been some, A Few Good Men as I will call them, who have influenced my thought process and helped me look at this world in a different light. My grandfather is one such person. He has some very strong opinions about various topics and I used to love to listen to him talk. I was lucky to grow up in a house with very well read people around me and a spirit of free discussions and civilized arguments, often over meals :) This is a big reason why I love to think about things and have thought provoking discussions with friends. And this habit helps me to look at people in a different light and helps me learn something good from them.

As such there are many Good people around and have been over the ages. I had thought of writing about a few people who are rich and famous and are doing wonderful things for the society; Bill Gates and NR Narayana Murthy to name a few. NRN likes to call himself a compassionate capitalist which is what he is. However I am not going to talk about them as most people already know a lot about them. So here is someone from more than a century ago about whom we know very less but I believe his life story deserves to be known.

I have been watching a Marathi series recently based on the life of Justice Ranade and his wife Ramabai Ranade. In school history lessons there is a fleeting mention about their social reform work. But this series introduced me to the person behind that work. Supreme intellect, holistic thinking, sincere empathy coupled with an immense will to help his people, irrespective of their social status, made him what he was.

Nyayamurti Mahadeo Govind Ranade or fondly known as Madhavrao or Raosaheb, was born in a well to do Brahmin family and could have continued his family business. However his intense thirst for knowledge led him to study law and by the time he retired he was a Judge of the Bombay high court, a great feat in late 1800s for an Indian. Using the judiciary as his weapon, he strived to improve governance for his people while maintaining good standing with the empire. This required shrewdness and a lot of diplomacy. He was a phantom force behind numerous social organizations like Prarthana Samaj, Sarwajanik Sabha etc working to improve the conditions of farmers and labor class and bring about religious reforms. He strongly condemned the rituals which formed a cruel but inseparable part of Hindu society. Through his speeches and writings, he tried to logically strike down all arguments in favor of the rituals by pointing out the relevant references in the Vedas which were used to prop them up.

He was a staunch supporter of widow remarriage and was dead against the inhuman practice or tonsuring widows. Coming from an orthodox family, he had to marry an underage girl against his will after his first wife passed away. Being a reformist, he received severe criticism from his detractors. But he took an oath to educate his wife and set a shining example of what an educated woman can achieve. He made his wife worthy to serve other women by educating her and sensitizing her about the plight of her peers. She then went on to do some exemplary work in her later days.

He was liked and highly respected not only by the masses but also by eminent peers of his time. He helped create a strong rank of young politicians like Gopal Krishna Gokhale. He played a big role in the formation of the Indian National Congress which was instrumental in India's freedom struggle. He had an intense desire to see India get independent from the British empire. Although being a moderate that he was, Justice Ranade respected the revolutionaries for their strong sentiments. But he was not in favor of an armed revolution for the basic fact that as a nation, India was not ready to govern itself in the eventuality of a successful fall of the British rule. This shows his farsightedness. He always had a balanced look at things and let logic and fairness rule over sentiments. He was a wise man in true sense.

Although he lived in the 1800s, his thoughts and ideals are still relevant. There is a lot the current political leaders can and should learn from his life; a sense of duty towards fellow countrymen, empathy, good governance and making the best use of your position and ability for the greater good. I have no doubt that his life story has had a positive influence on me. I do not know how capable I am of emulating this great personality but even if I can bring out a fraction of his virtues in me and make a positive difference somewhere for someone I will say that the hundreds of television episodes were worth it!! 

Collateral damage

The day started with the news of blasts in Boston at the Boston Marathon finish line. At this moment I know that 2 people have died and many others injured. I have realized that since quite a long time now, I have become apathetic towards such incidents. It has become a routine to call up your near and dear ones to check that they are fine, mention to someone how terrible the incident is and then carry on with your day. I am not even sure if that mention means anything to me anymore.
I sometimes feel bad that I have come to such a state. But this is what routine does to you. News of violence is a common feature on TV now and coming from Mumbai I have experienced the fear and anguish a few times too many. I am pretty sure that I am not the only one with such thoughts.This collateral damage caused by the constant violence is never accounted for. Unfortunately, even the eternal optimist in me can see no remedy to this apathy unless the violence itself stops. Now I cannot even think of commenting on that solution any more. My only wish now is for that trace of empathy for those I don't know to stay alive in me. 

Spare the rod and spoil the child

"Spare the rod and spoil the child". We have heard this saying numerous times. It simply means.. 'If one does not discipline a child, he or she will never learn obedience and good manners.' Here is why I chose the title..

Recently, India has witnessed age old problems boil over in the form of massive protests which lose steam eventually. Then the poison goes back to simmer and the fumes keep eating into our society. In the past two years we have witnessed and few of us maybe have been a part of two such spills. The first one was corruption and now the rape cases and treatment of women in general. 

The entire country joins in blaming their own elected representatives for not doing anything. New promises are made and broken, just the way they are supposed to be. But I am not saying that these protests are useless and get us nowhere. They do a couple of things. They make us think. They get the issue into limelight where we, as a nation, discuss it. We openly recognize that it is an issue in the first place. Some people get genuinely affected by the charged environment and knowingly or unknowingly change themselves for the good. Many discussions come up where moral and ethical degradation of the society is discussed and the need for transformation as a solution to the issues is proposed. Not many people have good answers as to how this can be done. And I don't blame them. It is not that simple. 

The very fact that the situation boiled over means that the the poisonous brew is extremely strong and something really strong is required to neutralize it. That would be like a moral revolution which is kind of unlikely. We like to believe that education can help set a moral or ethical base but it has been amply proved that education does not help. It just enables you to sin smartly. What we need is to remove the poison from the cauldron slowly. By this I mean harsh deterrents from adding to the poison. I strongly believe that human psychology anywhere in the world is shaped by the environment they live in. Majority of the people living in corruption free countries or places where women are safe are no saints. They have lived under strict laws and more importantly strict law enforcement for generations which has resulted in a natural aversion from committing any misdeed. And here is where my title makes sense. A simple example I can think of is observing traffic rules. It is not that we do not have laws in India. But law enforcement miserably fails. I know it is not easy with India's huge population but it seems the authorities have given up. Thus there is no deterrent and flouting of rules is rampant. 

In countries like USA where law enforcement is extremely strict, we see most of the laws being obeyed. I am pretty sure that this is out of fear of the "ticket" rather than from the feeling of doing the right thing. But it serves the purpose. This fear gradually gets ingrained in the sub-conscious and becomes a habit. That is when you see disciplined traffic. But that initial fear is necessary. And this is where India needs to get its act together. Law enforcers need to take existing laws seriously and law makers need to create some tough ones. For this to happen the political will is necessary. Law enforcers need to have the right rewards and incentives. Law makers need to be free from political games. This will only happen if we have a strong government which does not have to worry about keeping alliances happy. This will only happen if we vote and put some thought into it before electing someone. 

So if you think about it, we, the children need to choose the right parents and give them a rod to discipline ourselves. Or else, we will be nothing but spoilt children ready for mischief.