Pollsters fail the ‘wisdom of the crowd’


V Pattabhi Ram

In his 2004 book, The Wisdom of Crowds James Surowiecki argues that a random group of independently deciding persons is likely to make predictions better than any single member belonging to that group could have done. Amongst the many anecdotes to buttress his argument, he talks of how the crowd at a county fair accurately guessed the weight of an ox when they averaged the guesses of its individual members (the average was closer to the ox’s true weight than the estimates of most crowd members).

I had a glimpse of this when I was a jury member in an Inter B-School Stock Market Contest. The participants received access to the NSE terminal, gleaned it between 945 am to 11 am, at the end of which they predicted the NIFTY points at the closing bell, namely 345 pm. Yes, they were making their prediction 5 hours in advance. The winner would be the one whose prediction came closest to the actual closing points. If you averaged the several predictions of the 27 teams, the number turned out to be the winner!

Armed with this information, I proceeded to check if collectively the exit pollsters came with an outcome closest to the actual result. I picked the case of UP where the BJP swept the polls, Punjab where the Congress had an early Holi, and Goa that saw a hung assembly.

Let’s begin with Goa.

India TV C Voter 15 18 2 5 40
ABP CSDS 13 19 6 2 40
India News XMRC 10 15 8 7 40
Wisdom of Crowd (AVERAGE) 13 17 5 5 40
ACTUAL 17 13 0 10 40

The ‘crowd’ got the numbers regarding the major alliances right, but they got the names wrong! Also, notice that in the case of each party there was at least one psephologist whose prediction was closer than that of the crowd.

Up next is Uttar Pradesh.


India News XMRC 185 120 90 8 403
ABP Lokniti 170 163 66 4 403
India TV C Voter 161 141 87 14 403
Chanakya 285 88 27 3 403
AXIS 260 100 35 8 403
Wisdom of Crowd (AVERAGE) 212 122 61 8 403
ACTUAL 325 56 19 3 403

Again the ‘crowd’ got the numbers horribly wrong. Chanakya was the best of the bad lot, with their predictions coming closest (howsoever far they were) to the actual!

Finally Punjab.

Chanakya 9 54 54 0 117
AXIS 6 65 45 1 117
India News XMRC 7 55 55 0 117
India TV C Voter 9 45 62 1 117
ABP CSDS 23 51 41 2 117
Wisdom of Crowd (AVERAGE) 11 54 51 1 117
ACTUAL 18 77 20 2 117

Ha, when it came to Punjab, the wisdom of crowd again went for a toss.

My sense is that pollsters can say whatever they like, but their strike rates in the past few years have been pathetic. There was a time, many years ago when Prannoy Roy predicted to a seat the victory of the DMK in the late 1980s and almost to a seat the Congress tally in 1989. That possibly hooked the country to the idea of exit polls. But with over the years, the pollsters making a hash of things, intentionally or otherwise, the idea of poll of polls emerged. And this time around, that too has been hit for a six.

Exit polls can engage us with some tamasha. They would have been valid if your results were to be announced several days after the conclusion of the final phase of polling. Otherwise, it might just as well be that we wait for the real stuff. And in that sense one is terribly happy with the Election Commission for banning opinion polls. Given the divisive polity that we today live in, given the short memory of the public, these opinion polls can have a slant and influence voters. Those who said that voters must have information while they vote should remember that you don’t need information on whom the other person is going to vote for. It’s like copying in the exams.



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120 days after demonetization


V Pattabhi Ram

A full 120 days after Narendra Modi sprung on a surprised nation his version of financial carpet-bombing (not my words, but the words of the Supreme Court) it’s time to take a look at the fallout.

Surprisingly, the central bank is not reeling out the numbers as they should be doing, bringing into open the question of the independence of the RBI. It would not have been thus if rock star Raghuram Rajan had been in the hot seat.  Let’s glean in the figures from different sources to get a perspective of what has happened.

Net cost of demonetization

Four days before the dramatic announcement, on November 4, the amount of money in circulation was about Rs 17.54 trillion. Of this Rs 15.40 trillion was demonetized. According to reports, Rs. 14.97 trillion has come back to the banking system. This number translates into a gain of Rs 0.43 trillion to the government. Remember, the original estimate was Rs 3 trillion. Of the Rs 14.97 received, the government has reissued only Rs 9.2 trillion. The government may choose to issue the balance Rs 5.77 trillion or may let other forms of money like credit card etc., cover that sum. That would mean a transition of Rs 5.77 trillion to the digital economy.

According to CMIE, the cost of carrying out the demonetization exercise, including the opportunity cost of waiting in queues, as of 31st Dec is Rs 1.28 trillion. Looked at in the backdrop of a Rs 0.43 trillion gain, the net loss of demonetization is Rs 0.83 trillion. This loss, of course, does not consider the benefit that may flow in due to change in the climate towards the generation of black money.

The government has put out that the growth in Q3 is 7%, a number got after downgrading the base figure! Without the downgrade, the growth rate would have slipped to 6% and been in line with original estimates. Also, we must remember that the GDP does not capture the informal sector, which is where demonetization had played havoc.

The story of the shadow economy

One of the avowed objectives of demonetization is the elimination of black money. Interestingly, the government of India does not have with it an estimate of the shadow economy. We will have to rely on external information and back of the envelope calculations.

As per a World Bank report of 2007, the value of the parallel economy is 23% of India’s GDP. Let’s assume that in the last 10 years, this number has inched to 25%. India’s GDP by the last count was $2.25 trillion. Taking an average exchange rate of Rs 67, this translates into Rs 150 trillion. At a 25% estimate, the value of the black market is Rs 37.5 trillion. Reports indicate that India’s cash component of the black market is 5%-6%. Taking the top number of 6%, we are looking at cash black in India of Rs 2.25 trillion. This black cash amount, or a little more than it, was what the government expected would not come back, and thought it could pocket. In the end, the sum turned out to be just Rs 0.43 trillion.

Freak out the fake money

The second objective of demonetization was the elimination of fake money. According to a government-sponsored study carried out by the ISI, Calcutta, the value of fake money (aka counterfeit) currency is Rs 400 crore. Some estimates place it at Rs 5000 crore. With the total currency upwards of 17 trillion, fake money is a mere 0.023% of the total money. We don’t know how much of this is eliminated following demonetization.

Since counting machines can spot fake currency, one hopes that whatever money the banks was good currency. Incidentally, the story that the new Rs 2000 note is fake proof has proved to be just that – a false story. These currencies have been counterfeited and that too at such short time when usually it takes five years to fake a new currency. Statistics show that there are 250 per million currency notes as fake and that the banks can spot only 16 of them.

Black money abroad

Cash black money in India was a low-lying fruit. The larger sums are lying in gold and real estate. Much more is lying abroad. Some computations are in order.

The BJP, at its election rallies, talked about placing Rs 15 lac in every citizen’s bank account. At a population of 120 crores, this translates into a whopping 1800 trillion. At the then ruling rate of Rs 58/dollar, the amount is $31 trillion. Even if we assume that the BJP was talking about a family of 5, the size of the black market is Rs 360 lac crore. Shouldn’t we be attacking that instead of attacking Rs 2.25 lac crore?

If we want to root out corruption, we must reduce the high incidence of tax. At 33% direct taxes are high, and at 30% indirect taxes on restaurant bills are usurious. We need to improve our personal discipline (see our civic sense including traffic jams, for proof), and we must adhere to a swift and impartial criminal justice system. Minus all that we will only be scratching the surface.

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V Pattabhi Ram

AMMA by Vaasanthi

I first saw the book at Crossword and was quite taken aback. What? A book within days of her demise?

As I picked the book, I realized there was everything that was wrong with it.

A book titled Amma would be shamelessly eulogistic. A book less than 190 pages, its font type and size similar to those of the Enid Blyton books you read at school hardly inspired confidence. Admittedly, the writing cannot be fast-paced. It was by an author of whom I hadn’t heard in the English fraternity, Vaasanthi. A Tamil woman writer, writing about a lady considered an icon in Tamil Nadu would never be unbiased, I told myself. It would be sycophantic, in lines with the signs of the time. Then there was the price. While I have never worried about price when it comes to books, Rs 299 appeared stiff given the demons that ran in my mind. So I finally decided not to buy it.

That night a caller asked me if I had read the book. Two days later I saw the book with a friend, picked it and read. OMG, how wrong I had been. The book was written in May 2916, wasn’t sycophantic, read wonderfully well, was crisp besides being balanced. It talks about Jayalalithaa’s early days, her wait, post-school, for her mother, and the dressing down she received on the only day she attended college at Stella Maris. It also talks about her break into films, her friendship with Shoban Babu, her yo-yo relationship and near marriage with matinee idol MGR. V K Sasikala and some of the court cases come in for reference, albeit in swift brushes.

It would have been better if the story had been more detailed considering it was about Jayalalithaa. But I am not complaining since another way to look at it is that it is an appetizer. While balanced there is a reference to Kanchi Sankaracharya, which I felt was not in good taste.

Broadly a good read.


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Published in DTNext on Oct 6, 2016

Among the many tug-of-wars between the government, and the rock-star central banker Raghuram Rajan was the latter’s steadfast refusal to drop interest rates. Of course, when he demitted office he partly acquiesced. His successor, and the one with who Rajan played tango at the RBI, Urijit Patel, has now reduced the rate further by 25basis points.

This rate cut means that the cost at which banks borrow from the RBI will fall straight away by 0.25%. Consumers are expected to receive the benefit of this fall. However, the rate change is only a guideline for banks to change interest rates and they may choose not to do so.

The cut has significant influences. First, interest rates on bank deposits will fall. This fall would hurt the renter class, that is, those who rely on fixed income. The deposits already taken will not be affected. Secondly, bonds coming up in the future may price themselves lower by 0.25%. This would mean that if you already invested and holding some bonds, their value will go up because you are earning a higher rate compared to market price. Thirdly, if you are on a floating rate loan, like a housing loan, the loan should now technically cost you less. It would be less by 0.25% if the entire benefit were passed on. For fixed-rate mortgages, there will be no impact on the EMI. Finally, the interest rate on loans by banks to people should fall.

Changing the rate influences the supply of money by banks and to consumers. Typically a rate cut is done to stimulate growth. A lower cost of money encourages borrowing. But if the rates are too low they can spur too much growth leading to inflation.

In retrospect is the cut good? That depends on whether you are predominantly an investor or borrower. If our GDP were growing at 8%, there would be no need for a rate cut. Again what’s important is will the banks pass on the benefit or will they use it to shore up their financials? For instance, since Jan 2015, the RBI has cut rates by 1.75 percentage points, but home loan rates have fallen only by 0.85 percentage points. And deposit rates have been reduced by 1.35 percentage points.

Therein hangs a tale.





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V Pattabhi Ram

From a forthcoming article of mine

If the Mahatma were alive today, and if Prime Minister Modi seeks his advice on the strained relationship with Pakistan, what would the Father of the Nation say? We can hazard a few guesses.

First up, a bit of history. Mohandas Gandhi, the half-naked fakir, will in the eyes of some have to wear forever the albatross called Pakistan. Allowing partition, after proclaiming that it “can happen only over my dead body,” is a serious charge against him. Many believe Godse killed Gandhi, angry with the Mahatma for having appeased the Muslims.

All of that is in the realm of history. What would Gandhi do today?

The apostle of non-violence may not trek the same path that he walked seven decades ago. Great leaders do not necessarily stick to the principles they once propounded. They alter their beliefs with time. Gandhiji, the second most influential man of the 20th century, was a transformational leader and faithful to the spirit of such people, he would have changed his course today.

Three events: 26/11, Pathankot, and now Uri have drained the patience of this nation. Not because we lost our soldiers, but because there is the growing belief that we are being taken for granted. At no point in time Gandhi would have boasted of his ability to broker peace; in short, he would never have talked about 56 inches and ten soldiers for every single head. He would not do a NATO: No action, talk only.

Instead, he would suggest first speaking to the Pakistani civilian government, build a global consensus for India, move the UN Security Council, and bring leaders of various nations on our side. These actions will up our moral compass. He would then ask us to be more vigilant, and tell our soldiers as a class to be guard both at day and at night. Remember, soldiers will have to be prepared forever for a war that would perhaps never take place during their lifetime!

He would recommend caution first. Remember, Pakistan is a rogue nation with the nuclear bomb. Being the Mavericks that they are, they cannot be trusted either in peace or war. Gandhiji would hence recommend our army to be in a state of readiness. “If you want peace, you must be prepared for war.” He would take the most powerful nation in the world, America, on his side.

He would tell the prime minister to build consensus at all costs among political parties and not to be detained by sharp comments that a politician or two might make. Thick skin is the need of the hour. A suggestion would also be sent refraining television channels from going ballistic with jingoism or from playing the dove. Channels would have to restrict themselves to news, not views, irrespective of their political leanings. Most importantly he would ask the prime minister to ignore the noise in the social media. He would want him to directly engage with the people of Pakistan sidestepping the government.

When everything else fails, and attacks continue, perhaps the war guns would boom.

In retrospect, if the Mahatma were alive today, he would suggest restraint, building global consensus, to defend and, and if push comes to shove, retaliate. No, he wouldn’t say, “An eye for an eye would make the entire world blind.” Just as he would suggest that you should drive on the left side of the road if a lorry is hurtling dangerously on the same side towards you. That’s because self-defense is no crime. That’s because leaders change with time as the principles they once propounded stop working in a new world order.



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