Growth in the design economy

Design Economy

The limited ability of economists to account for the value addition given to goods and services by design (as well as other emerging disciplines) leads to an underestimation of growth figures.

In recent months, methodologies to measure GDP- traditionally the sole concern of the most grave and solemn of economists- has become a topic of mainstream debate in India. The Central Statistical Office (CSO) made two changes in the way GDP was measured: the base year was shifted from 2004-05 to 2011-12, and market prices of products, instead of factor prices, were now included in the formula. As a result, GDP growth figures shot up to 7.9% in the final quarter of FY2016- a figure that has been viewed with skepticism within India as well as abroad. On the other hand, growth figures in the industrialised West- usually in the neighbourhood of 2%- have been known to be routinely underestimated. What causes these discrepancies can largely be explained by the complexity of methods employed to calculate economic growth.

Government statisticians and economists are tasked with assessing, independent of political constraints, various measures to describe how much a nation’s economy and its constituents have grown in a particular year. Aggregations at a national scale and repetitions in counting are obvious difficulties bureaucrats have to deal with, but major complications arise in measuring real economic growth after accounting for price inflation. This amounts to ascertaining whether Rs.10,000 spent in 2016 provide consumers with as much utility or value as they did in the previous year. Conversely, if Rs. 10,000 helped derive a certain utility for consumers one year ago, the CSO attempts to determine how much more it will cost consumers to derive the same satisfaction today.

Even in a theoretically ideal, static economy where the nature and relative role of goods remains constant, these measurements are fraught with multiple problems. But  when the nature of products or services changes drastically, things get so fuzzy that even the ubiquitous ceteris paribus is rendered helpless.

Picture the development of a radical medical procedure that brings respite to the patients of multiple sclerosis, or a new form of chemotherapy that can kill cancerous cells more efficiently. The introduction of such a technology into the economy means that units of currency (dollars, rupees) are worth more than what they were before the new procedure was invented. In most cases there exists a lag for this change to be reflected in GDP calculations, and growth methodologies (to some extent) account for it. But more damningly, the only change reflected in official figures is the change in the the price of the treatment, not for the increase in utility or satisfaction experienced by patients and their families.

Paradigm-shifting medical cures, moreover, are not a commonplace occurrence- the last revolutionary breakthroughs in patient healthcare came with laparoscopic surgery and HIV cocktails in the previous decade. This laconic pace of change is not different in sectors such as automobiles, consumer electronics and telecommunications. The core technology of the internal combustion engine, for instance, has shown little change in over a hundred years. However, even the most Luddite commentators would admit that goods and services have shown value addition over the previous decades particularly in one aspect: design. A large share of the increase in factor inputs employed to produce a car in 2016 come from product and automobile designers that enhance its utility not only in terms of aesthetics, but also with regards to ergonomics, passenger safety and navigation technology.

The real price of automobiles, however, has not risen proportionally. In some cases, there may be a marginal change in the cost of the car year upon year, but all the increase in value addition from design and energy efficiency still contributes towards producing one additional unit of a car- a statistical constraint that partly explains deflated growth figures in regions such as London, whose design industries have grown to an advanced stage and hold a significant share in the overall economy. The increase in value to products and services by using different disciplines of design is said to have contributed 7.3% of the UK’s exports (£34 billion) in 2013, and designers now account for 24% of the wage bill in its information and communication sectors- showing breakneck increases in the last decade. In contrast, UK’s overall GDP growth has languished at 1.4% since the official end of the 2008 recession.

Analysts and economists attribute this slowdown in aggregate demand and growth figures in OECD economies to a drop in overall productivity. In a panel discussion at the London School of Economics earlier this year, RBI Governor Raghuram Rajan admitted how these figures may seem surprising to many at the beginning of their careers- considering they are surrounded by stories of innovations, about problems being scaled in ‘faster, cleverer ways’. The present cohort of workforce entrants is seeing potential improvements to productivity all around them, but these do not seem to translate into concrete growth and employment- summarising a lamentable paradox in today’s economy.

The design-growth contradiction also explains issues that affect developing economies like ours. Simply reversing the argument shows how we overestimate inflation by measuring it nominally, whereas real inflation isn’t as high- partly because of the increase in purchasing power of the currency due to contributions from exciting new fields like design. In other words, your Rupee has a greater ability to purchase better cars than in the past because of the work of an an automobile designer- think of the ways in which the Suzuki Alto is better than the  Maruti 800, even in the latter’s most nostalgia-inducing moments.

Image Source: The Design Sketchbook/Youtube

 

Irrationality in the face of imminent death

Emirates crash

The video on how the passengers of the Emirates plane that met with an accident at Dubai airport behaved, holds major lessons on how humans behave at times of high risk.

The foremost reaction to any risk by most humans is denial, unless the risk is very salient. Even with the best of information humans are not capable of evaluating the risk levels of most situations. This optimism bias in times of risk can lead to a ‘business as usual’ attitude and resultant behaviours that are inadequate and inappropriate for an emergency situation.

From the video it is clear that many passengers, instead of rushing to the nearest exit and heading for the escape chute, are more focused on opening the overhead lockers and carrying cabin luggage and laptops with them. In that process, they are causing the biggest hurdle for an evacuation process – blocking of the main aisles.  One can hear passengers reassuring each other that nothing critical has happened, and there is no need to worry. The feeling of danger is low in the voices and faces of passengers and there is no sense of urgency in their movements (so much so, that someone has taken his mobile to capture all this!). Then in the 55th second of the video, one hears the voice that is presumably of the flight attendant. In a raised tone, they repeatedly ask passengers to leave their bags and jump out of the plane. Immediately (and finally!) the passengers sense the emergency of the situation that we can hear fellow passengers rushing others to leave the bags behind and get out of the plane as fast as possible. Some are even seeking God’s help. Evacuation now happens at the right pace, in the right manner.

One can be complacent that all the passengers of this Emirates flight got out of the plane in time and that all are safe. But this was clearly a near-miss incident. One cannot be oblivious of some critical mistakes that happened, which could have led to a major disaster. The right behaviour expected of the passengers is – as soon as an emergency evacuation is signalled, all should realise that a dire mishap has occurred, and respond by immediately rushing to the nearest exit, leaving behind their belongings locked in the overhead storage. Instead, in this incident, it is only in the 55th second of the video that people stopped bothering about their bags and laptops and did what was required to do in order to save their lives and the lives of other passengers. The trigger for this change in behaviour of the passengers came from the flight attendant’s tone of voice and the content of the instructions. Which then makes one curiously ponder – why couldn’t have this intervention from the flight attendants happened 55 seconds earlier?

Human beings by nature are overconfident and tend to ignore most risks unless otherwise the proof of risk is very salient. In several situations, more so in emergency situations, the overconfidence of humans should be deflated to generate the right action in them. Merely communicating the information about a risk will not achieve this. Instead, communication about risk should be embedded with right levels of emotions. Humans are driven to immediate action only when there is a FEELING of risk. The first 55 seconds of the video clearly shows that the feeling of risk prevalent inside the airline was inadequate for an emergency situation of this kind.

During emergencies, every second counts. And humans will continue to behave as irrationally as seen here. Therefore, the critical inquiry required from this occurrence is: What can the airline industry learn about human behaviour from this incident? What in the inflight attendants’ training need to be altered, so that they generate the adequate feeling of risk in these emergency situations, which will refrain the passengers behaving either complacent or too panicky? What is the right script and tone of voice should flight attendants use, to initiate the right action among passengers, in emergencies like this? Finally, what is the ideal communication strategy to convey risk  that will motivate humans to take appropriate action even a second earlier?

Status Quo on Brexit

The world is eagerly waiting with bated breath for the Brexit referendum results. Battle lines are drawn, last campaigns have ended, politicians have made their pitch (David Cameron, Jeremy Corbyn on the “Remain” faction versus Boris Johnson on the “Leave” faction), world leaders have weighed in on the subject (Obama saying “I hope you will stay”) but the contest is still too close to call. This is proving more nail-biting than Euro 2016 football matches.

Brexit PollsThe poll of polls on the issue from ‘What UK Thinks’ show a 50-50 split between the “Remain” and “Leave” factions. The Economist puts it at 44% for the “Remain” and at 43% for the “Leave” factions with 11% undecided – it was 14% yesterday.

Which way the referendum will swing will depend a lot on these 11-14% undecided voters. What would the undecided voter do? One of the key factors will be a well studied bias – the status quo bias, the preference for the current state of affairs. Prospect Theory explains status quo bias as a result of people’s tendency to overweight losses from a change in the status quo when compared to the gains thus leading them not to prefer a change at all. To complicate matters for people already uncertain about the vote, the issue at hand is mightily complex; it has economic, political, and even racial impact. Uncertainty breeds status quo.

The easiest option for undecided voters is the one that allows them to go on with their lives with the least amount of disruption – not having to make the decision at all. On the other hand, if the undecideds do vote, these votes are likely to be for the “Remain” faction – the status quo option. So all that the “Remain” campaigners should do is to encourage the undecideds to vote and they should have it!

One thing is sure, framing of the Brexit question will not play a part in the decision because of wise moves by the Electoral Commission. We have already covered that aspect in our earlier blog – To B or not to B, that is the question.

Our paper on sex trafficking nominated for ESOMAR best paper award

One of the most challenging assignment undertaken by Final Mile was to understand the decision making process of vulnerable populations on both Demand and Supply side of sex trafficking. We used Ethnolab – Our proprietary Behavioral and Decision research tool to unearth behavioral insights that can help prevent trafficking. This project has been funded by My Choices and the foundation went beyond mere funding to take an active part in the research process.

We presented the paper at ESOMAR APAC conference held in Tokyo on 18 & 19 May 2016. We are delighted that the paper was nominated for Best paper award. Sex trafficking is one of the most inhuman acts and one that requires high attention and this nomination is a small but important development. This problem requires support from research community as there is a strong need to match Passion with insights.

Read more about the nomination here. https://www.esomar.org/news-and-multimedia/press-room.php/press-releases.php?pages=1pages=1&filter_start_date=&filter_end_date=&idpress=129

Who is likely to win? Depends on How you ask

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The race is heating up. And so are the experts that are conducting, interpreting and concluding opinion polls. As the focus of US presidential election is moving away from on primaries to the final competition, we should expect results from hundreds of opinion polls predicting the winner.

A recent NY times article suggested that Clinton leads Trump by around 10 percentage points. If you believe these polls, then you may be hopeful or concerned depending on which side you are on. But there is a small issue. The result may not be accurate.

This article indicates that there is a significant difference in the results of polls conducted online vs over the phone. The lead comes down four percent when surveys are conducted online. One the reasons cited is the social desirability bias – a desire to project a positive image when one is worried of being judged based on their response. People may go at any lengths to avoid the discomfort and embarrassment of stating an unfavorable response even if that is their honest response. But in a situation of anonymity, I may go back to my preference.

The problem is not new and its not limited to presidential polls. The issue has been discussed extensively in market research. And it becomes much more pronounced in sensitive areas of financial and health care related decision making. Imagine talking to a individual undergoing financial hardships and being delinquent on their debts. Or a conversation around understanding why someone is not adhering to their antibiotics regimen.

Clearly, we need more sophisticated research methodologies to deal with such sensitive matters. In our work in the social sector, we have regularly innovated our research processes to mange these issues. For example, in one of our projects in Africa we used a gamification based research tool wherein the format incentivized true responses over socially desirable response. The research methodology was recognized by The Esomar Congress 2015 where Final Mile won the Best Case History award.

Innovative tools for learning voter’s preference also exist. The Iowa Electronics Market established back in 1988 is one of the early pioneers. Even changing the way the question is framed can have a significant impact. For example, instead of framing the survey question as which candidate are you likely to vote, a better question would be which candidate is likely to win. So while we monitor the election outcomes, it will also be interesting to study the prediction accuracies of the different research tools.

Image Credit: Indian Panorama