All posts by Alok Gangaramany

Dealing with Fraud

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The incentive structure of Wells Fargo has been rightly criticized for the fake account scandal. The roasting of Wells Fargo CEO at the Senate panel hearing has also brought to question the responsibility of the senior executives. However, the overall narrative may be missing an important component – Perception of Risk.

We can safely assume that the front end employees, who carried out the transactions, were largely aware of the illicit nature of their actions. Most likely they also knew the potential consequences such as losing their job, facing charges or even serving prison time. How did the employee’s perceive these risks? What factors moderated their risk perceptions?

These are difficult questions. Unlike the incentive system that is tangible and easier to measure, risk perception is not. Risk is a feeling and feelings are hard to quantify. Our feelings may be moderated by our goals, our ability to deal with outcomes, our past experiences etc. They are also influenced by our social context. The social norms prevalent can easily override the written rules and policies. If people around us are performing deviant behaviors such as the one we are dealing with in this case, we are more likely to follow them. With over 5000 employees implicated, we can expect this issue to be present.

Alternatively, employees may be managing a very different kind of risk. For example, fear of losing their job in the immediate future. The temporal aspect of this risk may amplify it even further and employees might rate it significantly higher than the risk of getting caught in the far future.

So while we are discussing changes to structural aspects such as incentives and punishments, we also need to give adequate attention to the softer side of the issue. We need to design strategies to moderate the risk perceptions. Conventional tools such as awareness / education based trainings have limited impact. This is especially true when the behavior in question is fairly obvious. After all, there is nothing gray about opening a fraudulent bank account. Interventions that provide continuous feedback closer to the work context might be more effective.

This still leaves us with the question of measurement. One way to do that may be identifying lead behaviors. For example, are employees more forthcoming in discussing or informing potential issues? Are managers rewarding such positive behaviors? Are we seeing an increase in minor deviances? Measuring these behaviors can provide organizations the relevant prediction capabilities and also the time to activate preventative strategies. 

Managing organization risks requires focusing on both top-down and bottom-up issues. While we hold the executives responsible to develop the right kind of organization structures, we also need to design tools that ensure alignment of behaviors across the system.

Image Source: The Intercept

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

Paris attack and the problem of categorization

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The Paris attacks have been a major shock and we are understandably upset. Most of us have been reminded of some of the earlier acts of terror such as the 26/11 attack in Mumbai or even 09/11 in New York. It also reminded us of the mixed emotions (fear, anger and despair) that we felt during the attacks.

 Since the earlier attacks were also targeted at civilians, we consider this act in the same vein. However, this Atlantic Article – What ISIS really wants suggests that, maybe, this attack is different. The article refers to the origin of the Islamic State from al-Qaeda, the formation of its leader al-Baghdadi, its strong belief of being a key agent of the apocalypse and many other qualities. But the most important point that it tries to make is that ISIS is not like al-Qaeda or any other organization that we tend to categorize as terrorists. The author suggests that we seem to have misunderstood jihadism as monolithic or of a single kind which it is not.

We can probably call this a problem of categorization or essentially mis-categorization.

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Is the end of one-child policy, beginning of a new experiment?

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As per the recent NY Times article, one of the biggest human experiment “One-Child Policy” has come to an end.

The policy came into effect in the 1970s as a response to the concern that the population growth was impeding economic growth. The reversal seems to be a response to a new problem – aging of the population.

The ethics and rationale behind such government interventions have been and will continue to be debated in the public policy and macroeconomic circles. But lets view this problem from a different lens – dealing with a wicked problem.

Continue reading Is the end of one-child policy, beginning of a new experiment?

Are we better off living in California?

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It’s a question my wife & I have been debating since we moved to Chicago in January.

Of course, the weather is the primary trigger. Talking to our friends doesn’t help either. Folks living in bay area continue to boast about the near 70 F temperatures. Each call typically starts with a mention of the cold temperatures in Chicago. And at the end of each call, we dream of living in a warmer place.

But when we start talking about happiness, there is an interesting pattern to most conversations. Whether it is the high cost of living or the lack of public transport, it seems the favorable weather conditions in California are balanced out by other factors. So in terms of overall life satisfaction, we are not very far off from our friends. In fact, we are probably as satisfied.

This raises the question: will we be more satisfied if we move?

Turns out, the question has been researched already. In this paper, Kahneman and Schkade refer to a research they conducted with students in Midwestern and Southern California universities. Students were asked to give a satisfaction rating to life overall as well as to certain aspects of life. Each student provided a satisfaction score for themselves or someone similar to themselves in both the regions. The data was analyzed for both self and other conditions.

Both groups of students rated that the Californians are likely to be more satisfied than Midwesterners. Satisfaction with climate tend to account for this high score. However, their own overall life satisfaction score was almost the same. And it gets even more interesting. Climate-related aspects were rated as more important for someone living in another region than for someone in one’s own region. In essence, a midwesterner believed that climate has a small part to play for her own life satisfaction but a larger part for someone living in California. Similarly, a Californian believed that the relatively warmer climate has a smaller significance for her life satisfaction but much higher significance (likely negative) for someone living in the midwest area.

How do we explain this discrepancy? The scientists believe that this is largely due to the effect of Focusing Illusion. When a judgement of a category (life satisfaction in Midwest vs California) is made by focusing on a subset of that category (life satisfaction due to climate conditions), we tend to overweigh the subset’s relative value to any other subset. In other words, we tend to ignore other aspects of life satisfaction such as job, travel, housing etc and end up deciding based on one single parameter. This is exactly what the students did and this is probably what my wife and I are doing.

In our case, we are conveniently ignoring the geographic location of Chicago that makes it far easier to travel within United States as compared to California. Something that can be very important for our consulting jobs.

Clearly, we should do a better job in evaluating this decision. Will this awareness of Focusing illusion help us do that? I don’t think so. I will probably rationalize my preference for California to the fact that I grew up in a tropical climate and still pursue the ambition to move. After all, this susceptibility to our evolutionary biases is what makes us human.