14.6.12

Stupidity

Yes, I am stupid, and I am sorry to say, we are all stupid. Warren Buffett is stupid, Bill gates is stupid, Barack Obama (obviously) is stupid, late Steve Job is stupid, all of us are stupid. We are probably as stupid as animals.

Yes I know at this point 99 percent of the reader will close this page and start wondering just how stupid the author of this article is claiming these great figures are stupid.

So for the 1 percent that keep reading, allow me to explain. Theories of microeconomic and general equilibrium mention that market failure occur on various sources such as externalities, imperfect information, existence of free riders etc. That means human is deemed rational and only make irrational decision when influenced by negative (or positive) external forces, disrupting the market forces from working its magic of creating point of equilibrium. Even the school of Keynesian agrees that government is needed on the basic of imperfect information. Suppose if information is perfect, with the existence of rational expectation, everyone should be able to make wise and correct decision every time currently and in the future.

However, is that true? Are we capable of obtaining perfect information? Are we interested in getting perfect information? More importantly, if we have perfect information, are we able (and want) to make correct decision?

I do not think so. That's the reason I claim all of us are stupid. For me, people that do not want to get perfect information or cannot make correct decision even with perfect information or know the correct decision yet still want to choose another option are called stupid person.

Now how many of us can claim that we try our best to obtain perfect information in the process of decision making? How many of us can claim that we can make correct decision if we are presented with perfect information? How many of us can claim that we always able to choose the correct option if we know its the correct decision?

The answer: very few.

Let me give you a few examples: in the decision of choosing toothpaste, have you read the label on the toothpaste box? Have you googled the ingredients of the toothpaste? Do you know the differences between various toothpaste besides the packaging? What is the special ingredients in certain toothpaste suitable for sensitive gum?

If most of your answers are NO, then you are stupid.

Another example: All of us know that eating healthily is good for us. We know by eating healthily, we will be able to enjoy our daily life better, we will have more energy in daily activities, we will have better mental strength, thus make us better in most situation in work etc. However, how many of us really maintain healthy eating diet?

Wait!!!!!!! You may say I ignore the concept of utility. Utility of eating delicious (and unhealthy) food may overwhelm the healthy life. I agree but how many of us really quantify the options and determine that? Often when we wanna have unhealthy food, we do not consider the option. We do not make wise decision as we consider eating junk food is the only option. We are not making decision, instead we are blindly selecting the option based on our random instinct.

That still is considered stupid.

Finally, fresh milk. We know almost everything about fresh milk. We know where it comes from, we know the ingredients of fresh milk, we know the taste and colour (lol.). So are we able to make correct decision based on these information? Are we using these information to select the best fresh milk? Or are we simple stick to the brand we always consume? Where are the correlation and causality between the availability of these information and our ability of decision making? How many of us use these information in improving our decision making?

That is stupidity.

For very few of us that try our best in obtaining perfect information legally, use the available information'
to help our decision making scientifically and select the best option with these information, well done, you are rational. You are not stupid.

7.6.12

Malaysia Firms Analysis

Just finished my task in analyzing several Malaysia firms in conjunction with my university and ministry of trade. The project aims at identifying the strengths and weaknesses among Malaysia firms from a different perspectives, from the perspective of an economist.

In short, besides all the irrational determination of costs and lack of skilled labours, I found 2 major problems exist in Malaysia firms.

1. Although the concept of fordism has long been regarded as outdated and not suitable with the dynamic competition of today, I found that this is still being practised in most firms that I observed. Fordism assembly line production causes 1 major problem: difficulty in identifying problem. Since all the works are routinely done, problems are ignored. This cause major disruption in the process of economic value added and more importantly, have spill over effect that will lead to several problems. When such condition arise, the root of these problems is hard to identify, thus making the problem solving process irrelevant. Although most firms are good in problem solving, they are not at all good in identifying problems.

2. This is a major problem for Malaysia not only for firms but government as well. The problem is the problem of cost and benefit projection. Most firms do not scientifically estimate the costs (including opportunity cost) and benefit of a project, making any project irrelevant and insignificant. Of course they may still end up with positive net benefit but the unsystematic risk involved should not be borne and can easily be eliminated. Furthermore, the importance of opportunity cost is often ignored, making the projection of costs and benefit irrelevant. The clearest example of this second problem is marketing project. One of the firms I observed was planning to have a marketing plan to increase their revenue. They planned to have their labours involve in local community service (similar to project "anak angkat"). They wished to have their labours becoming foster children of local elders, gaining their confidence in the firms and increase the value of their brand. However, no proper estimation was done before the project. After 2 months of implementation, the project ended with insignificant increase in revenue. However, the management of this firm concluded that although the project did not produce significant increase in revenue, but the costs involved is minimal and they were satisfied with the project.

I don't think I have to justify what is wrong with this firm and their project. It may sound foolish and we may think we will never do such thing but in reality, most firms and even government do this all the time. Presumption is so routinely practised we are used to it. Presumption such as "if I spend more time study I will earn better grade", "If I invest more in marketing I will get greater revenue" and "1+1=2 so I don't have to know why it works that way" etc.

Problem of identification of problems and problem of scientific projection of costs and benefit are all around firms in Malaysia. They do not think these are problems and they do not take proper action to solve them. They deserve to fail.