Gill Eapen's Blog, page 91

Bane

An ex.CEO, admired by intellectuals and commoners alike, once remarked that budgets are the bane of corporate America. However, he left no sign of such insight in the shadow of the company he left behind, as the company still employs hundreds to forecast demand, to create budgets, to measure variances and to punish managers who come over and under. Most people grasp the idea that a company that provides "budgets" to various departments at the beginning of the year and measures performance by ...

Outsourcing and bailouts

Economists have been teaching the idea of comparative advantage -  it is better for a country to specialize in what they are good at and trade with others for the rest. This simple and elegant idea has been true all through history. As the meaning we attach to countries decline with borders opening up and immigration increasing, it is important to remember that comparative advantage is actually applicable to companies and individuals as well.  Although at the individual level, this has been f...

Infinity

Infinity has been an alluring topic for mathematicians and many scientists of various persuasions.  Ever since the Indians concocted zero to represent "nothing," it was mathematically inevitable to take the inverse of it - regardless of the treacherous discontinuities that kept propping up in equations.  Infinity is a fanciful notion, one that is mathematically elegant and intellectually incomprehensible that kept the midnight oil burning in academic institutions worldwide. This beautiful...

Rational nature, irrational brain

Humans, from inception, perceived nature as irrational as they found many things that cannot be immediately explained. Since finding an explanation is infinitely more cumbersome than assuming irrationality, the later course is always dominant in human thoughts and actions. Although such an irrational course may have had beneficial effects on the development of human brain by stimulating imagination that eventually led us to art and music, it also took us down many blind alleys including...

Value of space missions

Economic value is a function of costs, timelines, risks and benefits. The same principle is applicable for space missions and other extra terrestrial projects. Currently, selection and design of space missions are largely based on technical arguments. It may be better to approach it from an economic value perspective. This is important for both government and private entities attempting to maximize the value of the projects in their portfolios. A space mission has an economic value as it is e...

Technology convergence

Technology convergence - a fashionable term used to describe the merging of differing technologies for similar purposes - is increasing at a rapid rate.  It has been used to describe fairly mundane and obvious areas such as telecommunications and computing, where devices from either arena is beginning to encroach into the other in a major way.  What is less obvious however is the convergence of technology and human. Some have focused on robotics and the use of technology to enhance the human ...

Finance quality

Unlike other scientific disciplines, such as engineering and medicine, the finance profession does not have any education based quality gates. The focus has been on regulating the activities of financial professionals for obvious reasons. Although this is needed as a tactical measure, the primary cause of troubles in the financial arena is the lack of education based quality gates. Nearly anybody can hang a shingle and initiate an advisory services, investment banking, private equity...

Price of missing information

Financial assets (such as stocks) and real assets (such as real estate) are valued based on available information to the evaluator.  There are only two factors that help in the assessment of value - the available information and the valuation process deployed by the evaluator. In a networked world of low information friction, all known information is available to any evaluator. Thus, one has to assume that the variability seen in the valuations conducted by random evaluators is driven only...

Precisely wrong

If the prospects of a technology, product or company are fully predictable, one can derive a cash flow stream (positive or negative) associated with it.  In this case, an economic value can be imputed to this cash flow. Most of corporate finance today is practiced based on this notion - i.e forecast the cash flow and impute a value by discounting it. Most do not also care about what this discount rate should be and this is another major issue.

Assuming that one can calculate an appropriate d...

Ideology debates

Contemporary policy debates, healthcare included, are anything but debates. Debates are highly efficient mechanisms to explore alternatives and find better outcomes. Asserting political ideologies, as if they are absolutes, is not debating but grand standing. Objecting to anything the counter party proposes with an emphatic "NO" is not debating, it is preventing progress. Proclaiming policy choices as obvious and simple is not debating, it is revealing ignorance.

Better policies are...