Category Archives: Topical

Includes posts on physics, philosophy, sciences, quantitative finance, economics, environment etc.

Philosophy, Physics, Science

Seeing and Believing

When we open our eyes and look at some thing, we see that damn thing. What could be more obvious than that, right? Let’s say you are looking at your dog. What you see is really your dog, because, if you want, you can reach out and touch it. It barks, and you can hear the woof. If it stinks a bit, you can smell it. All these extra perceptual clues corroborate your belief that what you are seeing is your dog. Directly. No questions asked.

Of course, my job on this blog is to ask questions, and cast doubts. First of all, seeing and touching seem to be a bit different from hearing and smelling. You don’t strictly hear your dog bark, you hear its sound. Similarly, you don’t smell it directly, you smell the odor, the chemical trail the dog has left in the air. Hearing and smelling are three place perceptions — the dog generates sound/odor, the sound/odor travels to you, you perceive the sound/odor.

But seeing (or touching) is a two place thing — the dog there, and you here perceiving it directly. Why is that? Why do we feel that when we see or touch something, we sense it directly? This belief in the perceptual veracity of what we see is called naive realism. We of course know that seeing involves light (so does touching, but in a much more complicated way), what we are seeing is the light reflected off an object and so on. It is, in fact, no different from hearing something. But this knowledge of the mechanism of seeing doesn’t alter our natural, commonsense view that what we see is what is out there. Seeing is believing.

Extrapolated from the naive version is the scientific realism, which asserts that our scientific concepts are also real, eventhough we may not directly perceive them. So atoms are real. Electrons are real. Quarks are real. Most of our better scientists out there have been skeptical about this extraploation to our notion of what is real. Einstein, probably the best of them, suspected that even space and time might not be real. Feynman and Gell-Mann, after developing theories on electrons and quarks, expressed their view that electrons and quarks might be mathematical constructs rather than real entities.

What I am inviting you to do here is to go beyond the skepticism of Feynman and Gell-Mann, and delve into Einstein’s words — space and time are modes by which we think, not conditions in which we live. The sense of space is so real to us that we think of everything else as interactions taking place in the arena of space (and time). But space itself is the experience corresponding to the electrical signals generated by the light hitting your retina. It is a perceptual construct, much like the tonality of the sound you hear when air pressure waves hit your ear drums. Our adoption of naive realism results in our complete trust in the three dimensional space view. And since the world is created (in our brain as perceptual constructs) based on light, its speed becomes an all important constant in our world. And since speed mixes space and time, a better description is found in a four dimensional Minkowski geometry. But all these descriptions are based on perceptual experiences and therefore unreal in some sense.

I know the description above is highly circular — I talked about space being a mental construct created by light traveling through, get this, space. And when I speak of its speed, naturally, I’m talking about distance in space divided by time, and positing as the basis for the space-time mixing. This circularity makes my description less than clear and convincing. But the difficulty goes deeper than that. You see, all we have is this cognitive construct of space and time. We can describe objects and events only in terms of these constructs even when we know that they are only cognitive representations of sensory signals. Our language doesn’t go beyond that. Well, it does, but then we will be talking the language, for instance, of Advaita, calling the constructs Maya and the causes behind them Brahman, which stays unknowable. Or, we will be using some other parallel descriptions. These descriptions may be profound, wise and accurate. But ultimately, they are also useless.

But if philosophy is your thing, the discussions of cognitive constructs and unknown causations are not at all useless. Philosophy of physics happens to be my thing, and so I ask myself — what if I assume the unknown physical causes exist in a world similar to our perceptual construct? I could then propagate the causes through the process of perception and figure out what the construct should look like. I know, it sounds a bit complex, but it is something that we do all the time. We know, for instance, that the stars that we see in the night sky are not really there — we are seeing them the way they were a few (or a few million or billion) years ago because the light from them takes a long time to reach us. Physicists also know that the perceived motion of celestial objects also need to be corrected for these light-travel-time effects.

In fact, Einstein used the light travel time effects as the basis for deriving his special theory of relativity. He then stipulated that space and time behave the way we perceive them, derived using the said light-travel-time effects. This, of course, is based on his deep understanding that space and time are “the modes by which we think,” but also based on the assumption that the the causes behind the modes also are similar to the modes themselves. This depth of thinking is lost on the lesser scientists that came after him. The distinction between the modes of thinking and their causation is also lost, so that space and time have become entities that obey strange rules. Like bent spoons.

Photo by General Press1

Life and Death, Topical

Why did Federer Lose?

I am a Federer fan. His inevitable decline has been a source of grief for me. When it comes to shot selection, imagination and pure magical talent, there isn’t another tennis player who could ever hold a candle to him. Why did he have to go and lose in the second round of Wimbledon? It damn near broke my heart.

Roger FedererOk, we all know the answer. He is getting too old. But he is only 31, and has to be in terrific shape. I am pushing fifty and can still put in a couple of hours of vigorous badminton. Sure, weekend badminton is no world class tennis, and the effects of aging are very different. Still…, I wish he would stick around a bit longer.

A few months ago, I listened to a series of interesting lectures on the effects of aging on our perception and sensory processes. One thing new that I learned there was that we all have a sixth sense, in addition to sight, hearing, touch, taste and smell. It is the kinesthetic, muscle feedback, which is the sense that allows you to apply just the right amount of pressure, for instance, when braking your car, or holding a baby. You may lose this sense when you get angry and break the glass you are holding, if we are to believe Hollywood movies. In certain games, this sense can make an enormous difference. I had a friend who was a pool shark. He once told me that at the top of his game, he could feel the tiny nicks and scratches on the cue ball through the cue stick in his hand. When I knew him, he was well past his prime, but he could still call shots like bank off the point of the side pocket, and double kiss into the corner pocket. And make them. So I believe him and Eddie Felson (The Hustler) when he says the cue stick, when he holds it, has nerves. I bet Federer could feel the seams of the tennis ball and the amount of spin he was putting on them through the strings and the grip of his racket.

Age blunts the sharpness of all of your senses. The most obvious is your sight. In your forties, you have to hold your smart phone farther and farther away from your face to read the tiny screen. At some point, your hand is not long enough and you end up using reading glasses — reluctantly at first, but more readily as the years roll by and the images get blurrier. Apparently you lose your sensitivity to high pitched sound as well. So teenagers can download ringtones that their parents and teachers are deaf to. But the first sense to go is the muscle feedback, which begins to decline in your teens. This, apparently, is the reason why the Olympic gymnasts are all teenagers. By the time they are in their twenties, this sense of theirs is already too weak to keep them competitive at that level. I guess it is this sense that has deserted Roger Federer as well.

Frederer’s brand of tennis with its finesse and artistry demanded more of this sense. His opponents tend to hit flatter and harder. I read somewhere that they use stiffer rackets for this purpose, and can hold Federer behind the baseline. The champion stubbornly refuses to switch to this style and this kind of rackets. May be he is getting a bit too old. Reminds me of Bjorn Borg, when he attempted a mini come-back with his wooden racket.

Books, Corporate Life, Quantitative Finance

Trade Inception

The inception events of a trade can be classified into two categories. The pre-trade activities are those that have to take place even before the first trade is booked. The per-trade inception activities are the ones specific to each trade.

Pre-trade activities

The pre-trade activities are related to new product on-boarding and approval. As we saw, in-house trading platforms are designed to be nimble and responsive. In principle, it should take little time for a new product to be on-boarded. The last system I worked on, for instance, was designed to deploy a new product idea in a matter of minutes. But the architects of such systems tend to forget the human, process-related and control elements involved in it. As the slide above illustrates, a new product idea or a new pricing model originates from the work of a model quant or a structurer in Front Office. But before it gets anywhere near a production system, the pricing model needs to be validated, typically by the analytics team in the Middle Office risk management group. Once validated, the product goes through a tortuous approval process that may take weeks or months, and then a formal deployment process, which may again take weeks or months. When that process is completed, the product is available for trading in the trading platform.

Once available, the product can be instantiated as a trade. Each trade instance goes through its own validation and approval process. The trade request may originate from the sales or structuring team in Front Office. They will also prepare the term sheet and other legal documents. Once these tasks are completed, a trade is booked into the trading platform.

Per-trade process

These inception events are depicted in the second slide above. One of the crucial steps in the approval process is the credit control. As we described earlier, the credit risk management team uses a variety of tools to assess the risks involved. With their approval, and with the traders understanding of the market price of the product, a product available in the trading platform becomes a trade in the database. And the lifecycling fun begins.

Humor, Parenting, Philosophy, Physics, Work and Life

Deferred Satisfaction

The mother was getting annoyed that her teenaged son was wasting time watching TV.
“Son, don’t waste your time watching TV. You should be studying,” she advised.
“Why?” quipped the son, as teenagers usually do.
“Well, if you study hard, you will get good grades.”
“Yeah, so?”
“Then, you can get into a good school.”
“Why should I?”
“That way, you can hope to get a good job.”
“Why? What do I want with a good job?”
“Well, you can make a lot of money that way.”
“Why do I want money?”
“If you have enough money, you can sit back and relax. Watch TV whenever you want to.”
“Well, I’m doing it right now!”

What the mother is advocating, of course, is the wise principle of deferred satisfaction. It doesn’t matter if you have to do something slightly unpleasant now, as long as you get rewarded for it later in life. This principle is so much a part of our moral fabric that we take it for granted, never questioning its wisdom. Because of our trust in it, we obediently take bitter medicines when we fall sick, knowing that we will feel better later on. We silently submit ourselves to jabs, root-canals, colonoscopies and other atrocities done to our persons because we have learned to tolerate unpleasantnesses in anticipation of future rewards. We even work like a dog at jobs so loathesome that they really have to pay us a pretty penny to stick it out.

Before I discredit myself, let me make it very clear that I do believe in the wisdom of deferred satisfaction. I just want to take a closer look because my belief, or the belief of seven billion people for that matter, is still no proof of the logical rightness of any principle.

The way we lead our lives these days is based on what they call hedonism. I know that the word has a negative connotation, but that is not the sense in which I am using it here. Hedonism is the principle that any decision we take in life is based on how much pain and pleasure it is going to create. If there is an excess of pleasure over pain, then it is the right decision. Although we are not considering it, the case where the recipients of the pain and pleasure are distinct individuals, nobility or selfishness is involved in the decision. So the aim of a good life is to maximize this excess of pleasure over pain. Viewed in this context, the principle of delayed satisfaction makes sense — it is one good strategy to maximize the excess.

But we have to be careful about how much to delay the satisfaction. Clearly, if we wait for too long, all the satisfaction credit we accumulate will go wasted because we may die before we have a chance to draw upon it. This realization may be behind the mantra “live in the present moment.”

Where hedonism falls short is in the fact that it fails to consider the quality of the pleasure. That is where it gets its bad connotation from. For instance, a ponzi scheme master like Madoff probably made the right decisions because they enjoyed long periods of luxurious opulence at the cost of a relatively short durations of pain in prison.

What is needed, perhaps, is another measure of the rightness of our choices. I think it is in the intrinsic quality of the choice itself. We do something because we know that it is good.

I am, of course, touching upon the vast branch of philosophy they call ethics. It is not possible to summarize it in a couple of blog posts. Nor am I qualified enough to do so. Michael Sandel, on the other hand, is eminently qualified, and you should check out his online course Justice: What is the Right Thing to Do? if interested. I just want to share my thought that there is something like the intrinsic quality of a way of life, or of choices and decisions. We all know it because it comes before our intellectual analysis. We do the right thing not so much because it gives us an excess of pleasure over pain, but we know what the right thing is and have an innate need to do it.

That, at least, is the theory. But, of late, I’m beginning to wonder whether the whole right-wrong, good-evil distinction is an elaborate ruse to keep some simple-minded folks in check, while the smarter ones keep enjoying totally hedonistic (using it with all the pejorative connotation now) pleasures of life. Why should I be good while the rest of them seem to be reveling in wall-to-wall fun? Is it my decaying internal quality talking, or am I just getting a bit smarter? I think what is confusing me, and probably you as well, is the small distance between pleasure and happiness. Doing the right thing results in happiness. Eating a good lunch results in pleasure. When Richard Feynman wrote about The Pleasure of Finding Things Out, he was probably talking about happiness. When I read that book, what I’m experiencing is probably closer to mere pleasure. Watching TV is probably pleasure. Writing this post, on the other hand, is probably closer to happiness. At least, I hope so.

To come back my little story above, what could the mother say to her TV-watching son to impress upon him the wisdom of deferred satisfaction? Well, just about the only thing I can think of is the argument from hedonism saying that if the son wastes his time now watching TV, there is a very real possibility that he may not be able to afford a TV later on in life. Perhaps intrinsically good parents won’t let their children grow up into a TV-less adulthood. I suspect I would, because I believe in the intrinsic goodness of taking responsibility for one’s actions and consequences. Does that make me a bad parent? Is it the right thing to do? Need we ask anyone to tell us these things?

Books, Corporate Life, Quantitative Finance

Life of a Trade

With the last post, we have reached the end of the second section on the static structure of the bank involved in trading activities. But a trade by itself is a dynamic entity. In this third section, we will look at the evolution of a trade, and see how it flows back and forth between the various business units we described in the last section. We will make the this section and the next into a new series of posts because the first series (on How Does a Bank Work?) has become a bit too long.

Back Office and Finance

As with most dynamic entities, trades also have the three lifecycle stages of inception, existence and termination. What we need to understand clearly is what the processes are around these general stages. What are the business units involved at each of these stages? What do they do? And how do they do it?

Trade lifecycle

We will see that from our perspective, the lifecycle interactions are all mediated by the trading platform. It is not so much because everything is contained within the trading platform, but because we are interested only in that limited set of processes that are. In some sense, the last section was about the physical, spatial description of the bank, and this section is going to be on the temporal evolution and dynamics of how things work on that structure.

Books, Corporate Life, Quantitative Finance

Summary – Structure of a Bank

We have now completed our discussion on the general structure of a typical investment bank trading arm. We went through the Front-Middle-Back Office divisions and the functional and business units contained within. Note that we looked only at those units that have a bearing on trading and quantitative development activities. Note also that this structure is fluid and may be implemented with different names and hierarchies in different banks depending on their corporate strategies and focus. We presented the trading platform as the enabler or backdrop of most of these activities of the global treasury (where exotics trading activities take place) and the associated business units (that handle various aspects of the trade workflow) mainly because we are looking at the whole thing from the quantitative development perspective.

Back Office and Finance

From this perspective, you see the trading platform as the most important tool (or collection of tools) in the bank. It mediates almost all the interactions among the various business units. Furthermore, as we shall see in future posts, the trading platform defines the trade workflow and lifecycle management. Therefore, it will also become important for the quantitative developers to understand how these business units view trades and the trade booking and management process. Their trade perspectives will have to influence the design of the trading platform.

Books, Corporate Life, Quantitative Finance

Back Office, Finance et al

From the quant and quantitative development perspective, Back Office is a distant entity. Their role is vital in the trade lifecycle, as we shall see later, but they are outside the sphere of influence of the quants and developers.

Back Office and Finance

Back Office concerns itself mainly with trade settlements and accounting. Upon maturity, each trade generates a settlement trigger usually with the help of a vended trading or settlement platform, which will be picked up and acted upon by the Back Office professionals. They also take care of cash and collateral management.

Finance functions are closely related to Back Office operations. Among a host of accounting related operations, they have one critically important task, which is to produce annual reports. These reports get publicly scrutinized and determine everything from the stock price to performance bonuses, salary levels etc. Finance professionals may require quant and analytic help for certain tasks. In one of my previous roles, I was asked to estimate the fair market value of the employee stock options (ESOP) for the purpose of accounting for them in the annual reports.

The process of pricing ESOP is similar to (although a bit more complicated than) normal call option pricing. Among other things, you need the volatility of the underlying stock in order to calculate the price. I used the standard exponentially weighted moving average method to estimate it from the published stock prices over the previous two years or so to compute it because that was all the data I had access to. Before that time, there was some corporate action and stock ticker name had changed (or did not exist, I don’t remember which). In any case, I knew that the impact of adding more data prior to that date would be negligible because of the exponentially diminishing weights; it would be much less that the round off error in quoting the price to four decimal places, for instance. But the accountant who was asked to look at the computation was upset. She came to me with her rulebook and referred me to page 57, paragraph 2, where it was specified that I was supposed to use ten years for the EWMA computation. I tried, in vain, to explain to her that I couldn’t. She kept saying, “Yeah, but page 57, para 2….” I went on to explain why it didn’t really make any difference. She said, “Yeah, but page 57, para 2….”

Accountants and Finance professionals can be that way. They can be a bit “technical” about such things. In hindsight, I guess I was being naive. I could have just used a series of zeros to back-populate the missing eight years of data (after all, if the ticker price was not quoted, it is zero), and redone my ESOP valuation, which would have given an ESOP price identical to what I computed earlier, but this time satisfying both Finance and the quants.

IT and other support

A team which quantitative developers work closely with is Information Technology. They are charged with the IT infrastructure, security, networking, procurement, licensing and everything else related to computing. In fact, quantitative development is, as I portrayed it earlier, a middle layer between IT and pure mathematical work. So it is possible for quantitative developers to find themselves under the IT hierarchy, although it doesn’t work to their advantage. Information Technology is a cost center, as are all other Middle and Back Office functions, while Front Office units connected to trading are profit centers. Profit generators get compensated far better than others, and it is better to be associated with them than IT.

Corporate Life, Philosophy, Physics, Quantitative Finance

My Life, My Way

After almost eight years in banking, I have finally called it quits. Over the last three of those years, I had been telling people that I was leaving. And I think people had stopped taking me seriously. My wife certainly did, and it came as a major shock to her. But despite her studied opposition, I managed to pull it off. In fact, it is not just banking that I left, I have actually retired. Most of my friends greeted the news of my retirement with a mixture of envy and disbelief. The power to surprise — it is nice to still have that power.

Why is it a surprise really? Why would anyone think that it is insane to walk away from a career like mine? Insanity is in doing the same thing over and over and expecting different results. Millions of people do the same insanely crummy stuff over and over, everyone of them wanting nothing more than to stop doing it, even planning on it only to postpone their plans for one silly reason or another. I guess the force of habit in doing the crummy stuff is greater than the fear of change. There is a gulf between what people say their plans are and what they end up doing, which is the theme of that disturbing movie Revolutionary Road. This gulf is extremely narrow in my case. I set out with a bunch of small targets — to help a few people, to make a modest fortune, to provide reasonable comfort and security to those near. I have achieved them, and now it is time to stop. The trouble with all such targets is that once you get close to them, they look mundane, and nothing is ever enough for most people. Not for me though — I have always been reckless enough to stick to my plans.

One of the early instances of such a reckless action came during my undergraduate years at IIT Madras. I was pretty smart academically, especially in physics. But I wasn’t too good in remembering details like the names of theorems. Once, this eccentric professor of mine at IIT asked me the name of a particular theorem relating the line integral of the electric field around a point and the charge contained within. I think the answer was Green’s theorem, while its 3-D equivalent (surface integral) is called Gauss’s theorem or something. (Sorry, my Wikipedia and Google searches didn’t bring up anything definitive on that.) I answered Gauss’s theorem. The professor looked at me for a long moment with contempt in his eyes and said (in Tamil) something like I needed to get a beating with his slippers. I still remember standing there in my Khakki workshop attire and listening to him, with my face burning with shame and impotent anger. And, although physics was my favorite subject (my first love, in fact, as I keep saying, mostly to annoy my wife), I didn’t go back to any of his lectures after that. I guess even at that young age, I had this disturbing level of recklessness in me. I now know why. It’s is the ingrained conviction that nothing really matters. Nothing ever did, as Meursault the Stranger points out in his last bout of eloquence.

I left banking for a variety of reasons; remuneration wasn’t one of them, but recklessness perhaps was. I had some philosophical misgivings about the rightness of what I was doing at a bank. I suffered from a troubled conscience. Philosophical reasons are strange beasts — they lead to concrete actions, often disturbing ones. Albert Camus (in his collection The Myth of Sisyphus) warned of it while talking about the absurdity of life. Robert Pirsig in his epilog to Zen and the Art of Motorcycle Maintenance also talked about when such musings became psychiatrically dangerous. Michael Sandel is another wise man who, in his famous lectures on Justice: What is the Right Thing to Do? pointed out that philosophy could often color your perspective permanently — you cannot unlearn it to go back, you cannot unthink a thought to become normal again.

Philosophy and recklessness aside, the other primary reason for leaving the job was boredom. The job got so colossally boring. Looking out my window at the traffic 13 floors below was infinitely more rewarding than looking at the work on my three computer screens. And so I spent half my time staring out the window. Of course, my performance dwindled as a result. I guess scuttling the performance is the only way to realistically make oneself leave a high-paying job. There are times when you have have to burn the bridges behind you. Looking back at it now, I cannot really understand why I was so bored. I was a quantitative developer and the job involved developing reports and tools. Coding is what I do for fun at home. That and writing, of course. May be the boredom came from the fact that there was no serious intellectual content in it. There was none in the tasks, nor in the company of the throngs of ambitious colleagues. Walking into the workplace every morning, looking at all the highly paid people walking around with impressive demeanors of doing something important, I used to feel almost sad. How important could their bean-counting ever be?

Then again, how important could this blogging be? We get back to Meursault’s tirade – rien n’avait d’importance. Perhaps I was wrong to have thrown it away, as all of them keep telling me. Perhaps those important-looking colleagues were really important, and I was the one in the wrong to have retired. That also matters little; that also has little importance, as Meursault and my alter ego would see it.

What next is the question that keeps coming up. I am tempted to give the same tongue-in-cheek answer as Larry Darrell in The Razor’s Edge — Loaf! My kind of loafing would involve a lot of thinking, a lot of studying, and hard work. There is so much to know, and so little time left to learn.

Photo by kenteegardin

Books, Corporate Life, Quantitative Finance, Uncategorized

Rates and Valuation

Marking trades to market requires up-to-date market data. There are two types of market data required for pricing — one is the live spot rates, volatilities, interest rates etc. This type of data is collectively called rates. The second type is the kind that goes into defining the products being traded, or the characteristics of the rates. These include definitions of interest rate pillars, bond coupon dates and rates etc. This second type is considered static data.

Valuation and Product Control

The rates management team is in charge of the first type data. They ensure that the live data providers are consistent with each other and that the data itself is accurate. They do this by applying various automated tests and limits to the incoming rates to flag any suspicious movement or inconsistency. Once approved by the team, the data gets consumed by the trading platform. The rates management is a critical role, and the market data is often stored and served in dedicated databases and services. Because of the technicalities involved, this team works closely with the information technology professionals.

The static data is typically managed by a separate team independent of rates management. They go by various names, Treasury Control being one of them. They set up traded products and rates pillars and so on. In some banks, they may also be responsible for trade input data validation.

Two other important functions of Middle Office are valuation and product controls. These functions are pretty far removed from quantitative development and trading platform. These teams ensure that the trade valuations and P/L movements are consistent with market movements. Valuation Control takes a close look at pricing and P/L mostly at trade level while Product Control worries about P/L explanation typically at portfolio level. Since we have the Greeks (rates of change of product prices with respect to market quantities and time), we can compute and predict the change in the prices (or P/L movements) using Taylor series expansion. If the independently computed prices (using actual market rates) are at odds with the predicted ones, it points to an internal inconsistency and should trigger a detailed investigation.

Product Control may also help Finance and Human Resource with valuation reserves process, which estimates the level of exaggeration in the profit expectations of ebullient traders. Since traders’ compensation is tied to the profit they generate, this process of assigning reserves against profit is essential in ensuring equitable performance rewards.

Corporate Life, Life and Death, Philosophy, Work and Life

Rules of Conflicts

In this last post in the rules of the game series, we look at the creative use of the rules in a couple of situations. Rules can be used to create productive and predictable conflicts. One such conflict is in law enforcement, where cops hate defense attorneys — if we are to believe Michael Connelly’s depiction of how things work at LAPD. It is not as if they are really working against each other, although it may look that way. Both of them are working toward implementing a set of rules that will lead to justice for all, while avoiding power concentration and corruption. The best way of doing it happens to be by creating a perpetual conflict, which also happens to be fodder for Connelly’s work.

Another conflict of this kind can be seen in a bank, between the risk taking arm (traders in the front office) and the risk controlling teams (market and credit risk managers in the middle office). The incessant strife between them, in fact, ends up implementing the risk appetite of the bank as decided by the senior management. When the conflict is missing, problems can arise. For a trader, performance is quantified in terms of the profit (and to a lesser degree, its volatility) generated by him. This scheme seems to align the trader’s interests with those of the bank, thus generating a positive feedback loop. As any electrical engineer will tell you, positive feedback leads to instability, while negative feedback (conflict driven modes) leads to stable configurations. The positive feedback results in rogue traders engaging in huge unauthorized trades leading to enormous damages or actual collapses like the Bearings bank in 1995.

We can find other instances of reinforcing feedback generating explosive situations in upper management of large corporates. The high level managers, being board members in multiple corporate entities, keep supporting each other’s insane salary expectations, thus creating an unhealthy positive feedback. If the shareholders, on the other hand, decided the salary packages, their own self-interest of minimizing expenses and increasing the dividend (and the implicit conflict) would have generated a more moderate equilibrium.

The rule of conflict is at work at much larger scales as well. In a democracy, political parties often assume conflicting world views and agendas. Their conflict, ratified through the electoral process, ends up reflecting the median popular view, which is the way it should be. It is when their conflicting views become so hopelessly polarized (as they seem to be in the US politics these days) that we need to worry. Even more of a worry would be when one side of the conflict disappears or gets so thoroughly beaten. In an earlier post, I lamented about just that kind of one-sidedness in the idealogical struggle between capitalism and socialism.

Conflicts are not limited to such large settings or to our corporate life and detective stories. The most common conflict is in the work-life balance that all of us struggle with. The issue is simple — we need to work to make a living, and work harder and longer to make a better living. In order to give the best to our loved ones, we put so much into our work that we end up sacrificing our time with the very loved ones we are supposedly working for. Of course, there is a bit of hypocrisy when most workaholics choose work over life — they do it, not so much for their loved ones, but for a glorification, a justification or a validation of their existence. It is an unknown and unseen angst that is driving them. Getting the elusive work-live conflict right often necessitates an appreciation of that angst, and unconventional choices. At times, in order to win, you have to break the rules of the game.