Breaking the Bias – Lessons from Bayesian Statistical Perspective

Equitable and fair institutions are the foundation of modern democracies. Bias, as referring to “inclination or prejudice against one person or group, especially in a way considered to be unfair” is naturally anathema to such ideals. Unfortunately, efforts to reduce impact of bias have been slow and difficult. This is because it is scientifically acknowledged that humans are innately inclined to bias. A significant share of those biases isn’t even known to persons who are supposed to hold them: hence called ‘unconscious bias’. It is also established in many scientific studies that members of a group which was supposed to be biased against also hold the same biases towards their own group (e.g., women being biased against women). So why is bias so inherent part of our biology?

Consider the early man in Savannah. He is suspicious of – as in, biased against – people who don’t look like him, bcause people who don’t look like him are usually from different tribes and people from different tribes are usually at war with his tribe. It’s s survival heuristic his brain has evolved. This is no different from other heuristics we are still encumbered with in the modern world which have roots in the early environment, such as ‘fat is tasty’, ‘sweet s edible’, etc. One way we can model bias is by borrowing from one of the canonical formulae in statistics: Bayes’ Law.

In English, and in the context of this discussion, this means that my magnitude of bias against a certain group, after observing an incident related to that group, is the output of multiplication of two numbers: what’s the magnitude of bias I held against that group before the incident (“prior”), and how directionally aligned that incident was to direction of bias (“evidence”). This change in magnitude of bias is called Bayesian update. In other words, if I was highly biased against the group, but recently observed an incident where a person/group behaved in the way opposite of what bias would have expected, then my bias against that group will reduce.

How can we leverage this Bayesian perspective to understand our fight against bias? One way focuses not on reducing bias, but on reducing the impact of bias: by reducing reliance on human decision making by better use of data; and by tracking the impact of bias on outcomes, and aiming for equity in outcomes by giving preferential treatments to protected groups. However, the majority of sociological and psychological methods of reducing bias typically focus on making people aware of biases, reiterating the need for reducing bias, and counting on the moral compass for people to behave differently (first two articles on the Google search). In Bayesian formulation, these efforts focus on reducing prior and are valid means to combat bias. Yet, prior is often formed in early childhood and adolescent experiences, and is heavily influenced by family, upbringing, and peer group. Hence, changing the prior when the employee joins the corporate workforce may be a tad too late.

However, little effort is done on exposing more favourable evidence. Occasionally there is a conversation to have biased people interact with people from the protected groups so that they realize that their biases are not fair. This largely occurs in a context where people are not just biased but actively antagonist to each other, but rarely in a corporate context. Nevertheless, the value of this in reducing bias cannot be underemphasized. Some ways evidence can be introduced in the workplace setting to counteract against prior is by designing teams and interactions which forces different people to interact with each other. Multiple repeated interactions will help move prior sufficiently to reduce bias over time. Reshuffling teams or seating to make them mix-gendered teams, for an instance, could achieve this outcome.

There is a different Bayes’ Law in mind of each person holding bias for each of the protected groups. While we talked about affecting prior and evidence, we shouldn’t forget the concept of ‘group’. Workplace efforts to reduce biases are competing from Bayesian update of bias from evidence/incidents from the external world as well, which makes this a challenging task. Hence reframing the group into smaller groups actively can also reduce bias, at least in the workplace setting. For instance, group of “women” can be reframed as group of “working women”. Generating positive evidence for working women can be easier in business settings – and will have less competition from the external world – and so will help in reducing bias faster, even as we may not be able to reduce bias against all women”. How to do that in practice? We will have to modify our language, word choices, and reframe the context. While this is not ideal – none of this really is – but we are working with what we can manage effectively, and hopefully eventually reach the ideal outcome in long term.

In the end, we must remember that tendency to be biased was a useful primordial heuristic, thus innate in human nature, and can only be reduced to the extent of the world we live in, but continuous focus on bettering prior, positive evidence, reduced level of human involvement in decision making, and reframing the group context will surely make a dent. It already has.

You are fired!

No other act has seen use of so many euphemism as corporate action of firing employee off. In quest to be as sweet as possible while doing the exact opposite, corporate HR should probably won some kind prize for coming up so many ways to not say what they want to. Not that I believe companies shouldn’t fire people, but it will be worth a bit honesty and ethics to not rub salt on it. Of course, honesty and ethics are kinds of things you wouldn’t associate with any big company anyway.

In the sprit of doublespeak, then, here is collection of what ‘you are fired’ may sound like:

assignment ended
assignment expired
best shoring
bought out
bounced out
career change opportunity
career transition
cashiered
contract not renewed
contracted out
decruitment
discharged
dismissed
down size
early retired
eased out
end of trial period
freed up for the future
going in different directions
headcount adjustment
headcount reduction
helped with exit
invited to be successful elsewhere
involuntary separation
laid off
let go
made available to industry
made redundant
make internal efficiencies
managed out
off shoring
optimized
outplaced
outsourced
personnel realignment
personnel surplus reduction
position has been eliminated
promoted to customer (retail workers)
pursue other opportunities
rationalize the workforce
reclined to extend
reduced headcount
reduction in force
re-engineered
regime change
released
released from the talent pool
relieved of duties
reorganized
re-prioritizing labor expenses
resource action
responsibilities have been reassigned
right size
separated
services no longer required
skill mix adjustment
smart size
stepped down
taking it for the team
terminated
unassigned
we really feel like we’re holding you back here
workforce efficiency initiative

Does market want experience?

Placement season is about to begin in management institutes across country. Currently, IIMs are undergoing what is called lateral placements i.e. placements for candidates with about two years or more of work experience. Later in March, institute will have final placements which will be open to all students with or without work experience.

Over years, management education has been gaining popularity among students in India and IIMs have been observing increasing intake with substantial work experience. Substantial in Indian context is about two or more years where prior work experience is not pre-requisite for admission into MBA colleges. Where such fraction was less than quarter mere 3-4 years ago, this number is above 50% in recent years and steadily going northward. Many colleges have explicitly stated giving more preference to professional experience in their admission formula and others are following suit. That’s what college want to improve learning experience though how far this objective is met with mere two years of work experience, that too in predominately IT related fields is open to debate.

But do companies want their MBA candidates to have prior work experience? If we go by number of companies who chose to come for lateral placements and range of salaries they offer to applying candidates, then answer is unambiguously no. Types of roles and profile offered are not different than those offered to fresh graduates and very few companies try to hire from lateral pool. It seems that market doesn’t care about prior work experience. One can contest that work experience is useful only if it is relevant and given types of opportunities which open after MBA (consulting, marketing, banking, general management), a software engineering background is not going to help much. Objection is justified though it means that despite push from education institutions to intake candidates with prior experience, best move from candidate’s point of view is to join MBA program directly after graduate degree.

AIDs and Recruitment

A sting camera operation by a TV channel in India exposed some companies’ unwillingness to hire people diagnosed with AIDS for full-time employment. A journalist sought, and was offered, job in BPO and Banking sector, until she revealed the secret. This is clearly issue of bias with legal, economical and moral implications. Let’s examine candidate’s and company’s point of view.

A candidate suffering HIV has right to seek any opportunity on fair ground under laws of the land. Not only will it be immoral to deny such opportunity, but it will also open Pandora’s box in terms of what can or cannot be denied (disabled, nearsighted, asthmatic, etc.). Clearly, setting these boundaries will verge on arbitrariness and can become ground for unfair action. A company hiring an AIDS employee knowingly incurs additional costs. We are assuming that narrow mindedness of colleagues is not an issue, or if it is, company is willing to fight it. Even then, an HIV positive employee potentially brings with himself added healthcare expenses (if there is company sponsored medical plan) and reduced performance due to frail health and more off days due to medical treatment.

Can company account for these factors by reduced salary or not sponsoring medical treatment? That would be considered unfair to employee. But looking from unemotional angle, it is possible that a candidate might just seek job to provide for cost-effective medical needs. From where I see it, I believe that outright refusal is immoral and inhuman, even if company incurs slightly more cost on that candidate. After all, such small differences do exist in workplace and are ignored, for when did your eating more in company cafeteria led to a deduction from your salary? However, to be fair to organization too, there can be clear cut rules discussed beforehand which will reduce exploitation of company by employee, and clearly stipulate at what stage of decease will employment terminate. Further, regular application of existing rules will take care of excessive sick days (unpaid) and productivity (performance review and bonus). Candidate should also accept these limitations and not play victimization card if above happens. It may happen, and is likely, that candidate is unwilling to accept above mentioned restriction and will sue company for discrimination, once offered a job. Alas, fear is these might lead to outright refusal to hire which is more defendable in court of law.

Not that this is happening here, there might be just plain discrimination, but attempt to not forgo anything by some often results in others forgoing everything as rules become more stringent and each party tries to covers its back.

Bailouts

That I am doing my MBA would warrant an intelligent commentary from me on economic recession. That I can do, or at least pretend to do by mixing up whatever I’ve read and heard, but I am a simple man. So only thing that occurs to my mind first when companies lobby for bailout packages is this: they didn’t share their profits with public when things were fine and now they want public to pick the tab when they are losing. Clearly, not ethical in my book. Thing is many governments across the world are actually giving out truck loads of money for this including US, UK, Germany and India. I mean, lobbying is fine and all, but somewhere some economist must think that that’s right thing to do. It perhaps is, though it just looks mean to me. Like what it says on this poster (click to enlarge and read all the way).

Association defines use

There is a game which involves calling out first word that comes to your mind when another word is uttered. Psychology tells us that these two pair form inherent association in our mind. A thing can do multiple things but is usually well known for one of things, which becomes its primary association. And if an object is associated with a particular use, that use becomes its prominent use and breaking the association becomes tough task.

People in developed world have interacted with mobile phones before people in developing world. At that time mobile was purely for wireless telephony purposes. Over time, mobile also started providing chatting, photography, videography, internet browsing and gaming services. Yet, for earlier adapters it is psychologically difficult to redefine association of mobile from with telephony to with other uses. On the other hand, users in developing countries who saw mobile along with all other features for the first time around found its association natural. That is one reason that early adapters still don’t use many value added features of mobile that new adapters use. They, and me, feel separate need of camera for pictures; computer for internet; and mobile for telephony. It is, of course, wrong to suggest that differences are rigid, yet it is true in general sense, and process of adoption of uses is slow in earlier users.

We see this in new generation familiar with computers from their birth. Ask me to write and expect me to pick up a pen and paper. Ask them to write and expect them to pick up their laptop. Technology has already changed meaning of familiar words and phrases. There was a time hard drive meant a long tiring drive by car and memory was thing you couldn’t buy in the market. To get people to redefine association, and hence enhance new innovating uses, is one of the most difficult job of marketer.

MBA or not

Not very often, but about once in a month I am asked questions concerning chances of admission to US universities, job opportunities, MBA requirement, and so on. One response I think was very comprehensive so I am putting here.

Question:

I am really perplexed about decision "Should I prepare for CAT or not", I mean I don't have enough fundaes about what MBA people do. So can you tell me what sort of mindset a person have to enjoy working in the sort of jobs which IIT-IIM people get. So can you help me decide what should I opt for.

Answer:

Your question is a perplexing one which can neither be easily answered nor it has any unique answer. I don't think MBA is an education any way comparable to engineering. It is too generalized to be any useful. If you combine this with the fact that many MBA students go for investment banking or consulting jobs then you will see that no knowledge of management education is required in any of these careers. Too put it bluntly, people do MBA just to make money, and companies hire MBA not because of education at MBA colleges but because of tough admission process in these colleges. Hence, what you do at, say, IIMA, is not important, what is important that you are at IIMA. If making money is lucrative option for you, combined with the fact that core engineering doesn't interest you very much, MBA is very much thing to do. Regarding mindset, what great managers do doesn't require MBA, but perhaps you will not even get a chance to show you mettle if you are not MBA. So degree has impression forming effect. That said, people do learn something in MBA. MBA graduates are generally considered very good at breaking problem into small parts and solving analytically, looking problem from overarching strategic angle, and speak high-funda sounding language.

Consultants and Investment Bankers

One of the top two destinations for MBA graduates is Consulting and Investment Banking jobs. Former because of high-class life style and later because of monstrous pay packages. Of course, side effects include hectic work and no social life. Something like here:



of Consultants — by Mahesh M

They sit all day starting at excel and making decks
Reimbursing everything from taxi fares and dinner cheques

Life isn't that rosy for these poor "brainy" souls
Most of their time is lost in lonely airport strolls

At the end of the day you are working for a client
Who invariably is frustrated and least bit pliant

Not to mention the last minute requests and delays
Endless calls and cynical mails adding to your disgrace

But life still goes on amidst all the irritation and pain
This is true wherever you are - be it Mck, BCG or Bain!

of Investment Bankers — by Shalabh G

I think you're being a little less than fair
When you speak only of frustration and despair

Excel and Power Point may be the consultant's bread and butter
But they're not so bad when the alternatives you consider
Bloomberg terminals, sandwich at the desk, coffee gone cold at the side
More money true, but where's variety - the spice of life?

Consultants work for clients, sometimes pliable, often obtuse
But there's fulfillment in putting his money to better use
Even if it's wining and dining at the client's expense
It's improving your productivity, isn't it? It makes sense!

Travel's the part most people find most hard
But then you soon become the proud holder of a Platinum Card
And if you have a Significant Other to take with you
You could plan a nice free trip or two!

It's possible what I think turns out to be far from true
I must therefore admit my days in consulting have been few
All the same I think there's much to look forward to
I hope it's not a decision I come to rue!

Arbitraging shampoos

One of the key tenets of finance is that there cannot be instantaneous profit without risk (in legal fair way, of course). If that were to happen, then people will make profit and prices will adjust to eliminate the difference. The problem is that in regulated market government may forcefully distort prices to serve public interest which in turns results in arbitraging (certain instant profit) opportunities and loss of revenue to government.

Idea on this arise from an observation that 8ml sachet of Clinic Plus shampoo sells for Rs 1. while 100ml bottle for the same sells for Rs 40. Clearly for some reason company sells lower volume at lower unit price, contrary to general rule of bulkier and cheaper. Even after taking into account the shampoo wastage due to storing open sachet, sachets are cheaper. One view is that price war at lower end is driving prices down to introduce poor consumers to new product. Others say that difference is nothing more than cost saving in packaging passed on to the consumer. In either case, it is possible for a middle or upper class family to buy small packing in bulk thereby saving money, without being a target market for sachets. Further, loss from spillage and excessive use is prevented by sachet use. So, what stops market from completely switching to sachets only?

One is perhaps unawareness of the price difference. Another is usability issue with sachets. Third is simply indifference of higher end consumer on price savings (self price discrimination). Finally, prestige/image associated with use of sachets prohibit some from switching.

Islamic finance: loophole in faith

As part of a research paper, I studied what Islamic finance is all about. Since I didn't know anything about the subject before, outcome was very surprising and interesting. Islamic finance, or Shariah banking, is banking and investing with rules that are compliant with Kuran. And Kuran doesn't like that people:

1. collect interest since earning money on money is bad
2. earn reward without sharing risk
3. invest in businesses which are haraam such as those dealing with alcohol, pork, gambling, interest collection, entertainment, tobacco, fashion, pornography and weapon
4. invest in businesses which earn or pay interest or earn money from largely liquid assets (aka money)

Kuran, though, permits trade and selling something for profit and charging rent for use of property. In light of this all but point 3 are just contradictory to say the least. When I can charge rent for you using a car, how is charging rent (commonly known as interest) on you using money from which you can buy car any different? After all, both car and money have utility to me that I forgo when I rent them to you? Similarly, when a bank gives loan to a business and seeks interest in return, it is not exactly seeking return without sharing the risk of business failure as Kuran seems to suggest. When business defaults so bank too loses its debt and hence is sharing part of the risk. Last point is corollary to first point, just from the point of view of company.

But since faith doesn't accept logical explanations, and Muslims are practical people living in practical world, they've come up with some "loopholes" to abide by Kuran and at the same time use regular financial services. Now with oil-money pumping out of Middle East and a quarter of world's population being Muslim, there is huge market for Islamic products which is estimated to be about $300-$500 billion growing annually at 20%. Therefore, many banks and stock markets are creating investment funds to abide by these rules.

So, say you want to buy a car from Islamic bank. Instead of (1) borrowing money, (2) buying car yourself, and (3) paying back interest, you would (1) ask bank to buy car for you and (2) sell to you at higher price making a profit and then (3) you just pay back purchase price to bank which doesn't include interest but only profit margin. Alternative is that (1) bank buys for you, (2) rents car to you and (3) you pay back original purchase price to bank in installments without interest or profit margin, but (4) also pay rent for use during some predefined period.

And if your firm wants to borrow from bank, you will (1) pay back loan amount without interest but (2) also pay back some part of profit or loss of firm for stipulated time. In essence, banks becomes equity holder rather than just debt holder. Of course, when sharing larger risk as equity holder bank charges larger return in form of profit/loss margin, but at least Kuran is followed.

Mutual fund which are Shariah-compliant work by excluding all socially-harmful firms from investing universe. Among the remaining, nearly every firm invests its cash in interest bearing assets (earn interest) or borrows from banks (pay interest) and has some of its assets in liquid form (cash, short-term securities). After long hours of brainstorming about managing a workaround with rule 4 above, Islamic scholars have come up with idea that as long as interest income is less than one-third of total income and liquid assets less than one-third of total assets, Allah shall forgive. However, interest income has to be purified by donating that part to charities.

Considering the demand for these products, lots of Indian banks (Kotak Mahindra, Reliance, UTI, Edelweiss) are jumping into bandwagon to launch these products. Finally all is well with world and Muslims are using financial services in accordance with highest law on earth.

Full report can be downloaded from esnips.com or read at scribd.com.