Saturday, March 12, 2011

How to strike a bargain @ a Restaraunt with the help of the immortals from Meluha?

It has become a habit for me to be motivated to write a blog (only) after reading an article or a book. Most probably it would be non-fiction. But this time a work of fiction has completely hijacked my mind for sometime. 'The immortals of meluha' - a nice feel good contemporising story about Indian mythology and practices. But what has that got to do with striking a bargain @ a Restaraunt?

I will let you in on some parts from the novel. The novel is about 2 kingdoms which have different ethos and consider each other evil. One of them is strikingly similar to a socialist regime ( with due appologies to author if he had not intended to do so) with the government providing for the people. This is compared to heaven (initially). Rules are strictly followed here. Everyone is equally treated. The other kingdom is more like a capitalist economy where individuals have freedom to choose what they want to do. People believe in what works rather than the rules. Some people live in object poverty while some are affluent.

You would agree with me that most of the developed and developing nations are similar to the second kingdom. Now let us do a thought experiment.

You get into a restaraunt (in India probably if that is close to your heart) and eat your stomach's full. You are smart and you know your economics. You want to strike a bargain with the restaraunt people. You want to pay less. Let us bring some numbers in to see what would work. The food you ate costs you 200 Rs. You want a bargain of 50 Rs. You go to the restaraunt manager and tell him you will only pay 150 Rs. The restaraunt manager is not pleased. This is criminal. Assuming you are strong and he cannot physically force you. He calls the local police to come and force you into paying.

The police won't turn up for this petty a case. You have now gained a point. You are now threatening to leave without paying (take 150 or none at all). The restaraunt owner would have to pay something to the police (or convince them to come over). Assume he pays 100 Rs for the police to come (provided you still stand your ground). Now , the manager does some thinking , 'what if you pay up when the police comes and settle the issue? the restaraunt manager has to still pay the police 100 Rs'. He would end up losing 100 Rs. So between a choice of going for a 50 Rs / 100 Rs loss he would choose what works , he would most probably let you pay 150 Rs and leave than take the pains of forcing you to pay the full amount as the cost is much higher.

Yes it is a thought experiment. I wouldn't recommend anyone trying that. But what am I getting at? What has this got to do with immortals from Meluha?

First , people would do what works in a free economy than what matters.

Second , in cases where the cost of an alternative is much higher , people will settle for solutions which will reduce their cost than what is right.

Third , some people can and will hack this system for their benefit.

This I believe is the source of all corruption ! This kind of a society will allow petty crimes to be commited without much intervention. If you have hundreds of thousands of petty crimes across the economy then you have a big problem at hand.

An economy will prosper if the right way to provide justice is also the cheapest.

Would love to know your ideas on 'How to solve this Restaruant paradox effectively?'