Airtel and the case of Authority Bias

Last Saturday, I received a phone call on my land line (Airtel) with the caller having confirmed he was speaking to the right number, informed me about a change in a scheme I had subscribed to. To give you a background, Airtel offers for its Landline users 2 schemes where in you can make unlimited outgoing calls for paying a certain fee.

For a fee of Rs.99/- per month, you can call unlimited number of local as well as STD numbers

For a fee of Rs.49/- per month, you can call unlimited number of local calls.

I had opted for the later since most calls are local in nature since the fee appeared to be nominal given the number of calls we usually make.

The caller after having confirmed my number proceeded to inform me that due to a TRAI ruling, they were no longer offering the 49/- plan and if I wanted to make unlimited out going calls I need to shift to the 99/- plan. While I was not interested in hiking my already inflated bill, I was curious as to why TRAI of all the people would want Airtel to disband a scheme especially when Reliance Jio is coming up with a similar unlimited (no additional fee either) plan.

Rather than just agree to taking up the 99/- plan, I asked the caller as to more information on which circular by TRAI prohibited this scheme and more details about it. After trying to evade, he finally asked me to call up the help line (121) for more info.

Since my experience with 121 has been more about long wait times, I decided to ask the query on Twitter where I have found them to be more helpful and faster when it came to responding. While it took them 5 days to finally respond, I finally received a phone call from some one in Airtel who informed me that the 49/- plan was very much active and I needn’t worry. He also confirmed that if there were to be such changes in the future, it will be one provided in written format (rather than being vocal).

All well that end’s well, Right? At least in this case, thanks to me asking questions, I did stop them from charging another 50 bucks for a service that I wouldn’t make use of

But lets get back to the Title, Authority Bias. Wikipedia explains it as under;

“Authority bias is the tendency to attribute greater accuracy to the opinion of an authority figure (unrelated to its content) and be more influenced by that opinion.”

If the guy who called me repeated the same to say another 100 or even 1000, how many do you think would stop to question and how many will meekly accept the change. After all, TRAI is the Authority when it comes to Telecom and if they are saying something, it has to be right, Right?

Marketing is all about exploiting our cognitive biases and the guy was just trying out a way to make people pay more without there being a reason to do so. A couple of decades back, I was taken to a very famous ENT Specialist since I had been for long suffering from incessant cold. After examining me, the Doctor said that I needed to be operated and after that I would be free of such cold for Life.

My parents fell for it since the Doctor was very well known and his clinic was lined up with Certificate after Certificate he had received (not sure how many were study related and how many thanking him for being a participant). While they paid up, I endured weeks of pain and for a while, his word was right. I was really free of cold. 6 months later, one fine day the cold started as if it was never gone.

What my parents experienced was Authority Bias, you really cannot question your Doctor since he is the Authority and if he says, its unlikely to be false.

Lets switch to investing since this blog is about investing and avoiding the mistakes therein. If you are a watch financial media, you know about the various experts who come on television expounding their views on markets. Have you ever stopped to ask, Who made them the Expert in the first place? Do they have track records to show how good their analysis has been? Have they won any awards (not that the Award itself would make it right) proving their theories (like for example The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2013
which was awarded to Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller “for their empirical analysis of asset prices”)

Marc Faber for instance is seen as a Expert and appears on Financial Media regularly. But is he really a Expert? Lets check some of his calls (image credit to Ritholtz)

Based on the above pic, would you still treat him as a Expert?

In God we trust; all others bring data – W. Edwards Deming. 

Everyone has a opinion and based on simple statistics, 50% of them could turn  out to be true. But then again, its only in hindsight that we know which 50% was right – but if you were on the wrong side, its a truth that is too delayed to be of any use.

Recently PSU Banks have been on a roll and yet if you were to search the web, you will ‘n’ number of experts extrolling one to keep away from PSU Banks. They may indeed be right in thought, but markets have shown them to be wrong and I doubt even one of them coming up with a reason as to why PSU Banks are hitting new 52 week highs if there is indeed nothing good in them.

To appear on financial television as a Expert, you don’t need to have proven your expertise. I in fact know guys who have lost big sums of money (other people’s money) and yet get called to provide a view on the future of the market. Its more about having the “right connections” + ability to be coherent in front of the camera + willing to swing for the fences.

Predictions of big moves 6,000 / 12,000 are widely welcomed and even debated without there being a iota of reasoning that is backed by data (that could be tested). Today for instance, I found someone who has predicted that Sensex will rise by 50% over the next two years. I have no clue as to whether he will be right or wrong, but history suggests that 50% move in 2 years is not really normal (based on data [from 1990], the probability comes to just around 36%).

Two years down the lane, no one would even remember if it had gone wrong (if right, be sure that it will be flashed as sign of the Genius he is) but that ain’t the worst part. Assuming he is right, how does one play it given the low odds of it happening. Buy and Hope??

I am no expert but I do know one thing which is that if you can understand the cognitive biases we fall prey often, it will do wonders to your life and investing. For selling bullshit is far tougher to someone who knows to ask the right questions.