Dr Saheb Sahu
1- The Golden Rule
The Golden Rule is the principle of treating others as one wants to be treated. It is a maxim that is found in most religions and cultures. . It can be considered an ethic of reciprocity in some religions, although different religions treat it differently.
The maxim may appear as a positive or negative injunction governing conduct:
- Treat others as you would like others to treat you (positive or directive form)
- Do not treat others in ways that you would not like to be treated (negative or prohibitive form)
- What you wish upon others, you wish upon yourself (empathetic or responsive form)
The idea dates at least to the early Confucian times (551–479 BCE). The concept appears prominently in Buddhism, Hinduism, Judaism, Christianity and Islam.
2- In-group/Out-group (Us vs them)
An in-group is a group of people who identify with each other based on a variety of factors including gender, race, religion, or geography. Our tendency to distinguish between in-group and out-group members has moral implications.
People may harm those whom they perceive to be in an out-group in ways that they would not harm in-group members. For example, one study showed that when soccer fans viewed fans of their own team being harmed, they felt empathy. But when they viewed fans of a rival team being similarly harmed, they felt pleasure.
Likewise, people tend to make different moral judgments based on in-group and out-group distinctions. When someone in our in-group misbehaves, the natural reaction is often to dismiss the behavior as no big deal. But when someone in our out-group does the same thing, we will tend to judge the behavior much more harshly.
Indeed, when automatic in-group and out-group distinctions replace conscious and thoughtful reflection, we are more likely to harm one another and behave unethically.
3-Cognitive Biases
A cognitive bias is a systematic pattern of deviation from norm or rationality in judgment. A continually evolving list of cognitive biases has been identified over the last six decades of research on human judgment and decision-making in cognitive science, social psychology, and behavioral economics. Daniel Kahneman and Tversky (1996) argue that cognitive biases have efficient practical implications for areas including clinical judgment, entrepreneurship, finance, and management.
Here is a list of commonly debated biases in judgment and decision-making:
- Selective search for evidence (also known as confirmation bias): People tend to be willing to gather facts that support certain conclusions but disregard other facts that support different conclusions.
- Cognitive inertia is the unwillingness to change existing thought patterns in the face of new circumstances.
- Wishful thinking is a tendency to want to see things in a certain – usually positive – light, which can distort perception and thinking.
- Recency: People tend to place more attention on more recent information and either ignore or forget more distant information.
- Repetition bias is a willingness to believe what one has been told most often and by the greatest number of different sources.
- Anchoring and adjustment: Decisions are unduly influenced by initial information that shapes our view of subsequent information.
- Group think is peer pressure to conform to the opinions held by the group.
People tend to attribute their own success to internal factors, including abilities and talents, but explain their failures in terms of external factors such as bad luck. The reverse bias is shown when people explain others’ success or failure.
And underestimating uncertainty the illusion of control: People tend to underestimate future uncertainty because of a tendency to believe they have more control over events than they really do.
Prospect theory involves the idea that when faced with a decision-making event, an individual is more likely to take on a risk when evaluating potential losses, and are more likely to avoid risks when evaluating potential gains.
Optimism bias is a tendency to overestimate the likelihood of positive events occurring in the future and underestimate the likelihood of negative life events. An optimism bias can alter risk perception and decision-making in many domains, ranging from finance to health.
4-There Aren’t No Such Thing as a Free Lunch (TANSTAAFL)
“There aren’t any such things as a free lunch” (TANSTAAFL), also known as “there is no such thing as a free lunch” (TINSTAAFL), is an expression that describes the cost of decision-making and consumption. The expression conveys the idea that things appearing free always have some cost paid by somebody, or that nothing in life is truly free.
A free lunch refers to a situation where there is no cost incurred by the individual receiving the goods or services being provided, but economists point out that even if something were truly free there is an opportunity cost in what is not taken.
How TANSTAAFL Works
The TANSTAAFL concept is important to consider when making various types of decisions, whether they be financial or lifestyle. The concept can help consumers make wiser decisions by considering all indirect and direct costs and externalities.
Decision-making requires trade-offs and assumes that there are no real free offerings in society. For example, products and services gifted (free) to individuals are not truly free; a company, government, or individual ultimately pays the cost.
Investors must remain particularly wary of a seemingly free lunch when dealing with investments that promise a stream of fairly high, fixed payments over a period of multiple years with supposedly low risk. Many of these investments remain laden with hidden fees, some of which may not be fully understood by investors. In general, any investment that promises a guaranteed return is not a free lunch because there is some implicit cost somewhere, including the opportunity cost of not investing elsewhere.
5- Pareto Principle or 80-20 Rule
The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes (the “vital few”). Other names for this principle are the 80/20 rule, the law of the vital few.
Management consultant Joseph M. Juan developed the concept in the context of quality control, and improvement, naming it after Italian economist Vilfredo Pareto, who noted the 80/20 connection in 1896. In his first work, Cours d’économie politique, Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population.
So Why Is This Useful?
The Pareto Principle is not a mathematical formula but it helps you realize that the majority of results come from a minority of inputs. Knowing this, if…
.20% of workers contribute 80% of results: Focus on rewarding these employees.
.20% of customers contribute 80% of revenue: Focus on satisfying these customers.
The examples go on. Prioritize your daily activities. Try to finish the 20 percent of the important tasks of the day.
6- Good Judgment vs Bad Judgment
Good judgement comes from experience. Experience often comes from bad judgement. – Mulla Nasrudin
To succeed in life you need many qualities, but underlying them all is good judgment. Those with ambition but no judgment run out of money. Those with passion but no judgment hurl themselves down the wrong paths. Those with drive but no judgment get up very early to do the wrong things. Sheer luck and factors beyond your control may determine your eventual success, but good judgment will stack the cards in your favor.
Some elements to arrive at good judgments are:
- Learning: Listen Attentively, Read Critically
- Seek diversity of opinion and not validation
- Detachment: Identify, and then challenge various biases
- Options: Question the set of solutions offered,
- Factor in the feasibility of execution
- .Success is Not a Reliable Proxy for Judgment
7- Black Swan theory
Black swans are native to Australia and European did not see a black swan until the 17th century and believed that they do not exist.
The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight… The term was popularized by Nassim Nicholas Taleb, a finance professor, writer and former Wall Street trader,
In his 2001 Book Fooled by Randomness, this concerned financial events. His 2007 book The Black Swan extended the metaphor to events outside of financial markets.Taleb regards almost all major scientific discoveries, historical events, and artistic accomplishments as “black swans”—undirected and unpredicted. He gives the rise of the Internet, the personal computer, World War I, the dissolution of the Soviet Union, and the September 11, 2001 attacks as examples of black swan events.
Taleb states that a black swan event depends on the observer. For example, what may be a black swan surprise for a turkey is not a black swan surprise to its butcher; hence the objective should be to “avoid being the turkey” by identifying areas of vulnerability in order to “turn the Black Swans white”.
8. Saving and Investing
The way to financial stability is simple. Live within your means by reducing your expenses well below your income. Maximize your employer’s retirement benefits. Save at least 10 percent of your income every month by auto deduction so that you don’t see the money.
The power of compounding
For example-if someone who starts investing $5,000 per year at age 25 winds up with $1.3 million by age 65, while someone who waits until age 35 to start investing $5,000 per year(until the age of 65),winds up with just $566,000 at age 65(assuming annual rate of return of 8%).
The Rule of 72
To use the rule is to divide any percentage return into 72 to find how long it takes to double your money. Example: At 8 percent return, how long does it take to double your money? Easy: nine years (72 divided by 8=9). If the return is 3 percent, it will take 24 years (72 divided by 3=24).
Invest in Index Funds
What is an index fund and how does it work?
An “index fund” is a type of mutual fund or exchange-traded fund that seeks to track the returns of a market index like Nifty Fifty Index. Index funds are very low cost and eliminate the anxiety and expense of trying to predict which individual stocks, bonds, or mutual funds will beat the market.
For Indian context you can invest in Nifty fifty Index funds or similar index funds traded in Mumbai stock exchange. The annual return for Nifty fifty index funds in India has been between 17- 18 percent over the last five years.
ETF- You may also want to consider exchange –traded index funds or ETFS. These are index funds that trade on the major stock exchanges and can be bought and sold like stocks.
9- “Health Is Wealth”
“Health is Wealth” is a very old proverb. It puts health before wealth. A healthy person can earn wealth anytime. There can be no wealth without health.
Achieving and maintaining health is an ongoing process. It takes works to stay healthy.
Diet
A healthy eating plan: Emphasizes vegetables, fruits, whole grains, and fat-free or low-fat dairy products .It includes lean meats, poultry, fish, beans, eggs, and nuts and limitssaturated and Trans fats (processed foods), sodium, and added sugars.
Exercise
Physical exercise enhances or maintains physical fitness and overall health and wellness. It strengthens one’s bones and muscles and improves the cardiovascular and brain health. There are four types of exercise: endurance, strength, flexibility, and balance. The CDC states that physical exercise can reduce the risks of obesity, heart disease, some cancers, type 2 diabetes, high blood pressure, stroke, dementia, depression, and anxiety. Participating in any exercise, whether it is housework, yardwork, walking or standing up when talking on the phone, is often thought to be better than none when it comes to health.Exercising in nature is even better.
Sleep
Sleep is an essential component to maintaining health. In children, sleep is also vital for growth and development. Ongoing sleep deprivation has been linked to an increased risk for some chronic health problems like-memory issue, mood changes, weakened immunity, weight gain, high blood pressure and stroke.
10- Tzedakah (Righteousness)
“You give a poor man a fish and you feed him for a day. You teach him to fish; you feed him for a life time.”
– Lao Tzu, Chinese Philosopher (6th century BCE)
Tzedakah or Ṣedaqah is a Hebrew word meaning “righteousness”, but commonly used to signify charity. This concept of “charity” differs from the modern Western understanding of “charity.” Unlike voluntary giving, tzedakah is seen as a religious obligation that must be performed regardless of one’s financial standing, and so is mandatory even for those of limited financial means.
In the middle Ages, Maimonides conceived of an eight-level hierarchy of tzedakah, where the highest form is to give a gift, loan, or partnership that will result in the recipient becoming self-sufficient instead of living upon others. In his view, the second highest form of tzedakah is to give donations anonymously to unknown recipients.
The Torah (The first five books of Hebrew Bible) requires that 10 percent of a Jew’s income be allotted to righteous deeds or causes, regardless if the receiving party is rich or poor.
In Christian theology, charity (Latin: caritas) is considered one of the seven virtues and is understood by Thomas Aquinas as “the friendship of man for God”, which “unites us to God”. He holds it as “the most excellent of the virtues”.
Dāna in Indian religions
The practice of charity is called Dana or Daana in Hinduism, Buddhism and Jainism. It is the virtue of generosity or giving .The earliest known discussion of charity as a virtuous practice, isin the Rigveda (2nd millennium BCE). According to other ancient texts of Hinduism, Dana can take the form of feeding or giving to an individual in distress or need. It can also take the form of philanthropic public projects that empower and help many.
Zakat and Sadaqah in Islam]
In Islam, there are two methods of charity. One called Zakat, the called Sadaqah.
Zakat is one of the five pillars upon which the Muslim religion is based. It is compulsory for a Muslim to give 2.5% of one’s saving as Zakat, per Islamic calendar year. Sadaqah is voluntary charity or contribution. Sadaqah can be given using money, personal items, time or other resources. There is no minimum or maximum requirement for Sadaqah. Even smiling to other people is considered a Sadaqah.
Conclusion
To lead a reasonably good life, treat others as you like to be treated. It is a commandment advocated by all the major religions. Beware of “Us vs them” ideology. It is the main cause of conflicts and prejudices in all societies. We have all kinds of cognitive biases which lead to bad judgments. Always remember that, there is no such thing as a “free lunch”. Somebody is paying for it. If someone makes you an offer that is “too good to be true”, most likely it is a scam. Don’t fall for it. Know the 80-20 rule and concentrate your efforts on the top 20% of the things you have to do in life. Know that black swan effect like 2000 market crash, 9/11, 100 -year flood, can happen. They have happened before and will happen again. Be prepared, for unexpected events like major accident or even death. Buy appropriate insurance. Failure is not always a bad thing. Just learn from it and move on. The road to financial security is not easy, but can be done: live within your means, start saving early at least 10 percent of your paycheck, maximize your employer’s retirement plan and invest it in an Index fund. The most important of all, take care of your health: maintain an ideal body weight, eat a healthydiet (more towards vegetarian), stay active and get a good night sleep. If possible take a walk in nature. Remember the meaning of the Hebrew word “Tzedakah”. It is more than charity. Help somebody to stand on his/her feet.
I will conclude this essay with a poem by the American poet Emily Dickinson.
“If I can stop one heart from breaking”
If I can stop one heart from breaking,
I shall not live in vain;
If I can ease one life the aching,
Or cool one pain,
Or help one fainting robin
Unto his nest again,
I shall not live in vain.
By: Emily Dickinson
(Source- Wikipedia.org )
The End