Issue 20

The Veil of Spirituality

Faith, a word so important to human history and society, it is virtually sacrosanct. People claim their lives are incomplete without faith, and those who seek power over others weaponise and leverage the faith of devout believers for their own personal, political or financial gain. 

The constant tension between believers and rationalists came to the fore once again in recent weeks. Sparked this time, by the controversy at The National Stock Exchange. 

Chitra Ramakrishna, the CEO of NSE, put her trust in a Himalayan ‘sage’  who was supposedly “mentoring and guiding” her through the tedious process of running the country’s largest stock exchange. She exchanged inside information with this ‘sage’ until the news leaked, and another ‘baba’ scam came to the limelight. According to SEBI as reported by India Today, The Queen of Bourses, shared the exchange’s board agenda, financial projections, and business plans. This entire situation can possibly land her in jail as the Delhi High Court refused her anticipatory bail application

This is not the first time faith in spiritual leaders has cost people much more than they anticipated. Asaram Bapu, Ram Rahim, Rampal, Narayan Sai, and many more… have manipulated, harassed, and assaulted people in the name of Faith. But why does Faith have such a stronghold on us? Why does it shroud our reason, logic, and rationality? The American Psychological Association believes that Faith, or religion, in particular, is a byproduct of our tendency to find order among chaos, to look for discipline in our lives. Chitra Ramakrishna, like most people in the world, sought to Faith and was allegedly tricked by Anand Subramaniam. A woman who ran the largest stock exchange could not have been naive or senile, yet her Faith got the better of her. Faith, therefore, has this power of blinding rationality, which has been proved, time and time again. Her faith in this so-called sage, led her to make executive level appointment decisions as per his commands

The ever-growing cases of people being defrauded in the name of Faith, superstitions being upheld (sometimes at the cost of somebody’s well being), and the rising hostility in the name of Faith, calls for a discussion on rationality. How can we strike a balance between logic and belief, wit and virtue? We need to understand the complexities of Faith, to what extent it is healthy and where it becomes a sin. People need somebody to believe in, somebody to hold accountable, somebody to complain, and somebody to hope from. Faith, in general, and spiritual leaders, in particular, play on these emotional needs. To top it all, the dynamic of pain/pleasure is always at play. Society conditions us to think that following religious duties leads to positive reinforcement while giving up religion makes us sinners. To escape this loop and avoid falling into a pit hole, we need self-awareness.

Self-awareness, in this context, means being alert when common sense stops making sense. The Art of Living says alertness and faith are complementary. We need to bring this complement to the table. Faith may be helpful, but blind faith can be dangerous. There is nothing wrong with seeking help by having faith in people and religious institutions. However, one needs to be cognisant of what they are sharing, and how authentic is the advice they are receiving. Leaning on somebody is not wrong, it makes us human and as humans, we are bound to make mistakes. We need a self-check measure, before following the advice of such leaders. We also need to keep a check on the authenticity of such leaders and sages in the era of cyber-crime. Chitra Ramakrishna was scammed over email, an electronic tool. Most religious and spiritual sites have a web address, email address, and web payment portals. This substantially increases the chances of getting involved and robbed in a quest for spirituality.

But is it spirituality that we all are after? Or is it the perks that the popular notion of spirituality offers? In this hustle world, everybody is after success in all its forms. After all, who does not like a high paycheck, a beautiful home, a healthy relationship, and mental peace. My logic gives me a red flag at this stage itself, I cannot have everything, one or the other thing has to be sacrificed. The spiritual leaders, often, promise all these with the additional bonus of spiritual peace. The realization of these promises, however, is less certain and more unrealistic. Human nature, however, falls for these pretenses and a veil of spirituality is cast over our minds which bars rationality from seeping into consciousness. 

This does not imply that we must give up our entire faith on spiritual leaders and spirituality, but we must be smart enough to not get veiled. We need to use the same logic of rationality i.e., rational decision making that we follow before enrolling in schools, colleges, or universities. The same double-checks we do before going to a hospital or for a regular check-up. Moreover, when somebody advises a particular institute we do not blindly enrol ourselves or our near ones in it. We analyse our own situation and background, the same way we analyse an institute. If we begin applying the same logic in following spirituality, we will follow a safer path. Moreover, if we understand that we have to work for whatever we need, then we will fulfil the dual goals of spiritual peace and safety.

Lakshya Sharma is a first year undergraduate student at Ashoka University. He is an economics and media studies student. Apart from his academic interests, he has keen interest in writing and fashion.

Picture Credits: Daily Pioneer

We publish all articles under a Creative Commons Attribution-NoDerivatives license. This means any news organisation, blog, website, newspaper or newsletter can republish our pieces for free, provided they attribute the original source (OpenAxis).

Issue 7

Taking from the Rich: Reddit, GameStop and the Consequences of Greed

Near the middle of 2019, a Reddit user, known as “Roaring Kitty” boasted his $53,000 investment in “GameStop” a declining video game company. GameStop bought and sold video games, and it isn’t hard to see why that kind of model seems unsustainable in the streaming and digital age. u/RoaringKitty made his post on a subReddit known as “r/WallStreetBets” henceforth known as WSB. Every commenter on WSB cried out that this investment was foolhardy, that GameStop was dying but u/RoaringKitty paid them no heed and continued to keep his investment there. Today, that $53,000 stake is worth $48 Million. How did this happen? 

To begin, we need to understand a few terms. 

What is a share? 

When a company is formed, it’s corpus consists of a set of discrete units. The owners of these discrete units are shareholders and become direct stakeholders invested in the company. In the case of GameStop, there are roughly 65 million shares up for grabs. 

What is a short? 

A short is a financial action one can take concerning shares. While the obvious way of profiting off of stocks is to buy some shares, wait for the prices to rise, sell and profit off of the differences, there is a means of profiting off of the fall in the price of a share. The way to do this is through “shorting”.

What one does is, when they anticipate that the price of a company’s shares is going to drop in value, they “borrow” shares from shareholders, sell them at current market prices, then once the price drops, they buy the shares back and “return” them, and keep the difference for themselves. Now, when one shorts a given company’s stock, it is legally required to eventually return the borrowed shares. This means they have to buy back the shares, regardless of what they cost. 

In the case of GameStop, hedge funds (financial institutions that profit through the buying and selling of stocks and shares) shorted 140% of GameStop’s shares. How do you short 40% more shares than those that exist? Well, that’s actually not too wild. Essentially, shares can be double-counted. Suppose I buy a share in GameStop and then lend it to a broker who intends to short it. This broker sells it to another customer, named say, Saman. Now, to Saman, this is just another share, there is no association with me, so she can further lend the share to someone else who could short it. This way, we can have over a 100% short interest. 

What did u/RoaringKitty do?

Now, u/RoaringKitty didn’t just brag about a weird investment, he noticed something nobody else did: GameStop wasn’t a dying company. GameStop had reasonably large cash reserves, they didn’t have much debt, and with the release of the new PlayStation 5 and Xbox Series, the chain of stores was doing alright. 

Roaring Kitty started talking about his investment on YouTube, Reddit, and TikTok, and people began to notice. Specifically, Michael Burry. Some of you might know him from Christian Bale’s portrayal of him in The Big Short, but for those who don’t, Burry was one of the first people to realize that there was a crisis imminent before the 2008 Economic Crisis and made a massive profit off of it. Burry, at last count, made a 1400% profit off of his investment in GameStop in just under 5 months. 

This discourse on GameStop’s financials, as well as public filings showing massive short interests from various hedge funds like Citron and Melvin Capital, became the seeds of a perfect storm. u/RoaringKitty mobilized r/WallStreetBets with the information that GameStop was viable fuelling thousands of members of the subReddit to buy millions of shares. This artificially drove the price of GameStop stock up hundreds of dollars and decimated the short position of various hedge funds. Melvin Capital lost nearly $4 billion throughout January. 

While initially, buying GameStop stock was sound financial advice, eventually anti-billionaire, anti-hedge fund rhetoric swept the subReddit, and users decided that keeping the stock was now a moral crusade to crush meddling Wall Street titans. You can find posts like this across the website describing their hatred for Wall Street money movers, and this no doubt fueled the stock buying. Eventually, various influencers, including Elon Musk joined the bandwagon, advocating to buy GameStop and crush the short sellers. Musk specifically dislikes shorting since firms have tried to short Tesla several times over the years. 

Robinhood, a free, fee-less trading platform began restricting trading GameStop stock, to avoid “volatility” in the stock market. Now, as surprising as it may sound, Alexandra Ocasio Cortez, Ted Cruz and Donald Trump Jr. all cried out that this was anti-competitive and anti-capitalist, you’d never expect to see the three of them agree on anything, let alone the free market. Robinhood was only the first of several services to restrict trading, an act that has led to several class-action lawsuits. This leaves a valuable question on the table, who gets to truly “regulate” the market? Why is social market manipulation “volatility” while a few billionaires doing it is a “hustle”? The actual nature of power within market structures has been exposed, and it cannot be allowed to fade from public memory. The “free” market is a selectively free market. 

Now, as trading continues it is to be seen which forces buckle first, the Redditors, or the hedge funds. As the value fluctuates, there are ripple effects across the industry. This entire incident is also provoking a series of questions about the power of social media. A user on Reddit mobilized millions of dollars through thousands of small traders, and apps like Parler managed to mobilize thousands to storm the US Capitol. While one shouldn’t conflate the two events, there needs to be cognizance of how these networks hold the power to organize people in ways that the people are not prepared for. But beyond that, the story is still unfolding, and we need to ask ourselves, who wins at the end of this? How do we even imagine “winning” in this scenario? And, where does this leave us? 

Vibhor is a third-year economics major, and frequent Redditor, with an interest in economic history, behavioural science and decentralised systems. He is a frequent critic of the free market and enjoys reading about market failure and similar shenanigans.


What do stock market fluctuations in 2020 tell us about human behaviour?

By Srijita Ghosh

If I ask you what’s common between choosing the wrong major and not being able to lose the last 5 kgs that you thought you’d lose by summer, most of you would think there isn’t one. But if I ask you the same question for the stock market behaviour during the dot com bubble (most of you were probably not even born by then) and the same stock market behaviour during the recent pandemic, you can probably name a few. However, the common thread amongst all of them is that they are all driven by incorrect beliefs about future events. 

You were so sure that economics was the right major for you, but at the end of the second year, you realize you have gravely underestimated the technical skills required to finish it and now you wish you had chosen something else. It is natural and quite common to have a wrong belief or estimate about a future event since future events are fundamentally uncertain. 

Economists have been aware of incorrect beliefs and their impact on decision making but modelling them formally has started fairly recently. Taking motivation from psychology and neuroscience, economists have started modelling decision-making under the assumption that the agents are cognitively constrained. They can make mistakes while predicting some uncertain events about the future which can have severe consequences on their life and living. 

It’s the same cognitive constraints that drive the seemingly irrational behaviour in the stock market. But the mistakes that people make in the stock market or most economic context are not random. By studying the patterns of mistakes, we can design effective policies to improve welfare. 

In the context of the stock market, recent studies by Bordalo et al (2020) have found that people overreact to good news and overvalue them in the long run. If we overestimate the long-run valuation of stocks, then eventually we will be disappointed since our predicted value will not be materialized. This can lead to perverse behaviour in the market.

For example, during the current pandemic, the stock market remained more optimistic than what would be expected from the condition of the economy per se. It might be driven by the overestimation of the long-run fundamentals of the stock market. The problem, however, is that the pandemic initiates a “regime change”, which means we cannot be sure where the fundamentals of the stocks would lie in the post-pandemic period.

Another cognitive function that severely affects our belief is that of memory. Various puzzles in the stock market can be related to the nature of memory. There are different features of the memory that affect what we believe. The most obvious one would be the temporal nature of memory; we remember things with more clarity that have happened in the recent past than a distant past. This implies that while forming belief we put more weight on the recent phenomenon that is the underlying trend. This can lead to having an overreaction to bad news. 

The other, more complex feature of memory is representativeness, which implies that different cues about the same underlying object can lead to very different beliefs depending on what comes to mind. In a recent study by Wachter and Kahana (2020) has shown that we often associate two events that are temporally related. If one of these events repeats again we remember both the events, as they are contextually related events. This can lead to further distortion in belief and some examples of such behaviour would be under or over-reaction to news, fear being a leading motivator of financial decision-making, and so on. 

However, we should note that this literature is fairly young and researchers all over the world are trying to understand the impact of cognitive functions on beliefs and subsequently on decision-making. So we should proceed with caution when interpreting the results from the early experiments. Just like any other scientific discipline, we can only conclusively make remarks after several studies have reproduced similar results. 

One major problem here is that human behaviour is complex and when combined with the stock market framework the scope of non-standard (from a neoclassical economics perspective) is large. This makes analyzing and predicting behaviour in the stock market particularly difficult. But one way forward would be to understand how humans form beliefs generally and extend that to the stock market scenario. This will also help us become better decision-makers and be more consistent with our own world-view. 

Srijita Ghosh is an Assistant Professor of Economics at Ashoka University and has done her Ph.D at New York University.


Expectations of Fundamentals and Stock Market Puzzles by Pedro Bordalo, Nicola Gennaioli, Rafael La Porta, and Andrei Shleifer (2020)

Memory and Representativeness by Bordalo, Pedro, Katherine Coffman, Nicola Gennaioli, Frederik Schwerter, and Andrei Shleifer. 2020

 A Retrieved-Context Theory of Financial Decisions by Jessica A. Wachter and Michael J. Kahana

We publish all articles under a Creative Commons Attribution-Noderivatives license. This means any news organisation, blog, website, newspaper or newsletter can republish our pieces for free, provided they attribute the original source (OpenAxis).