Why indians are smart

When a reporter asked about the secret of his success, the farmer attributed it to the fact that he shared his corn with his neighbors. Why, the reporter wondered, would the farmer want to share his seed when those neighbors also competed with him for the prize?

If my neighbors grew inferior corn, cross-pollination would steadily degrade the quality of my corn. If I am to grow good corn, I must help my neighbors do the same. Using examples as varied as their tendency to drive through red lights to their failure to protect the environment, Raghunathan argues that Indians often act in ways that focus on winning immediate gains at the expense of long-term benefits.

Raghunathan also teaches game theory and behavioral economics at the University of Bocconi in Italy. To relax, he repairs mechanical clocks. What are Indians like? Privately, Indians are reasonably smart — in fact, we are as smart as anybody else — but publicly we are dumb. Our ability to understand the need for cooperation is very low. We believe that cooperation and selfishness cannot go together — which is not true.

We also tend to be very fatalistic in our outlook. How do you use it to explain the behavior of Indian business people?

The problem statement goes like this: Assume that you and I are co-conspirators in a crime. Each of us is selfish and coldly rational. We are being interrogated in two separate cells, and we are unable to communicate with each other. The interrogator tells you that he has enough evidence to put each of us away in the slammer for two years each. However, if you squeal on me and help him prosecute me, he will set you free immediately and imprison me for five years.

He also tells you that he will make an identical offer to me though you and I cannot communicate. If each of us betrays the other, he will put us both away for four years. Being selfish and rational, we have to respond to the offer in terms of what is in our best self-interest. Now, here is our dilemma: Should we defect and squeal against each other, or should we cooperate and hold out against the interrogator? You may reason that if I defect, it would be in your interest to defect as well — otherwise you will be stuck in prison for five years while I go free.

And if I do not defect, it is still in your interest to defect, since you will walk free immediately. So you decide to defect. I follow the same reasoning, and I defect as well.

As a result, each of us ends up with four years in prison. If we were to cooperate, though, each of us would be better off because the interrogator has evidence to put each of us away for just two years. But for us to end up with that outcome, we need to recognize that the two-year punishment we will have to accept for cooperating is better for each of us than the four-year punishment we would get for defecting and ratting out each other.

Our situation is such that we believe that if we do not cooperate, we benefit more. If he cooperates, it may still be in my interest not to cooperate, because I benefit by not cooperating. Although this may sound abstract and theoretical, this is often how Indian business people tend to think.

Very often our exporters show samples that are of a high quality, but when the time comes to ship the goods, they send something inferior. You may initially make money because you have gotten something for nothing, but going forward — in an iterative kind of a context — you will most probably fail.

You will stop getting export orders when your customers figure out that they cannot depend on your quality. They will stop trusting you and start suspecting you. In my book, I cite the example of some Indian companies that had won orders to export powdered red peppers or chillies to Korea.

Apparently, when the goods arrived, the Koreans discovered that the very first consignment was adulterated with red brick powder. The Koreans emptied the whole consignment in the high seas, vowing never to import this product from India. I read a similar report as recently as last year. We tend to be over-argumentative and often look out for our own narrow advantage rather than trying to make the venture succeed. I will keep my own house clean, but the streets are not my business.

Since everybody thinks the same way, the public interest suffers. Raghunathan: Another way of expressing this idea is that we are good lightning chess players but terrible long-term chess players. If I have to see two moves ahead, I may do just fine, but if I have to see 10 moves ahead, I may not. Public interest is like seeing 10 moves ahead, while seeking out private advantage is like seeing two moves ahead. It takes you a longer period of reflection to realize that even given your selfish motive, you are likely to benefit more if you cooperate — and if each player does the same thing, both come out winners.

I came to this conclusion through many other concepts of game theory that I have written about in the book. Having seen how people think in other countries and in India, I [realized] that Indians would tend to conclude in a jiffy that it is in their interest to defect and squeal against their partner.

It takes longer to think through that if the partner also defects, both would be worse off. That is why I say we are privately smart but publicly dumb. Raghunathan: We tend to deal with the same people over and over again, even though we may interact with hundreds or thousands of parties over our lifetimes. In my book, I cite examples from the experiments that the mathematician Robert Axelrod conducted on this concept. I may cooperate with you in an interaction, and you may cooperate as well.

Then I go off and interact with other people, and then come back again to you. Remembering that you had cooperated in the past, I cooperate again. Essentially, I keep cooperating in every interaction until you defect. In the following interaction, I too defect, remembering our last interaction. Now it is up to you to decide whether to cooperate or not. If you cooperate, I go back to cooperating as well. The tit-for-tat strategy does not have a long memory. It is forgiving.

It is a good strategy in the sense that it is never the first one to defect, but at the same time it retaliates against defectors. It makes it clear that it will not respond to defection with continued cooperation. It responds to defection with defection, and will not resume cooperation unless the other party cooperates first.

I show in the book that the tit-for-tat strategy never wins against any one individual. But in the long run, people get to know that you are a gentleman; you are never the first to defect. They know that you are forgiving, but also that they cannot take you for granted. This strategy can easily be applied to a large number of business situations. For example, consider a businessman who normally supplies materials of high quality but once in a while — one out of 10 times — he supplies sub-standard materials.

In other words, he defects one time out of 10, and cooperates nine times out of 10, hoping that you will not retaliate. He is trying to gain some extra points over his interactions. Such a businessman is not using the tit-for-tat strategy; he is using a random-defect strategy. What happens with this strategy is that if one of the players he runs into is a massive retaliator, that player will stop dealing with him completely. His work focuses on marketing and the rise of India as an economic force.

In he ranked 26 among the Thinkers50 listing of the world's top business thinkers. Where is the innovation? Very quickly they realised that when they asked people that question, interviewees said that the reason is that the Indians are good software programmers and accountants, but they are not very creative. The more sophisticated people said "It's not that they are not creative, it's just that the education system in India doesn't develop creativity.

So where would they find creativity? They were told to go to Silicon Valley to the most creative companies like Microsoft , Intel , Google. So they said, "You must not have been born and brought up in India, because those guys are not very innovative. In each case they had got their full education in India before they went for their final degree to America, so clearly there is more to understand Then they went to Bangalore, the Silicon Valley of India, and tried to look at what was happening there.

And what they found was that the question is wrong. The Googles, iPods and Viagras are a certain kind of innovation. They are the kind of innovation that the end user sees as a customer. But there are a lot of other kinds of innovation that are happening in India that they call invisible innovation.

In every product that we are using today, some part of it was developed in India. It is just that it is not branded "India Inside".