It’s called the ‘New Delhi Shuffle’, conclusion

In the prior three posts of this mini-series, I recounted a highly stylized version of an event that happened to Jig, Pat and I as we set out shopping in Delhi.  In reality, the actual rug buying/returning event that took place is much less interesting to me than the personal lessons I learned from the experience.

A fool and his money are soon parted

‘A fool and his money are soon parted’ is a phrase that’s so often repeated that the words themselves have almost become meaningless.  Reading stories about Bernie Madoff’s Ponzi scheme, or Enron a little further back, I know I’ve become fairly blasé when reading about people who put their blind faith into things they don’t understand and consequently lose their money.  Fraud is one of the worst possibilities of true free market capitalism; there are rules and standards set in place by the government to instill some level of confidence in transactions, but only if you assume that the other party is acting in good faith.  That’s a big assumption, but one we make (successfully) several times per day.

With this daily level of “success” in good faith transactions, it’s very easy to become complacent in verifying that this assumption still holds.  In the U.S. and many other Western nations, information is so readily available on any good or service that we tend to assume that the market (or the legal system) is efficiently minimizing the chance that a business is using asymmetric information to the detriment of the consumer.  For example, I’ve got a bar-code reader on my iPhone that tells me the best price of a good anywhere across the Internet.  If the store I’m in doesn’t have the best price, they’ve got a chance to match it or I’ll purchase the good somewhere else.

But regardless if the store matches the price or not, I can safely assume that whatever is said to be in the box is actually in the box.  The store is competing on price, not on whether they can convince you that they can substitute Y good in place and still tell you that they sold you X.  The same thing goes for restaurants, home repair technicians, mail-order catalog sites…you can find out information on the quality of nearly any good or service, and because the seller knows this information is readily available, has motivation to correct the problem before you get there (lest they want to go out of business).

Personal lesson

One of the major things that drew me to the Duke Cross Continent MBA program was the exposure to other cultures by way of visiting disparate countries in different regions of the world.  Anyone can read about a country in a textbook, but until you actually experience the country itself, the learning really hasn’t begun.  Nor can simple platitudes like “Don’t drink the water” or “Be sure to haggle over everything” count as understanding a country or a culture.  The true learning is understanding how YOU have changed (or not) after visiting somewhere.

For me, the lesson I’ve learned from India is that I need to learn control over my thought process.  It’s not the obvious things I need to conscientiously watch out for, like not giving money to beggars or not eating street food that has flies all over it, but rather controlling how I think about a situation when all of the ‘Western’ assumptions don’t necessarily hold.  The tacit assumption that we all made while in the rug shop was that the salesman stating the quality of the rug could go unchecked.  Counting the knots was easily verifiable, so for the salesman to forcefully state the numbers should’ve been enough to say “I know you can verify this, so I’ll tell you the truth.”  Yet, the salesman made the calculated gamble that the statement wouldn’t be verified, because culturally, it is okay to mislead the customer in the pursuit of profit.  Lesson learned, and something I will take with me for the rest of my days traveling.

Related Posts:

Post comment as twitter logo facebook logo
Sort: Newest | Oldest

In your first example, knowing that the salesman is feeding me BS doesn't seem like asymmetric information in my favor. In that case, even if I know he's trying to scam me, he's still going to be stubborn in not realizing that I know. Thus, at best we have a stand-off, where he refuses to budge on the price.

I'll take a look at Shantaram when I get a chance, I'm still very interested in India after my trip :)

Picture this scenario: Now you know that rug salesmen in India stretch the truth. Next time you are in a rug shop in Delhi and the salesman is giving you the pitch, you know that part of it is BS. But, he doesn't know that you know. So, you are holding the upper hand (information asymmetry is in your favour).

Can you make this count in your favour? If yes, does this mean your "experience" of a particular situation is more valuable compared to your knowledge of the definitive nature of the product you are buying?

Why I ask this is because if it was me instead of you, I would have ended up paying as much as you did, since I'm not an expert on rugs either. It is by word of mouth and market research that you realize the correct price and quality levels.

Case in point: I see these US real estate programs on television where fancy homes are advertised by real estate agents. The property prices are outrageous but the way the agents hype it is more so. As a buyer, won't you do your due diligence by pitting one agent against another and getting information on why you should go for one agent's proposition over another?

Similarly, did you try visiting multiple shops and try to compare? Did you do your due diligence? This is similar in principle to your bar-code example, though the ground implementation is different. If the second shop keeper offered you the same quality rug at a lower price, you would have known that there was something fishy.

Lastly, what if the shopkeeper has already factored in the fact that out of 10 buyers, perhaps 1-2 will return for refunds? He still makes a tidy profit from the remaining 8 sales.

I am sorry to hear that you had to pay a premium for your cab. But, if I'm not mistaken such a differential pricing is also applicable at the Taj Mahal - ~20 USD for foreigners and 40 cents - 2.2 USD for Indians ( I think this point has less to do with culture and more to do with pricing the product according to the paying ability and willingness of the consumer (you will definitely not think too much about paying 20 USD after paying 1500 USD to come to India :)

Recommendation: Perhaps it will be a good time to read the book "Shantaram" by Gregory David Roberts while your memories of India are still fresh :)

Well, in the case of Madoff, it's clear that his only intent was to defraud his investors through sham "securities" purchases. I think everyone agrees that this is crime, there's no gray area.

With the rug purchase, I look at it as a situation of "what can I get away with?" The rug salesman technically did provide the good; the rug that was purchased is the rug Pat was looking at. Without hearing from hotel salesman, all would've actually been well, because 'ignorance is bliss' and it was a beautiful rug.

I was a little imprecise with my "culturally" comment; it's not that India should be singled out as the only place this happens, and nor would I expected *every* Indian salesman to do it. I spoke with my friend Stephen about this yesterday, and even though he's from Nigeria, when he goes back local businessmen try and take advantage of him.

When thinking about the future of India, or any developing nation, one of the biggest opportunities and obstacles to trade is transaction and information cost. The 'what can I get away with' mentality is a huge obstacle to growth IMO. I'm not sure what the answer to the problem is, but just from this personal experience it's clear that revenue from rug sales is dramatically lower due to the extremely high cost to asymmetric information. Pat never picked up a rug after returning his first purchase; I did not purchase one even though I was interested. I also stopped taking car service after I found out I paid a 100% premium relative to what others were paying.

"...culturally, it is okay to mislead the customer in the pursuit of profit..."

How is this different from the Bernie Madoff Ponzi scheme? Consequently, how is cheating different across cultures?