India-Pakistan…Why war may not be the solution

The spark for the fire..

26th November 2008, a horrifying day for the people of India. For three days, horror unfolded as people watched 10 armed terrorists ravage the Indian city of Mumbai by attacking some of its iconic landmarks. This attack which targeted people of all races, religions and cultures indiscriminately, brought India’s ‘financial capital’  to a halt. Military assistance was called in to stabilize the situation and many civilians lost their lives or were injured. After learning that the perpetrators were from a Pakistan based terrorist outfit Lashkar-e-taiba, most of India wanted only one thing – revenge against Pakistan. This was the breaking point for many Indians. A rage that had been boiling over for years because of frequent acts of terrorism (most of which had been attributed to Pakistan based terrorist outfits) now had its biggest outpouring.

The government was under immense pressure to mount an offensive against Pakistan and the terrorist outfits. But it didn’t do so and was widely criticized for it. Pretty understandable when one looks at the emotional turmoil that many Indians had to go through.Not waging war was interpreted as a sign of timidity.

Similar is the case with the North Indian state of Kashmir. It has been a disputed region between India and Pakistan for decades. Both nations claim a part of it which has led to many violent cross border incidents. Pakistan was once a part of India and the two nations have had a long history of violence since they split apart. Major part of Kashmir is largely under India’s control today but faces frequent insurgency from Pakistani militants.

Let us picture a hypothetical scenario where the Kashmir or the cross border terrorism issue leads to enraged public reaction and  becomes a catalyst for a larger conflict between two nations and India decides to attack Pakistan. Its important to remember that we are only discussing possibilities from one nation’s decision making perspective. A conflict in the region will most likely be critically damaging for all the players involved.

Analyzing a potential India-Pakistan war:

Any offensive started by India against Pakistan will most probably lead to Pakistan retaliating and beginning of a war. It is common knowledge that India has more troops and allegedly more nuclear warheads than Pakistan. So India is going to win the war. Sounds so easy, right ? Maybe it is. But there are many indications that it is never so simple. Lets dig a little deeper. We will concentrate on four major points-

The possibility of a ground battle

When it comes to a ground battle between the two countries, India definitely has the upper hand. India is probably much better prepared on the north western borders to repel any Pakistani attacks. The only problem can be Kashmir where the terrain can be a hurdle. But overall, starting a ground war won’t be a rational thing for Pakistan to do as they will only be playing into India’s hands.

The role of United States in Indo-Pak politics

United States has always looked upon Pakistan as a potential ally which can help it combat the Al-Qaeda and other terrorist/militant groups which are so prevalent across Pakistan’s Northwest. Any attack on Pakistan (like India attacking it) will cause Pakistan’s civil state to become even more unstable than it is now. Instability is a natural fuel for militancy to thrive in and we don’t think the US will be very happy with that. India has a lot of international relations with U.S and any kind of sanctions or pressure that the US puts on India could prove to be very harmful.

The potential role that China plays

For many years now, China has been a big ally of Pakistan mostly due to the the feuds that they share with India. China and Pakistan have been collaborating on a lot of military technologies and also nuclear power. Based on a report in Wall Street Journal, Pakistan and China recently agreed a deal in which China will sell two nuclear reactors to Pakistan. It is feared that China has collaborated with Pakistan on Nuclear defense technologies. However true this is, it is definitely worrying for India. Ties between India and China have long been characterized by mistrust. Tensions boiled over into a brief war in 1962, following which China gained control of a 14,600 square mile territory known as Aksai Chin. It’s not in China’s interest to start a war with India under normal circumstances. The repercussions are likely to be costly for China considering it has to maintain ties with rest of the world. But let’s say that there is still a small chance that China with its ally Pakistan might want to start a war with India. Or China can even try to exploit India’s vulnerability in such a situation and attack the disputed Northeast regions of India. In such a case things can go badly for India. India cannot afford to repeat the losses that it sustained in the Indo-Sino war in 1962.

The possibility of a nuclear war

Both India and Pakistan being nuclear armed nations, we cannot rule out the rather extreme (though not improbable) possibility of any conflict escalating into a nuclear war. Now according to International estimates, Pakistan has about similar number of nuclear warheads as India. So we can see that in this case, India is not an an advantage. Also Pakistan has the additional advantage of having a lot of uncertainty over how much control is being exercised over it’s nuclear arsenal and by whom.So it is going to be very hard for India to detect a potential launch. Consequently, the chances of some retaliation plan are greatly reduced especially if Pakistan manage to hit some very important targets where there is a stockpile of nuclear arsenal. India is not fully prepared for having a robust second strike capability when it comes to nuclear attacks. So as we can see, this is a scenario India would be looking to avoid.

Is the risk worth taking ?

We won’t go deep into math and risk functions; But we feel it is imperative for India to assess the risk of choosing the war option for minimizing the occurrences of cross border terrorism.

Society as a whole has a certain “well being” and bad events such as war or terrorist attacks reduce that well being (good events like better healthcare, infrastructure etc increase well being). From the above discussion, we can see that the potential risk for heavy losses in well being from a war situation is higher than that from more frequent random terrorist attacks against the nation. So this potential hostile approach might actually turn out to be far more damaging to India than the current sporadic incidents of terrorism.

Let it be noted that we are not advocating a “soft” approach to minimizing the risk of terrorist attacks. Making a country safe for its citizens is the duty of every government and same applies to India. The objective of this discussion is to impress upon the readers that the solution is not as simple as it is painted. Bill Clinton once described Kashmir as the “most dangerous place on earth”. It is going to require a lot of work to make it a “heaven on earth” again. And hopefully the solution won’t require guns.

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Statistics and Human Psychology

The human mind has made tremendous achievements in logically understanding the world around us in the past two centuries. Since the industrial revolution science has given us breakthrough technology, medicine as well as a “rational” way of looking at the world around us. Causality that had been explained using “gods of rain/wind” for example has slowly been discarded across cultures as more experimentally verified  explanations developed. Does that mean the human mind has achieved complete rationality and all human behavior can be explained using fundamental laws or the concept of equilibrium? The short answer is no.

There have been number of experiments and studies in the second half of the 20th century that show just how poor human mind (including ours) is at coping with randomness. It turns out that not only are people not rational in their decision-making, but they are completely fooled by the properties of randomness.

Its human tendency to take shortcuts (Kahneman). Rather than carefully evaluating risks, humans usually just look at the past and assume it reflects the future. Even when we extrapolate past statistics often times we only count events we remember, events that were significant. So frequencies of events measured in the past often times is used as the probability of an event in the future. Just like a fair coin toss. The probability of getting heads is calculated by repeating the coin tossing experiment a large number of times and dividing the # of heads by the total # of outcomes. So the probability of heads on each coin flip is 0.5. In most real world situations (like financial markets) you cannot necessarily rely on historical frequency  based probability. Just because an event has never happened in the past does not mean it wont happen in the future. This is because unlike a coin toss, the initial conditions keep on changing everyday and most of the times are unobservable or get too complicated. So any probability assigned to such an event in the future is based on belief and is referred to as belief-based or subjective probability.

Do you understand the weather ?

Just consider the weather predictions. A weatherman brings out a 30% chance of rain and you keep your umbrella tucked at your home. You go out and see the clouds thundering and water drops battering the ground and you curse the weatherman. But the poor guy has done no wrong actually. A forecast of less than 50% chance doesn’t mean no rain. It simply means that if weather conditions like today played over 100 times, 30 of those times it will rain.

Value of Money

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This figure above shows two curves – blue and red. The blue curve has a constant slope (rise over run) whereas the red one rises less sharply in gains territory and falls more sharply in losses territory. The red curve indicates that losses hurt more than equal amount of gains. Kahneman and Tversky (see Prospect theory) found that generally people behave according to the red curve. Consider a situation where a person gains $100 and then loses all of them. The blue curve would suggest that the person got the same amount of happiness from winning that money as the sorrow she got from losing it and so she should be indifferent. But if that person has a value function similar to the red curve then the sorrow of losing will be greater than the happiness of winning.  Now this may seem strange because it seems like people do not care about the absolute wealth. This asymmetry can also be used to explain why investors still hold on to losing stocks despite it probably being a riskier proposition. It is because losses hurt them more psychologically. Loss aversion does not necessarily mean risk aversion. It is important to remember that this behavior is not absolute but depends upon the reference point and the change in wealth and varies for every individual.

Black Swan 

Most of us probably remember where we were, what we were doing when two planes flew  into the World Trade Center in New york City on the morning of September 11, 2001. The shocking images of the tall skyscrapers crumbling to the ground are probably vivid in most people’s mind. 9/11 is what we call a “black swan” in probability terms. It was unexpected and caused great destruction – low probability and high impact event. Any normal distribution would have failed to recognize the true impact of 9/11 not just in terms of loss in human lives but economic impact as well. yet we continue using normal probability distributions to quantify risk in many cases only because its simple.

Power law

In our daily lives, we often face situations where the errors are only minor. Consider a machine which we encounter at work. It looks like it breaks down only infrequently and with small defects. So you might come to the conclusion that you are never going to face a big headache due to the machine. Enter the power law!

This strange but simple looking distribution is probably one statistical tool we can use in this case. The mundane small failures are all on the left. You can see that these events have a high probability of happening. But have a look at the right tail – the dreaded uncommon events. it shows that the probability is low, but they can occur. This may not apply in all situations. But we have to be ready for the right tail. The nice looking yellow part is the one that’s going to matter. Be prepared for that!

Don’t discard common sense! 

In many situations however its better to follow a heuristic approach to decision making because its simply impractical to do a complex analysis. This approach is quite common with traders of financial assets. The problems at hand are very complex and so the mind takes short cuts without being fully aware of the process. But a smart trader is aware of this fact and learns from trial and error. We believe that trial and small error accompanied by a sound understanding of statistics is probably a better approach in such situations than relying on complex mathematical models because the real world situations really make the decision-making process too complicated due to incomplete information. Its very similar (but more difficult) to learning how to drive in traffic – switching lanes to reduce the time of travel gets better with trial and error.

Uncertainty is everywhere; Deal with it !

For most of us, death will be unexpected and for almost all of us (don’t wanna piss off those who claim to have risen from the dead) its a once in a lifetime event. But many of us do not go about worrying if the fateful day is going to be today. But it is our duty to ensure that after we are gone, the impact of our death is minimal on those who survive us. Failure to do so cannot be attributed to a sudden catastrophe; only to the flaw in our understanding of this great game of chance.