Cricket, GameStop and new rules of risk decisions

And the stock market, which is the most obscure one for me, delivered an event that even people who work in domains far away from our earth, in space, had to pause in their flight, comment and participate.

I am told GameStop-hedge funds-Robinhood-Reddit created history and the saga is now an interview question for recruiting hedge-fund managers.

The repair work in my kitchen, where I lost complete control, the historic win of Indian cricket team where I realised I didn’t know names of all the players and the business of shorting stocks, where I am still keeping an eye on the drop in the price of GameStop has left a mark on me.

This mark, I call it, is short on nitty-gritties that are ingredients, which went into the making of these events but long on mental models that shape our thinking routine. What I mean by short on nitty-gritties is, for example, I learnt recently about Washington in cricket and about GameStop in the stock market. I am also short on detailed rules for both cricket and stock markets. That's not important for me. What I understand in detail is this: The new, real democracy.

When I wrote on inversion thinking, a hedge fund manager from the US reached out asking for more recommended reading on risks, fear and leadership.

I dedicate today’s article on Habits for Thinking to him. Risk frameworks and models that have been designed earlier do not include one thing anywhere in the world and that is the impact of democratisation.

Here are five observations that we need to be mindful of in our lives because rules have changed, a new democracy has taken shape worldwide and this democratisation is here to stay across all walks of life, including cricket and stock markets.

By dictionary: Democracy means the right of everyone in an organisation, etc to be treated equally and to vote on matters that affect them

And, democratisation: the action of making something accessible to everyone.

In today’s Habits for Thinking, here is a framework of decision-making around five aspects of democratisation that can have an irreversible impact. One must remember that no one can estimate the power of democratisation and therefore no one can estimate the size of its impact. It is like a spinning top that can stop within a few seconds of launch or continue for an unexpectedly long time.

1 Democratisation of knowledge

Even though I have been a fence sitter, I didn't need to attend a classroom on how stocks can be shorted in financial markets. Knowledge is accessible at a fingertip. Knowledge is democratised in not just what you can search on the internet but also to access whatever you want to learn irrespective of your age or the college degree you have. For instance, my teenaged boy learnt to configure an electrocardiogram machine under guidance of professors from Harvard and IIT through a summer course done by the upcoming Plaksha University. Everyone has access to knowledge in the areas one is interested in, irrespective of the field they are pursuing. Doctors and engineers far away from the financial field have access to knowledge about futures and options and other trading rules. And, they exercise this knowledge too.

Impact: Democratisation of knowledge means independence in decision making for individuals and redundancy of middlemen.

2 Democratisation of publishing

I am a classic concoction of method, skill and madness”— spinner Ashwin Ravichandran’s youtube page.

Ashwin has published several videos of team and coaches off the field, behind the game. Most of these are recorded with a fun twist during the mentioned cricket tournament and give a peek into the lives of cricketers

Read this excerpt from a Bloomberg article: “Welcome to the cutting-edge and cutthroat world of China’s 18.3 trillion yuan ($2.8 trillion) mutual funds industry, where traditional fund distribution networks like banks are overwhelmed by colorful and noisy livestreamers and globally renowned names such as BlackRock Inc and Vanguard Group Inc hold little clout among a young, tech-savvy investor class. ”

In the world of trading, there are livestreamers hosting their own voice. Yes, everyone can publish.

Impact: Democratisation of publishing means anyone with or without a celebrity status has the tools to publish their voice.

3 Democratisation of influence and leadership

We must understand the relationship between leadership and influence. Influence is an essential leadership skill and to influence means to impact behaviours, choices and decisions of others. In the absence of team captain Virat Kohli, Ajinkya Rahane stepped in and demonstrated his influence on the team with ease. Rahane was able to lead the team into a high-performance attitude.

Influence depends on trust and if the trust is set in, it becomes easier for the leader to take charge of the right influence. Social media influencers demonstrate that leadership to their followers.

Platforms take that leadership position too. Like, Zerodha uses a powerful tool called Nudge to help users with informed decision making. Nithin Kamath, Zerodha founder, described Nudge as following in a post: “We’re trying to incorporate nudges to warn users when they’re about to break the basic trading rules.”

Coined by Nobel Laureate Richard Thaler, nudge is a behavioural science concept and you can read more about it in my earlier article.

Impact: Democratisation of leadership and influence means more and more people are empowered to influence people in decision-making.

4 Democratisation of power

Democratisation of influence and leadership leads to democratisation of power. Power is not wielded by one single force anymore. It now means a collective force of many small forces. This is what we have seen in the case of GameStop when Redditors wielded a collective force against large, powerful forces like hedge funds.

Something similar happened with the cricket team too where lesser-known stars stepped up as a collective force to demonstrate the power of performance.

When collective forces come together, it is far more powerful than one big force. If you put two equal teams at the opposite sides in a tug of war, do you know who will win? The one where all members pull the rope exactly at the same time. This is the collective force and this is how democratisation of power pulls down large forces with one coordinated effort.

Impact: Democratisation of power means platforms that bring people together can create collective forces that can create a massive, unexpected impact.

5 Democratisation of capital

In a podcast interview, Chamath Palihapitiya, the founder of Social Capital, spoke about his Tesla investment made many years ago. He spoke about how a collective group of people created a pool of research work on Tesla. Some wrote research papers, some created Youtube videos.

Chamath said the group was diverse— physicists, chemists, doctors and financial analysts. So by the time Chamath and his team took a decision to invest, they had detailed, multidimensional information about the company, courtesy this diverse group collectively interested in one company.

There are private associations that jointly work on a financial investment decision even though the money spent is personal. This gives every member of the association a multidimensional approach to investment decision-making, something similar to what retail investors did collectively to outdo hedge-fund capital. Crowd-funding in startups and charitable causes is a similar process that is already seeing democratisation of capital.

Impact: Democratisation of capital means being cognisant of this risk while making investment decisions, notwithstanding the size of the investment.

This is a new framework to aid decision-making. It is based on the behavioural changes that we are seeing due to growth of social platforms. Platforms bind people in communities and manage a democratic world in that domain.

Democratisation is here to stay. It goes with my kitchenomics, too, where the service-providers have decided to place my sugar bowl in a corner difficult to reach.

(Vishakha Singh, author of a forward-thinking course SHIFT, is a business strategist & a design thinking practitioner. She writes at www.habitsforthinking.in, offering insights into the ever-changing business environment.)