Taxi Strike and Mental Models

I was extremely lucky to spend more than one month in Mumbai seeking wisdom from a lot of smart value investors. Everyday I used taxi to navigate the city. Everything was going as planned until the taxi drivers went on a two day strike protesting against app-based taxi operators like Ola and Uber. No taxis were running on day one and I commuted the city by foot. Around 10-20% of the taxis were running on day two. And I was lucky to get a taxi. In order to understand the situation better, I started a conversation with the driver.

Me     - What is the reason for the taxi strike?
Driver - Before Ola and Uber I used to make around 1500 rupees everyday.
Driver - After they came I am only making only 1000 rupees everyday.
Me     - Why is that?
Driver - For every kilometer we charge around 15 rupees and they only charge 11 rupees.
Driver - Customers can easily book cabs from Ola and Uber using their mobile phones.
Driver - They're taking away our customers. So we're protesting against them.

Based on the information provided by the driver, I came up with the price comparison chart shown below. The chart accounts for the difference in minimum charges between Ola cabs and Taxis. Ola cabs charges 100 rupees for the first 4 kilometers and Taxis charge 22 rupees for the first 1.5 kilometers.


I didn’t jump to any conclusions based on the information provided by the driver. In other words I avoided first-conclusion-bias. To analyze the situation better, I stopped conversing with the driver and started an imaginary conversation, inside my head, with some of my role models. The first one who came to my active mind was Bruce Greenwald. I asked him, “Why are the taxi drivers losing market share to Ola and Uber?”.

To that he answered – “For a business to maintain its market share it needs to have a durable competitive advantage. And it stems from three sources (1) supply side advantages; these cost based advantages could come from a proprietary technology, access to specialized niche resources or an accumulated body of experience. (2) demand side advantages; these advantages occurs due to customer captivity which comes from the combination of habit formation + brand loyalty or due to high switching costs. (3) economies of scale; these advantages comes in businesses with high fixed costs and with high volume of sales the average cost per unit sold goes down.”

In the video given below watch from 7:00 to 8:50 minutes to see Greenwald talk about durable competitive advantages.

From his answer it’s very clear that taxi drivers have none of the competitive advantages. Also the new entrants are providing convenient booking for the customers and they’re offering the service at lower cost for distance more than 10 kilometers. This resulted in taxi drivers losing market share to Ola and Uber. But the total number of taxi drivers on the road are still the same. And each one will receive less than what they were making before.

After Greenwald, the next person that came to my active mind was Sam Walton. I asked him, “Why not prevent Ola and Uber from operating so that taxi drivers can operate by charging higher fares to their customers?” To which he answered

I think, of a group of people believing for some reason that they’re just entitled to take a piece of the action, no matter how little they contribute to the transaction or what it means to the customer. The argument is as simple as the small-town merchant controversy. If American business is going to prevail, and be competitive, we’re going to have to get accustomed to the idea that business conditions change, and that survivors have to adapt to those changing conditions. Business is a competitive endeavor, and job security lasts only as long as the customer is satisfied. Nobody owes anybody else a living. – Sam-Walton-Made-America

After Walton, the next person that came to my active mind was Charlie Munger. I asked him, “Should I tell the taxi driver about what Greenwald and Walton told me. And why protesting against Ola and Uber might not change the fundamental reality?”. To which he answered – “It’s very hard to get a man to believe non-X when his way of making a living requires him to believe X. And they’re losing marketshare which made them to operate in deprival super reaction syndrome. Any suggestions from you will make you a persian messenger and he’ll reciprocate his animosity towards you.”

Even though I was enjoying my conversation with my role models, I was restless deep inside. My amygdala was constantly scanning the road to see if someone is throwing a stone at the taxi. Before getting into the taxi, I read this news and the vivid images of broken glasses and a stone made me to behave that way.

Few days back I was reflecting on my fear and at that moment Daniel Kahneman came to my active mind. I asked him, “Of few thousand taxis that ran on that day one of them was hit by a stone. The base rate of getting hit by a stone is less than 0.1%. But on that day, I didn’t think using base rates. Instead I fell for a single story. Why did I fail to apply what I already knew?” To which he replied.

I visited Israel several times during a period in which suicide bombings in buses were relatively common— though of course quite rare in absolute terms. There were altogether 23 bombings between December 2001 and September 2004, which had caused a total of 236 fatalities. The number of daily bus riders in Israel was approximately 1.3 million at that time. For any traveler, the risks were tiny, but that was not how the public felt about it. People avoided buses as much as they could, and many travelers spent their time on the bus anxiously scanning their neighbors for packages or bulky clothes that might hide a bomb.

I did not have much occasion to travel on buses, as I was driving a rented car, but I was chagrined to discover that my behavior was also affected. I found that I did not like to stop next to a bus at a red light, and I drove away more quickly than usual when the light changed. I was ashamed of myself, because of course I knew better. I knew that the risk was truly negligible, and that any effect at all on my actions would assign an inordinately high “decision weight” to a minuscule probability. In fact, I was more likely to be injured in a driving accident than by stopping near a bus. But my avoidance of buses was not motivated by a rational concern for survival. What drove me was the experience of the moment: being next to a bus made me think of bombs, and these thoughts were unpleasant. I was avoiding buses because I wanted to think of something else. – Thinking, Fast and Slow

If Kahneman couldn’t think in probabilities then an average person like me has no chance. So I shouldn’t feel guilty about my behavior that day. In this post I took a real life experience and analyzed it using various mental models that is stored in my head. By doing that I was able to see the reality as it is. This is what Munger meant when he said, “You’ve got to array your experience—both vicarious and direct—on this latticework of models”.


24 thoughts on “Taxi Strike and Mental Models

  1. Nice One Jana..Would also like to add-

    Josh Waitzkin author of the book “The Art of Learning”, would have advised taxi drivers to change their perception of moment. Because the other parallel-which is time will fly, and they can get compressed into the current moment, leading into a negative spiral.


  2. Dear Jana,
    Thank you. It is truly wonderful the way you explain complex subjects and matters. Would love to see more of such posts where you apply various mental models to daily life/business. Have a great one !

  3. That was too good!
    Knowledge is not Power….Application of knowledge is Power! And you are a powerful person I would say! 🙂

  4. Sir

    I just love reading your articles ….your blog truly helps ” master the best of what people have already figured out” ….Have you analysed business models of Private Cab Services like Ola and Uber the way you had analysed in detail businesses like STFC / Ashiana Housing / John Deere….It would be a great read

  5. This is a blast. Tons of fun! The pictures of the broken glass also recall Charlie’s “bias by extra vivid evidence”. Nice expression of how the ideas can be used in daily life. BTW, I understand that to some extent, Uber is subsidizing cost to gain market share. Do you have any info on that? This is a fun post, thanks.

  6. Superb article Jana.

    I have few queries (may be biases or mental models don’t know)…

    1. I always share articles with my friends. After reading your article i shared this one with friends but i share it with new friends or which where there in my mind recently. Is this the recency bias?? And if yes, my mind was searching frnds who can share their view and are interested on the same. Though this is useful for everyone. And later on I share it with other friends without thinking anything. This is not purposely done. I may be doing every time, but this I thought on the same and realise it.

    2. One more thing, two months back when I was buying the share and it was increasing rapidly like 500-700-950-1000 and so on. I was buying at higher level again & again which was not good and at peak level was not so good still some buying was there. Though it is good company with good fundamentals. I don’t know I was in overconfident bias or fear of losing opportunity at that time. Kindly share your view on the same.

    • Vicky,

      Thanks for your comments. For (1) it’s recency bias combined with habit (2) as long as you’re buying when the price < intrinsic value then you're ok. If not you're acting in the biases listed out.


  7. Nice post Jana.

    I just have one point to add here regarding the Kahneman ‘s view on not taking the buses and actually getting little scared of it. I completely justify that act.

    Warren in one of his talks to the students says, The risk I take will be calculated with the favourable odds. If you load a gun having a million chambers filled with only one bullet in it and ask me to shoot myself. I am not going to do so. No matter even if you give me enormous amounts of money. I am not going to do so. The upside may be high but the down side is much disastrous comparatively.

    I guess, Kahneman fear of bus in Israel is also valid and should not be labelled as irrational. Yes the base rate is low. But if the probability of increase in that base rate is high, (which was happening at that particular time in Israel), its completely rational of how Kahneman behaved at that point of time.

    Another point is, in your case of thinking that you might have to deal with that stone throwing & breaking glasses kind of incident should be viewed from “Base rate” perceptive. Because here the maximum downside that can happen is you may be late to your schedule and you may have to walk or check for an alternative.

    Finally my point here is, if we distinguish the Kahneman’s bus ride in Israel and your’s cab ride in Mumbai shouldn’t be viewed both from same Base rate perceptive. As both of these have completely different downside outcomes.

    Best Regards,
    Krishna Kishore A

    • Krishna,

      You have a point. When you put Kahneman and my brain under FMRI the flight-or-flight center would be similar. At that point all base rates goes out of the window. You’re correct that one has to use the higher order functions of the brain at that time. But it’s easier said than done.


    • Krishna, I was wondering about the exact same thing! Even thinking about Warren and how he says in certain things (like excess leverage) he would not do it even if the chances were 1 in 100 that it would go wrong.

      What you are saying seems quite correct. But maybe focus less on the base rate than on the “payoff”. Because even at a low base rate, a terminal event has a horrific payoff. (Basic expected value computation).

      What Jana is suggesting, as far as I interpret, and it makes sense, is that we should view high impact/low probability events within a spectrum of payoff outcomes and then make a rational decision about what fits into our world view to determine our actions.

      The alternative is “running scared” without the thoughtful process – allowing only the emotion to drive the actions.

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