Thursday, December 4, 2014

Review and Critique of the Course

Coming into this course with some experience working in a small business, I found much of the material easy to relate to and apply to my own experience. However, I wouldn't say I knew a great deal of the material beforehand or looked at aspects of organizations from my experience in the way this course taught me to. I enjoyed looking at my family's small businesses from the lens of Katzenbach and Smith's distinguishing characteristics of teams, thinking about my own investment in my education from a risk management standpoint, and learning and understanding the Principal-Agent, Gift Exchange, and Shapiro and Stiglitz Models and how they apply to organizations and the economy as a whole.

In the first week or so of the semester, we were asked to describe the "best" class we had ever taken in our academic careers. I recall talking about an Econ class I took before transferring to Illinois, boasting that it's small class size and free-flowing lectures allowed me to maintain interest and feel like the professor was really helping us understand the material, and feel that if I didn't understand something, I could easily bring it up in class without the class falling behind. I felt very similarly about this course. There was a clear topic or list of topics to go over each class meeting, but a loose template otherwise allowed for more "jiving" in class, with which we could pick each other's brain and better wrap our own heads around the material, which I would take over reading an overhead projector any day of the week.

As far as the blog posts and homework go, I enjoyed them for the most part too. The blog posts certainly take a lot out of you. I found myself pacing around my room for quite some time each week trying to decide what to write about and once I decided that, what points to cover in my writing. When we discuss blogs in class and I realize all the points I missed in my post, I was often a bit disappointed, but then I realized that this helped me look at the situation form another perspective, which I believe helped my later posts. So the goal of the blog portion of the class (that they would further critical thinking skills throughout the semester) was fulfilled. Homework was another aspect that was both helpful and frustrating at times. For one, I was very impressed with the work put into developing excel spreadsheets with such detail and so many moving parts. And while I found some of the material difficult to comprehend, the explanations and graphs, along with assurance of correct answers (eventually), helped assure that I ended up figuring things out, most of the time anyway.

I guess one critique I would have for the course, which actually seemed to alleviate itself throughout the semester, was the disconnect between the three elements of the course, lecture, blog posts and excel homework. Early on, I found it odd that much of what was gone into in depth in the homework was not covered as heavily in class or if it was, wasn't covered in a mathematical sense, as the homework required. It seemed that the lectures were much more theoretical and abstract, whereas the homework was concrete and formulaic. Similarly, I found that some of the blog posts required in-depth reading of the course texts which was not always required for class or the homework. However, as I mentioned, this problem didn't last throughout the course. Over the last several sessions, we have delved deeper into the graphical and algebraic aspects of the materials which has made the homework easier to comprehend and relate back to the class.

Overall, I very much enjoyed the content and compilation of the course and would be willing to seek out more like it in the future. You can only handle so many powerpoints and non-discussion lectures before they really start to lose your interest.

Friday, November 21, 2014

Example of Personal Reputation

I'm going to use a somewhat geeky reference for this post and discuss the fantasy football league I participate in with a few of my buddies from high school.

When I was a sophomore in high school, a friend of mine and I joined our school's fantasy football league which was ran by our Physics teacher and an all all-around cool cat Mr. Maruna along with a few older students. After winning the league in my first year (no bragging here, it was all complete luck), I couldn't get enough of the "sport." So the next year, after many of the other guys in the league had graduated, my buddy and I took it upon ourselves to help Mr. Maruna out with getting a league together. In fact, I think (know) we were far more excited about the league than even he was. After we graduated, we of course wanted to keep a league of Routt guys together so we started an "alumni" league, I guess you could call it and got several of the guys we had played with in high school together. Without Mr. Maruna who we didn't think would want to play in a league with a bunch of old students, I became the new Commissioner.

As Commissioner, I'm in charge of getting the league together each year, creating rules and regulations, making sure everyone has paid their dues and plays fair, allowing/vetoing trades, etc.. I feel I've built a large degree of trust with the guys in the league over time. Of course there is always the jokes of corruption and collusion, but they all seem to trust that I always make my decisions based on the good of the league as opposed to just myself since I have a team like everyone else. In fact,since we actually have a decent amount of turnover in this league due to busy college schedules etc., I've tried to build trust with newcomers by absolving some of my executive power in the league in a few ways. For one, we take league wide votes on major decisions, such as the establishment of a "keeper" rule (keeping a player on your team from the previous season), since it drastically changes the approach one takes to building a fantasy team. Also, I have put together a council for trade evaluation in which 3 other veterans of the league along with myself determine whether a trade should be allowed or vetoed. This way, I personally cannot make an unfair trade without being checked by the council. 

I try never to make any trades that could be considered unfair myself, not only because I will be called out and my reputation will be damaged, but also because I don't like ruining another team's chances to win. I know from experience that once your team falls out of the race for the playoffs, fantasy becomes a real bummer and that could sully the chances that that player returns for the next season. This is also why I sometimes offer advice to the lesser experienced guys as to whether they should make that trade or pickup they were considering. I feel that may also help my reputation with guys in the league and be another example of how I put the league before my own team.

It can be difficult to not "cash-in" and take advantage of other guys' naivety, especially when my own team is lacking. When another team has a superstar and nobody else, it's easy enough to sell your lesser players for more than their worth considering the guy you're selling them to trusts you to be a man of your word. Therefore, I try to make sure the other guy knows what he's getting and giving up and instead of pulling the wool over their eyes, I trade them players that could help them but I can't necessarily use myself in exchange for guys they may not value as much as I do. This strategy has been quite successful over the past couple of years. I've sharpened my ability to find value in players and I've kept my rep with the league in tact. 

Friday, November 7, 2014

Example of Principal-Agent Model

In the midterm elections this past week, there was a proposition on the ballot in Illinois for a potential minimum wage increase which would eventually make its way to $10/hour. Of course, this was just an advisory question to take the temperature of those in favor of such a delegation. Instead, the governor and state congress will be responsible for passing or rejecting this bill. In thinking about this issue further, I thought about how vastly different the sides voting for or against were in regard to this bill. There are many (specifically minimum wage workers) that could benefit from an increase in wages, at least in the short run before inflation takes effect. On the other side, there are many (specifically minimum wage employers) would would suffer from an wage increase. Of course there are too many effects of a large-scale wage increase to discuss in a single blog post, unemployment, inflation, tax revenue and production volume to name a few. However, I still would like to discuss how the government as a whole would go about determining whether or not this law should be passed. This isn't so much a case of an agent trying to please two principals, but rather one in which the agent must choose between them.

Of course, most politicians are tied to the views of their party and therefore will work solely toward the platform they've run on (or so we assume). This ultimately is how the politicians will be judged in the future. If they succeed in passing/blocking the laws they promised their voters they would, then they will likely be re-elected. Otherwise, they could get the boot. This fact essentially answers my question about which way the government will act. However, I would like to assume the government were a bi-partial entity with no allegiance to either party. How would such an entity approach this issue?

The proposition itself is a single yes-no question: Raise minimum wage or not? Because of this, once the government (agent) makes their decision, they will have seemingly chosen a side, pleasing some and angering others. Should the agent simply choose whichever side is larger? Ergo choose the answer that received more votes on the ballot on election day? Perhaps. Although, I believe that vote many be misleading as to which decision is truly better considering there are far more employees than employers in the private sector. 

There is another way to attack this situation which I think may be best, although it may not yield the popularity of being the best option by the widespread public. The government should look at the situation not on the basis of "who many people will be helped by each ruling?" nor "what ruling makes the most positive impact immediately?" Instead, the governing body needs to analyze the situation from a purely objective and economic standpoint. If minimum wage increases, what will be the short and long-term effects on workers? Businesses? State GDP? State Income Tax revenue? Unemployment? Inflation? There are countless effects of this potential law that need to be analyzed. Eventually, the result should be that the state economy as a whole (key word) will be better off under one ruling or the other. Using Macroeconomics and a bit of Micro as well along with existing policies and economic climate, the government should be able to at least decide which choice would be a better bet for a better tomorrow. Of course, even when determining the (potentially) better choice, the governing body still must make an arbitrary ruling on the proposition, which will anger one side or the other, perhaps because they don't understand the expected outcomes or because they know they personally will likely be hurt (at least in the short-run) even if the state as a whole is better off.

Of course, this isn't quite how the system works. Politicians are not bi-partial but rather completely one-sided. Therefore, whichever party is in power will make the ruling they wish, as decided by their voters hopefully. This throws a bit of a wrench in my quandary, as it seems that each politicians serves a single principal, their voters. Still, I thought it was interesting to explore the idea as a whole considering the clear differences in interest of employees vs. employers, specifically.   

Monday, November 3, 2014

Example of Conflict in the Workplace

For this prompt, I thought I would use as an example my favorite movie and book, Moneyball. In this story, the main character, Oakland Athletics General Manager Billy Beane (played by Brad Pitt in the film), faces the challenge of putting together a competitive baseball team despite having a payroll far less flexible than many of the other competing teams in the American League. After the 2001 season in which his A's were defeated in the playoffs by the New York Yankees who boasted nearly triple the payroll of the A's, several key A's players leave the team via free agency to sign with teams that could afford to pay them far more the Oakland could. In order to fill holes on the rosters without spending very much money both in the short and long-term future, Beane knew he had to approach free agency and the draft differently. Therefore, he turned to sabermetrics, the science and empirical analysis of baseball statistics. Using sabermetrics, Beane hoped to find value in players that other teams didn't see. However, this strategy also required that Beane overlook aspects of baseball and baseball players that others in the industry did value, including many within his own organization. This is where the conflict comes in. Beane's outlook conflicts with scouting director Grady Fuson (Ken Medlock) and manager Art Howe (Philip Seymour Hoffman), both of whom believe in the more traditional approach to baseball operations. 

This conflict (Since Fuson and Howe have similar takes on baseball operations, I'll lump everything in as one conflict despite Beane having separate run-ins with Fuson and Howe) stems from a fundamental disagreement on how a baseball team should be put together and utilized on the field, but it goes much deeper than simply wanting what is best for the team for both sides. 

Beane realizes if he continues to approach building his team the same way as other organizations do, he'll lose because other clubs can simply outspend him. Therefore, he decides to find the most efficient way possible to put a team together. Through studying the sabermetric teachings of Bill James, Beane and his Assistant GM Paul DePodesta (named Peter Brand and played by Jonah Hill in the film) determine that the two statistics most closely correlated to scoring runs are On-Base Percentage (OBP) and Slugging Percentage. All other stats have lesser influence on scoring runs and therefore winning games. Therefore, Beane decides to go after free agents and amateur players based solely on their career OBP and Slugging. In doing this, Beane is able to find several players who other teams wouldn't look twice at. This raises eyebrows in Beane's scouting department. Fuson argues that these players cannot play as they are un-athletic, play poor defense, and lack raw power, an understandable argument coming from a scout whose job it is to find the most talented players in the world. Beane dismisses Fuson, noting that those other aspects, those that Fuson values, don't matter to him. 

When it comes to putting these players into the lineup, Howe refuses, applying the same logic as Fuson, that the players Beane has added are less talented and therefore shouldn't play. When Howe repeatedly disobeys Beane's orders to play the the players as Beane designed them to be played, Beane trades away the players in front of those he preferred on the depth chart, forcing Howe to play the players as Beane wants. 

Fuson and Howe could simply say, "oh well, Billy's the boss. If this fails, it's on him.", but that would not only violate their fundamental beliefs about baseball, which had been molded over decades in the industry, but would also endanger their future in the industry. In baseball, individuals are evaluated by the decisions they've made throughout their career. They are judged by these decisions even when they belong to someone else. If Howe would have played the players Beane demanded him to and those players were to have played poorly, it would be Howe that received the criticism from fans and the media. Also, he wouldn't be able to explain it in job interviews for managerial jobs in the future. He would either have to take the blame for the poor decision or admit that he was steamrolled by his own GM. Why was this a major problem for Howe? I mentioned earlier how thin the budget was in Oakland. With players being run in and out, Howe could bet he wouldn't last long there no matter how well he did. If the organization wouldn't put their faith in him with a contract extension, why should he put faith in their system, which could seriously damage his reputation? The same goes for Fuson, who felt his position would be all but obsolete with Beane ignoring scouting reports and basing decision solely on statistics. Both Howe and Fuson would have to take on a great amount of risk in order to follow Beane's orders, and considering Oakland would unlikely retain either even if the plan succeeds, the positive outcome was minuscule comparatively.

Despite Fuson and Howe feeling similarly about the situation, the two experience far different outcomes. Fuson resigns after getting into a verbal altercation with Beane (or so the movie depicts). In reality, Fuson left the organization for a Assistant GM postion with the Texas Rangers. Howe, on the other hand, lets the team be after Beane ties his hands and when the team eventually succeeds, Howe receives a fair amount of the credit. 

This shows that this particular conflict had very different potential outcomes. The interesting part of these outcomes is that they were reached through almost the set of circumstances. Neither Beane nor Howe made any compromises in order to reach a different outcome than Beane reached with Fuson. Perhaps Howe did give Beane a longer leash than Fuson did before he walked away from the organization. The important thing to note about the outcome and the conflict in general is that Beane, acting as the superior with control over the situation, would not have compromised on his strategy regardless of the consequences. He was ready to see his plan through even if meant losing his job in the case that his plan failed. 

This outlook of Beane's verges on opportunism when it comes to others in the organization, namely Fuson. As I mentioned earlier, the statistical element to Beane's decision making process to an extent replaced the scouting element. If Beane doesn't care about how athletic a player is or how his swing looks, why even bother with scouting? Beane's opportunity to find players at a better value to the organization meant potentially making the entire scouting department, including Fuson, obsolete and non-essential. The only step further Beane could have went with this process was to eliminate the scouting department altogether, which would cost several people their jobs. 

That action would have been one of several transaction costs of the new baseball operations system. "Adapt or die" Beane says in the film. Howe and Fuson were just two of many within the organization who had to either completely change their own approach to the game they had played and/or studied for years or find another job. 

Ultimately, Beane's plan was successful. The A's went onto earn the American League's best record in 2002 and Beane's system was implemented by several other organizations throughout baseball as a pinnacle of efficiency in a sport where efficiency was sorely needed. However, I don't believe one could argue very effectively that the specific conflict I've described went as well as it could have. Beane essentially worked around both Fuson and Howe, taking the bat out of their hands you might say. In an organization in which employees aren't as easily expendable, Beane almost surely wouldn't be able to treat Howe and Fuson as he did.

Friday, October 24, 2014

Experience with the Psychology and Economics of Team Production and Gift Exchange

The New York Times article, "How to Get the Rich to Share the Marbles," given in the prompt for this post makes an interesting and very legitimate comparison between man's psychological willingness/non-willingness to share and the current direction of the Democratic party. The behavior of the toddlers in Tomasello and Hamann's experiment seemed quite similar to the consensus behavior of many Americans when it comes to their roles in the American economic structure.When participants are aware of the source of the payout, the dividing up of payouts is usually based on whose input led to what payout as opposed to being based on who gave the biggest input. This system seems to make sense as far as distributive fairness. You've heard the saying, "work smarter, not harder." If one person's effort led to a much bigger payout than another's, why should the first person have to share the wealth they received? This is the problem that Democrats want to alleviate. What will increase the wealthy's willingness to share with their less wealthy counterparts? One idea might be if the wealthy's payout is dependent on their sharing with the less wealthy. I have a example.

I took a class on Financial Management a couple of semesters ago. Part of the curriculum involved a group project in which we analyzed the stock market on a weekly basis, decided on stocks to "buy" or "sell," and reported our findings. After a semester of buying and selling stocks, we had to write a paper as a group, describing various aspects of the projects and our findings. We originally broke this paper up into even parts, so that everyone would provide the same input. However, as the process went on, small chunks of other members' work fell onto the shoulders of myself and one other member. In addition to helping the other members with their chunks, the two of us had to review and edit their work and get the paper formatted for submission. Essentially, the assignment became largely the product of the two of us with small inputs from the other members. Why would we be willing to gift the other members  by helping them out with their chunks? Of course, it was because the group as a whole received a single grade. Helping our group members led to us receiving a higher grade.

This could translate over to Haidt's idea in his article. Since the payout for the two of us who were doing most of the work hinged on the performance of the group as a whole, we were willing to gift our other group members with increased production. If we were each graded individually (assuming the professor could determine how hard we each worked), the two of us would have no incentive to help our group mates out.

This idea sounds feasible considering everyone benefits in the situation. The two of us still received a good grade and so did the rest of our group, but is that fair?  That's hard to say. On one hand, those whose work leads to positive payouts should be rewarded accordingly. However, was is necessarily the fault of our group mates that their work may not have led to such positive payouts? If they truly worked hard on their section of the project, but struggled in some way, should they be punished by receiving a lower grade than other group members who produced more? In theory, one would almost certainly say no. However, if we were to distribute payouts based on effort alone, how would effort be quantified?, i.e. what would stop members from only demonstrating perceived effort in order to receive a payout? This seems to be the critique of choice for Republicans opposed to the liberal agenda of the Democrats. If everyone works hard, then equal payouts is feasible, but if some slack because their production doesn't affect their pay, that could lead to real problems.

The only part of Haidt's piece that doesn't seem to connect with my experience is the final paragraph, regarding the rich lobbying in Washington to help themselves become richer. In my experience, there wasn't a way for any of us to lobby with the professor to give us an edge in grading. This might be an aspect in favor of equal pay for all or effort-based payouts. If everyone received the same payouts, no single person would have any more utility than another, which would effectively cancel out the ability to lobby and the edge gained from lobbying.

Thursday, October 16, 2014

Thoughts on Managing Future Income Risk

The extent to which my current decisions affect my future is a subject I have struggled with over the past few years, often changing my views on the matter. Let me explain.

After graduating from high school, I enrolled at UIS, a school to which I could commute while also working a full-time job at my family's chain of dry cleaners. It seemed to be a fairly good situation. I received a partial scholarship from UIS and the tuition rates were pretty reasonable on top of that, so between my savings, my income, and partial financial help from my parents, I was on-track to be able to pay for college without taking out any student loans. Meanwhile, while working for the family cleaners, I learned a great deal about businesses and microeconomics outside of classes. If I had kept in this system, I believe I would have been set up pretty well for my immediate future after college as I would have a college degree, little-to-no debt, and experience in the field I was entering prior to graduating.

However, I was never quite sure whether I truly wanted to go into the family business, and if I were to, I would likely go into my parent's other business, Flynn Sales & Service in which we sell and repair commercial laundry equipment (I discussed this business in a previous post), as opposed to the dry cleaners. While I had been around the business throughout my life, I didn't have nearly the amount of experience with repairing equipment as I did at the dry cleaners, not to mention the lack of experience with the differing customer base, business operations, etc.. You may wonder why I didn't work at Flynn Sales instead of the cleaners. The reason is pretty plain: Flynn Sales would've demanded  me to work hours completely incompatible with my school schedule while the cleaners hours were flexible, and also the need for employees at the cleaners was much higher than at Flynn Sales. In addition to this oversight, I had become somewhat disenchanted with my situation as a whole. Long hours at school and work left little time for other things, such as a social life. Also, I knew that if I stayed in my situation, I may not get the chance to experience new things and would surely end up working for the family business, which as I said I was undecided on.

For these reasons, I decided to transfer to UIUC. If you travel to Springfield, you'd quickly see that Champaign  and Springfield are very much alike once you're outside the campus, but they were different enough for me and Illinois, being a state school was still within a reasonable price-range tuition-wise. That's not to say the transfer has not been expensive. This is where the new risk comes in. Transferring to a slightly more expensive school, coupled with living expenses and the loss of my full-time job, has thrown me completely off my plan to graduate without debt, which certainly increases the risk I am taking on my future. Also, the move to UIUC is surely not helping me in preparing to work for Flynn Sales. However, I hope that UIUC will help me in finding employment in a different field if I choose to enter one, as it is held in high regard and would insure that I receive a good education. I would consider this a very big risk considering I gave up a decent amount in both accounting costs and opportunity costs to attend here. However, taking the risk wasn't necessarily the goal in coming here. I wouldn't consider myself a huge gambler. I mainly transferred here in order to experience something different than I had been and determine whether or not I want to continue on with my family's businesses or take a chance on doing something different.

I still have Flynn Sales and the cleaners as a fall-back of course. In fact, I spent the summer back home in Jacksonville working for Flynn Sales in somewhat of an apprentice's role. Without classes to get in the way, I was able to dedicate much more time to studying how the business works and what my role may be there if I choose to work there full-time after I graduate. That experience should help me in deciding what I want to do after I graduate and also eliminate a little of the risk seeing as how I have a fall-back option if I choose not to pursue another occupation.

My choices have been slightly different than my siblings before me. My oldest sister, Becca, for example approached college a little differently than I did. Becca was incredibly efficient in her approach to college, which somewhat resembles my approach before I decided to transfer. She enrolled at Illinois College, a small private college in Jacksonville. This allowed her to live at home, cutting living expenses as well as work full-time. She was able to graduate with honors with an Accounting degree in a square four years with little in the way of student loans and quickly find a great job in Jacksonville which helped her pay off her loans in a somewhat painless manner. She seemed to have an understanding early on about what she wanted and was incredibly driven to achieve her goals. While I don't know exactly how intentional it was, she minimized her risk almost throughout the whole process. She controlled the amount she was spending in order to graduate without an obscene amount of debt, she chose a field of study that not only paid well but also was in high demand in our area, and finally, and also she made sure the things she did on the side; working, extracurriculars, etc. would all help her in the future in some way, shape, or form.

I have not managed to be quite as efficient in my approach as Becca was, and shame on me as an economics major for not being efficient. However, I also didn't quite know exactly what I wanted to do from the start of my college career like she did and therefore felt taking a risk may carry more utility for me. In taking the risk that I did, I may have helped myself find what I'd like to do as far as a career goes. She never had that problem and therefore never felt the need to take a risk when choosing a college and an approach to graduating and moving on after college.

Friday, October 3, 2014

Thoughts on 'Illinibucks' Concept

At a major university such as Illinois, there are lines everywhere for everything. Even when there are multiple venues to find what it is you're looking for, the sheer volume of students makes certain that several other people are looking for the exact same thing. This is what makes Illinibucks so interesting. If the university were able to allocate and redistribute these lines based on what students find most important, not only will many students be able to get what they really need  quickly, but they may tend to be more complacent when they are waiting in line for something less vital. Theoretically, the university could increase student satisfaction at little or no financial cost.

The simplest way to implement this system is by administering a given amount of Illinibucks to each student either as a lump sum upon enrollment, or periodically each semester, month, week, etc. If they choose to provide Illinibucks periodically, I believe it is only proper that rollover is allowed, otherwise students would be forced to spend all their Illinibucks in a given amount of time even if they don't wish to so as to not waste them. Rollover would also ease the process of accepting Illinibucks, as vendors would not need to check expiration dates etc. in order to accept the bucks as well as allow students to save for situations that occur infrequently, such as class enrollment.

These Illinibucks could be used at any type of line on campus: bookstores, coffee shops, dining halls, perhaps even local private businesses if they wish to implement the system. It would not be difficult for the university to set such a thing up with local businesses and the result would likely be beneficial for both parties: Illinibucks get more validation and become more valuable and versatile and the businesses may see more customers who wish to take advantage of the bucks.

The difficult part of the system would be in setting prices and the amount allocated to each student. A hierarchy would need to be established to determine which lines are more valuable to cut than others. For example, the price of priority course registration must be far higher than the price to cut in line at the coffee shop. Some differences may be solely based on preference, for those situations, the prices would be similar. The university will need to make sure that there is similar demand quantities for each venue, so that students don't all choose to spend their bucks in the same line, otherwise the system would be useless.
In addition to establishing this hierarchy of prices, the university must decide how many bucks to give each student. There must be enough for students to actually be able to make use of them, but not too much that every student can cut in every line, otherwise the system would be useless.

I personally would likely spend my Illinibucks on registration for course. I'm one of those students who are usually behind the ball when signing up for classes and it would be nice to be able to still get into classes despite my laziness! However, this leads to the problem that I suggested earlier, that certain perks of Illinibucks are much more valuable than others. I assume most students would choose to purchase priority registration, which essentially nullifies the perks. Those who spend their bucks on registration would skip ahead of those who don't but would still have to wait behind the countless students who have already used their bucks on registration. So the benefit for students may not be quite as great as they hope.

With that last bit being said, I still think the system could be overall beneficial to all parties for the second reason I mentioned in my first paragraph. Since students are given the opportunity to cut ahead in line, those who choose not to should tend to be more content than they would be if they had no say in the situation.