Monday, December 5, 2016

Blog 12: Critique

(I apologize for the timing of this blog. Preparation for a Calculus 3 final has, quite frankly, turned my brains to mush and I forgot about this blog until today.)
      
            As I was reflecting on the topic of reputations from last week, I reflected more on my own academic reputation and how it affects my behavior. In a sense, a good reputation has its own form of utility -- it is desirable, and developing more of a positive reputation can allow one to obtain "goods" such as a higher social standing and additional influence over others. As we saw in the wide variety of responses to last week's prompt, some people like to make choices that risk their reputations more often than others. Therefore, people might be categorized as risk-loving, risk-neutral, or risk-averse with regards to their reputations. I would definitely categorize myself as risk-averse with regards to my reputation as a strong, thoughtful student. If the boost in reputation gained from actions that further enhance one's reputation, such as receiving good results in school in my case, can be thought of as a "payout" for those actions, I am one to choose a lower expected payout in exchange for less risk involved in the payout. Before this semester, this was most evident in my humanities classes in which papers are written with a large range of possible topics and in which, due to the relatively subjective nature of grading in the humanities, it may be hard to predict whether the topic and content of your paper will be well-received. In those classes, sometimes I think of a potential topic that will result in a paper that I reasonably expect the instructor to look fairly favorably on (possibly because it agrees with many of the instructor's own talking points.) Sometimes in addition to that topic, I think of another possible topic that I am more interested in, but that in my view may result in either an extremely well-received paper due my interest in the topic allowing me to write a higher quality paper than I would have otherwise, or a less well-received paper due to the instructor's lack of investment in the topic. In the past, I usually chose the former, less risky type of topic due to my risk aversion when it comes to my reputation. It is certainly possible that a humanities instructor's grading may not be as capricious as I have portrayed it, but as I said, I am risk-averse. But maybe as I near the end of my undergraduate education with a solid GPA cushion, I will be less risk-averse in the coming semesters. The blogging environment in this class has already encouraged me to take a few such risks in this course, which I have rarely done before. I suppose it is worth noting that most of the risks I took in this class seemed to pay off at least fairly well. There are many other examples of people demonstrating risk-aversion with respect to their reputations, such as when actors might willingly typecast themselves into certain roles in an effort to avoid potentially poorly-received roles.

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            Compared to other economics courses, the content of our course did not contain a particularly high number of concepts that were truly new to me. Rather, the lessons that I took from this course revolved mostly around challenging me to apply concepts I already knew in new ways pertaining to the economic environment within organizations. For example, I had already been introduced to the concept of transaction costs in another class. My work in this class showed me that transaction costs help determine the course of entire continuous relationships between economic agents in addition to whether an individual transaction will take place. In particular, my work on Coase's paper showed that incentives to avoid or reduce transaction costs were a driving factor behind the development of the close, continuous relationships between economic agents that gave rise to the firm. As another example, I was already familiar with the concept of coordination games at the beginning of the course. However, this course challenged me to apply the concept to continuous relationships in an organization, such as members' working and social relationships within my fraternity (which I talked about in my midpoint reflection,) by thinking of relationships as coordination games that are repeated until some unknown end point.
            Regarding the structure of the course, the aspect that was new to me was the idea of leaving comments on other students' work that would themselves be graded. This challenged me to learn to read over a peer's work with a critical eye that balanced recognizing the positive aspects and valid ideas within the work with recognizing certain fallacies, information that was left out that would have been useful, and other shortcomings. What was most interesting to me, though, was how I learned to ask questions about a student's work that went beyond simple requests for clarification or "what did you think of this experience?"-type questions. To ask insightful questions that might allow the other student to extend their work in the future, I had to be able to mull over a peer's ideas more thoroughly than I have had to before. I had to learn to ask myself "what are the main takeaways from the student's work? What would help shed more light on the subject matter?" 
            Another aspect of the course layout and how it affected me was that the repeated exercise of blogging taught me to write a "story" with the intention of evaluating its events from an economic perspective. I used this skill especially when writing the "Marble Machine," "Team Structure," and "Principal-Agent Problem" blogs. When writing blogs such as these, I had to be able to take the story I had in mind, whether it came from real life or my imagination, and ensure that I emphasized the relevant details that would lend themselves to an economic analysis. For example, in the Principal-Agent story about bartending, I had to emphasize the bar management's lack of monitoring in order to begin a discussion on the risks that come with an agent's cheating. I might not have thought of the bar's monitoring situation if I was simply chatting about the struggles involved with bartending with friends. To this end, I learned to put together a pre-writing process for my blogs in which I sketched an outline of the situation I had in mind, made a list of economic concepts that could possibly be relevant to the story, and worked to make connections between the concepts and the story. I would then leave my work for a while and come back later to ensure that everything made sense and was tenable through the lens of economic theory. I would make revisions as appropriate and then start writing the blog. While this process, which I began implementing approximately halfway through the semester, made my blogs take longer to finish than before, the improvement in reader reactions I saw made the extra time and effort over writing a blog in one burst worth it. The excel homework was simpler. I read over the instructions on the main course blog, watched any preparatory materials given, and did the homework as diligently as I could. Here is where I have to complement the instructor on his highly proficient use of Excel -- I was honestly very impressed as I was completing the first few assignments, as I did not know an excel sheet could do all of that. As a ballpark figure, the total time spent actually working on my blog once I started using the pre-writing process comes to approximately four hours per week. Time taken on excel assignments varied greatly, taking anywhere from half an hour to two hours (not counting time spent watching videos.) 
            Ways that I believe this course could be improved might include more choices given in the weekly blog prompts. While the option to depart from the prompt stood for the entire semester, it was a bit difficult to use because of students' natural concerns over whether their customized topic might be considered truly relevant to the course material or not. Also, the student-instructor relationship might be thought of as a transaction of a completed blog post in exchange for a grade. In that case, the creative work that would go into thinking of a new prompt might be thought of as increasing the effort costs of the transaction beyond a favorable level for the average student. More dual-option blog posts like this last one might allow for a greater variety and quality of blog posts than what was seen in this semester, as students could choose the prompts they feel they are the most qualified to respond to. Another thing that might be helpful is to have "hints" on more difficult problems on excel worksheets that struggling students could click on to reveal as needed. Because worksheet problems could not be skipped without losing the ability to earn any credit, some of the more difficult worksheets had problems that proved to be almost insurmountable hurdles for someone still getting used to the subject matter.

Monday, November 28, 2016

Blog 11: Reputation

            As I look at economic problems through the lens of reputation, I realize that the situation in my last blog post has potential applications to the topic. In my last post, I talked about my bartender friend, John, and how he was encouraged to give customers more alcohol in their drinks than prescribed by the bar in order to increase his tips. The bar management's lax monitoring was what allowed the bartenders to do this. The lax monitoring likely came from both the bar management's laziness and their trust for their bartenders, as the bartenders had not (yet) developed a reputation for being unscrupulous in their work. I wonder if the bartenders ever thought of their situation in terms of their reputation and the effects that being caught "cheating" would have on it. If they had made their reputation a priority in their work, the thought of being caught and developing a reputation for dishonesty might have caused them to take a more scrupulous route. This would be due to the effects that a reputation for dishonesty could have, including the loss of their job, having a harder time finding another similar job (assuming owners of different bars talk to each other,) and experiencing closer monitoring and less freedom in their work even if they did have a job in the future. It is possible that the bartenders did not prioritize their reputation as a bartender because, in most cases, a bartending job is used as a short-term  "stepping stone" to support oneself as one transitions to another, more desirable part of their career. Maybe as the projected amount of time spent in any sort of working relationship decreases, reputation becomes less of a priority. I see this as tying into the subject of repeated coordination games, where the incentive to cheat is higher if the "end point" for the repeated games is known -- this could be especially true if the end point is projected to be soon, as it is with most bartender-management relationships.

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            During my middle school and college years, I have developed and maintained a reputation for being a strong and academically gifted student. Among my teachers, I have been known for turning in some of the best work in almost any of my classes, with my scores often being within the top 10% of the class. Among my friends, I have been known for being the one to often eschew social outings in order to be able to devote more time to my schoolwork, with my overall social life somewhat reflecting that tendency. In both of the aforementioned circles, my reputation is acknowledged fairly often. My reputation first developed during my seventh grade year, when I was strongly encouraged by my parents to work toward being a competitive applicant for a prestigious magnet high school in my area. I was so motivated by the prospect of attending that school that I hardly noticed as schoolwork began to take a higher and higher proportion of my time compared to other activities. By devoting greater resources (e.g., time) to my schoolwork and less to socializing, I achieved higher and higher scores. In hindsight, the pivotal moment for the development of my social reputation was when one of my seventh grade history essays was judged by the teacher to be so good that she read it to the class as an example of what a good essay should look like. This exposed my academic aptitude to both the teacher and the rest of my class. Other teachers noticed the quality of my work in their own classes but handled it in a quieter manner. My newfound reputation carried over into the eighth grade, and was bolstered by the news that I had been admitted to the magnet high school I was working toward. With this, my social position as one of the smartest and "nerdiest" people in the class was cemented.

            My reputation ended up dissipating during my high school years due to a combination of other students in my magnet school class being at least as strong of a student as I had been and some bouts of teenage rebellion on my part causing me to go against my parents' wishes by studying less. In college, however, I am more mature and willing to study and I am competing with an overall somewhat less prestigious peer group. This has allowed me to achieve scores that are high enough above average for my reputation to blossom again, although it is noticed a little less by both teachers and peers due to larger class sizes making an individual's performance less noticeable and fewer classes being shared with my friends. There was, however, a pivotal moment for the development of my reputation in college similar to the one in middle school. During my first semester here, my introductory macroeconomics professor held a contest to see which student could submit the overall highest quality midterm essay, and the winners were announced in lecture. I won the first prize for this "contest," which took place in a class many of my friends were also taking.

            I maintain and enhance my reputation for strong academics by continuing the patterns of behavior that led to its development -- I consistently make decisions at the margin to use chunks of time that others would likely use to have fun to study instead. For example, on an evening when many of my friends might decide to attend a party, I will often elect to stay home and study. As a college student, I also try to make a habit of attending office hours for my more difficult classes to receive help and develop a closer relationship with the instructor. The instructors notice this, which causes me to further develop my reputation with them for dedication to academic work. My reputation itself will sometimes influence my behavior by driving me to dedicate even more time to studying than I would otherwise in order to maintain it. I realize that hanging out with friends too much, not studying enough, and receiving low scores as a result will damage my reputation with both my instructors and peers and detract from my self esteem, so I do not risk establishing that pattern of behavior. This could be thought of as a "positive feedback loop" -- I have a reputation to maintain, causing me to study more, which leads to even more of a reputation. While I have achieved a high GPA as a result of this, this means that my reputation is yet another source of pressure in my life.  


            I enjoy socializing as much as the average human being does, meaning that I frequently encounter temptations to socialize more and study less than the maintenance of my GPA would require. For example, sometimes a party just a few nights before a major exam is extremely tempting to attend. When these situations arise, I will usually choose to focus on what will help me more in the long run by choosing to study (which is how I have maintained a high GPA.) On occasion, though, I do "cash in" on my reputation by abandoning it for a short period in exchange for an immediate gain in the form of fun. An example of this is when I chose to attend a party just two nights before an intermediate microeconomics exam. Some of my friends remarked on this and joked about how I should be studying. In a way, though, their jokes were comforting to me because they showed that I had already developed a strong reputation that will not be permanently destroyed by one night of fun. My scores soon after times such as these are slightly lower than usual, but since I normally make a habit of maintaining my reputation the damage is not critical. Another time that could be thought of as one where I cashed in on my reputation was during the eighth grade, when I had an event the night before a large history assignment was due and did not finish the assignment as a result. Due to my close relationship with my history instructor, I decided to be honest with her and come to her during my lunch period on the due date to tell her that my assignment which would be due in a few hours was not done yet. She told me that I was normally a good student and that she would let me turn it in the next day for full credit. Since she probably no longer thought of me as the consistently good student I was to her before, and she would be less likely to let me off as easily in the future, I managed to "cash in" on my reputation for the fun of the event the night before.  

Sunday, November 13, 2016

Blog 10: Principals and Principles

To continue onward from last week's discussion, I would like to discuss yet another way the conflict between Jim and Nora over Jim's perceiving racism from Nora could have been avoided. Jim's assumption that Nora's actions were caused by racism rather than anything else could be seen as jumping to conclusions. He had only just met her and had no other reason to assume racism on her part. In reality, I do not know exactly what made Nora target Jim for the most physically strenuous construction tasks. It could have been due to his height or the very confident attitude with which he approached his work that Nora perceived him as the strongest member of the group, and therefore the member of the group that could handle heavy lifting the most safely. When seeing the patterns in Nora's assignment of tasks, Jim might have kept in mind that the goal of the group was to build the house as safely and effectively as possible, and as such when talking to Nora he might have focused simply on how he felt that the current arrangement was unfair to him rather than accusing Nora's character. Models I and II can be applied to subordinates as well as leaders. This could have kept the situation from coming to a boil.

            I also see ways to connect the situation to more recent material. In a way, Nora could be seen as an agent serving multiple principals -- the other members of her group and Habitat for Humanity. Nora's performance as the leader of a service project was measured by her group by the effectiveness of her leadership and how enjoyable she made the trip and by Habitat for Humanity through the completion of the house. By focusing too much on the assignment of tasks by itself and not enough on the feelings of the group, she served the latter principal at the expense of the former. Leaders might be seen as agents in their own way, serving both their goals and their group, but in the relationship between leaders as agents and subordinates as principals, there is an inherent moral hazard. Risks taken by the leader to better serve their goals and the goals of the group are inherently paid for by their subordinates. In our case, Nora took on risks of the group's overall enjoyment of the trip in order to build the house more quickly and effectively, which we paid for as a group. Maybe if leaders took the concept of moral hazard into account more often, their leadership would be more balanced and effective.

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            One of our recent topics in class has been the principal-agent model. In this model, a principal pays their agent in exchange for some quantity of work output that the principal derives value from. While the model we have focused on the most involves a single agent with a single principal, sometimes in the real world "triangles" involving one agent with two different principals form. One such situation, which I heard of from a friend who experienced it, involved a bartender as an agent serving two principals, their bar's management and their customers, who both compensated the bartender for his output while valuing different types of output. This situation was ripe for moral hazard, and while the situation was ultimately resolved by the bartender moving on, the possible ways that the situation could have been ameliorated while the bartender was still there are interesting to explore.

            The bartender in the situation was my friend John, who worked at what we will call Local Bar. As a bartender, his job was to make and serve drinks ordered by customers. He had two sources for his wages -- one was his hourly wage, given by his first principal, Local Bar's management, and the other was the tips given by customers, who were effectively his other principals. John was unsatisfied with his wage, and asked other bartenders what he could do to increase his tips, which were the more variable part of his wage. He was advised to give his customers more alcohol for a given order whenever possible -- glasses of beer and wine should be filled more and mixed drinks should have higher proportions of alcohol to juice than prescribed by management. Not only would the customers appreciate the generosity, but the increased inebriation would often lead to greater tips due to the customers' further loss of inhibition. This created an interesting situation. John had two different principals paying for his labor according to two different types of output -- the customers paid him according to the quantity of alcohol he gave, and Local Bar's management paid him for the profits he generated from the drinks he served. He could increase the quantity of alcohol he gave to customers to increase his tips. This would likely also increase revenue from drinks due to more drinks being purchased (from a combination of the drinks being known for good value and the customers' increasing loss of inhibition, which often leads people to drink even more) but would risk lowering profits from the drinks if the revenue was not enough to offset the increased costs. However, the bar would keep the profits and pay him a fixed hourly wage regardless of the profits he generated, meaning that John was risking the bar's profits while he gained from additional tips. Effectively, John could gain by serving one principal at the expense of another. For a short while, John chose to serve customers extra alcohol (and saw greater tips as a result), but concerns over the possibility of getting caught by management, his own sense of ethics, and knowledge that he could obtain a higher wage by working elsewhere led him to resign his job with Local Bar and work as a line cook at a local restaurant instead.

            John's situation was likely one that is experienced by many bartenders. There are a few ways this issue could have been resolved to give John incentive to serve both principals equally. One way is that Local Bar's management could have paid John a sort of commission in the form of profit sharing instead of a fixed wage, effectively passing some of the bar's risk back to him. This could have made John more concerned with finding a balance between the bar's profits and his tips rather than maximizing his tips. Another potential solution could have been for management to monitor the bar's employees more closely than with the occasional quick checkups they did in reality, possibly by installing security cameras behind the bar. Bartenders caught being overly generous with the alcohol would be fired, meaning that in order to take a risk for the bar, the employees would have to take on another risk themselves. This would also have incentivized John to serve management and customers equally. Another solution would have been for John to simply focus on serving customers with more speed and friendliness, which could have increased both his tips and the bar's profits. However, as shown in the course material, additional effort would have given John disutility that may not have been outweighed by the utility of his additional tips.


            The reality of this situation was that John had trouble serving both of his principals equally. He chose to serve his customers at the expense of his management, which could have lead him into trouble as an unscrupulous employee. Had he chosen to go in the other direction by being more tight-fisted with the alcohol to decrease his employers' costs, he would likely have displeased the customers and collected fewer tips as a result, giving less value to everyone but management. By being more generous with the alcohol, he was giving more value to his customers and himself, helping two parties as opposed to one, so being more generous with the alcohol was the more optimal direction to go in from that perspective. 

Sunday, November 6, 2016

Blog 9: Team Conflict

Now that I have had some time to think about it, I would like to tie my 8th Blog Post to the idea of risk preference. My hypothetical construct, Econ Land, was an egalitarian commune living away from mainstream civilization that had to produce all of its own goods. In retrospect, I would like to think about the kind of person that would join such a commune. Would the kind of person choosing to live in Econ Land be risk preferring, risk averse, or risk neutral? On the one hand, Econ Land would have little to no crime or any other form of people acting individually or colluding to the detriment of others, meaning that it might attract the more risk averse. On the other hand, Econ Land's situation would mean that it is more vulnerable to the elements -- a harsh winter might cause severe problems for everyone living there. Additionally, Econ Land would be far away from modern hospitals, armed police, and likely even a wilderness rescue station, which is likely a situation preferred by the risk preferring sort. But if Econ Land's isolated situation is the risk, what is the reward? Maybe the reward for the risk could actually be Econ Land's less risky aspects, namely a more peaceful and less violence prone society. I suppose this shows that, as said in class, people can be risk-preferring in some ways and risk-averse in others. As I have shown here, sometimes different categories of risk preference can be connected, and additional risk in one area can reduce the risk in another.

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(Names have been changed to protect the innocent.)

            Last year, I worked with an organization called Engage that was a part of the University's Office of Volunteer Programs. The organization's mission was to encourage interested University of Illinois students to serve local communities while fostering connections among those students. Engage accomplished this by setting up service projects for groups of approximately ten students at a time with not-for-profit organizations in the Central Illinois area. These projects would often last about three days going from early Friday afternoon to Sunday evening. Students that volunteered for a given project would serve the organization during the day and at night would return to a nearby motel for rest and group bonding activities. Students doing a service project with Engage would be led by a student leader, which was a position people applied for, who was expected to help organize service tasks during the day and facilitate group bonding activities at night. The whole project was overseen by an Office of Volunteer Programs employee who made sure things ran smoothly and drove the students to and from the service event.

            The particular service project I am speaking of was one where I was a student volunteer rather than a leader. The service project was with Habitat for Humanity, and the group would go to a construction site during the day to help to build a house meant for an underprivileged family. The student leader on this project was Nora. Throughout the project, the professional worker on site, who helped direct our group's construction activities while accomplishing the construction tasks requiring more risk and skill, was named Larry. Larry's approach to interacting with our group was to give our group several simple tasks that needed to get done, such as starting the house's walls by hammering plywood onto the outside of the house or carrying roof slats up to the roof area, before going to his own work. He left us to our own devices when it came to dividing labor. The bulk of this task naturally fell to Nora, since the University employee assigned to us, named Lynn, preferred to allow students to manage themselves while remaining as a source of general help and advice in the background.

            The problem began when Nora started assigning tasks that needed to be done to Lynn, the other engage members, and I. A pattern developed where Nora would consistently assign tasks that required the most physical strength to Jim, an African-American man who, it is worth noting, was tall but of about average build. Tasks such as lifting the heaviest-looking packs of boards or being the one to hold the plywood as we were hammering on it reliably fell to Jim. At that point, Jim was not giving any outward indication that he saw anything out of the ordinary. However, from my view of the group's "water cooler talk", by the middle of Saturday several other people in the group were noticing this enough to quietly talk about it with other group members besides Nora, Lynn, and Jim. This continued until that night, when our group decided to play some board games. The big box with all the board games was in our van, so Nora asked Jim, "Hey Jim, can you get the board games for us?"

            Jim turned and said, "You know, I'm awfully tired from today, can someone else do it?"

            Nora paused before giggling and saying, "Come on, Jim, you're the strongest guy here, you can do it!"

            Jim stared at her for a few seconds before snatching the van's keys off the table and walking out the door saying, "Y'all will never pass up a chance to work the black man." At that point, everyone's eyes widened, with no one sure of what to do. Nora stared after him, mouth agape. Some other students had a very surprised and quizzical look. Yet other students and I gave each other an "uh-oh" look that suggested we were savvy to what had been happening.

            Lynn, apparently finally noticing something, got up and asked, "Is something wrong?"

            A few minutes later, Jim returned before quietly asking Lynn if he could speak to her. She obliged and they went out to talk in the hallway. A minute later, Lynn opened the door and asked, "Nora, can you talk to us for a second?" Nora joined them.

            At that point, I was among the first to press my ear against the door. It was hard to make out a lot of what they were saying, but from what I could hear, Jim had accused Nora of assigning him the group's most physically strenuous tasks based on his race. Nora was distraught at this and refuted it vehemently, saying that she had assumed that he was the strongest member of the group and that it would be safest and most efficient for him to perform those tasks. Jim argued that none of the other men in the group looked any less strong than he was, and still seemed upset. With Lynn's help, Nora and Jim agreed that they both still wanted the project to get done and that they still wanted to be part of a fun, service-oriented group. They reached an agreement that Nora would distribute the group's physically challenging tasks evenly and give people more choices in the tasks they preferred to do, while Jim would calmly bring issues up right away instead of letting them fester and becoming upset. Nora, Lynn, and Jim re-entered the room, and the night continued on as planned, but there was some awkwardness among everyone. The next day, Nora's style of leadership changed. When organizing tasks, she asked if anyone wanted to do a particular task instead of immediately assigning it to someone. This way, people were doing tasks they preferred, which, as someone working in this group, I have to say was more pleasant.

            Was there a "breaking point" in this conflict? It depends on what a breaking point is. There was no yelling, and no one left the group. But it did build to the point where it had to be discussed and explicit agreements had to be reached. People became emotional over it -- Jim was incensed and Nora was upset. Jim and Nora were awkwardly polite to each other for the rest of the trip, and did not look each other in the eye much. For everyone else, a certain awkwardness permeated the group for the rest of the trip.

            From what I can gather, the source of the problem from Jim's perspective was that Nora was over-controlling the group and seemingly assigning him tasks based on his race. The subject of leaders over-controlling groups and paying too much attention to tasks without taking people's feelings into account was covered in Bolman & Deal. From Nora's perspective, she likely felt, at a glance, that Jim was the physically strongest member of the group and assigned him tasks based on what she felt would be safe and efficient. Jim, on the other hand, allowed his personal issues to fester until he had a very upsetting outburst. This is similar to the ideas discussed in Model I. From everyone else's perspective, the source of the problem was a combination of Jim's and Nora's issues -- Nora could have been less heavy-handed in her control of the group and more conscious of the implications of her task assignments from an outside perspective, while Jim could have brought the issue to light in a calmer manner. It is worth noting, though, that in retrospect everyone contributed to the problem in a way, since we were all members of the group yet no one that noticed the pattern in task assignment brought it up with Nora or Lynn, instead preferring to stick to gossip. Jim's and everyone else's silence on the matter until Saturday night reminds me of the self-protection mechanism, where people protect themselves and each other from awkward situations -- in this case, a conversation where the topic of racism is brought up -- at the expense of learning. Luckily, with Lynn's help, Nora and Jim communicated more openly and reached an agreement as suggested by Model II. This agreement ultimately led to more democratic control of the group's activities, which is more preferred by group members as shown in the textbook.

            This conflict could have been avoided, obviously, if people had been more communicative from the start. If the members of Engage on the trip had been less interested in their own self-protection and more in group learning, the important conversation could have taken place without an outburst, and the awkwardness of the rest of the trip could have been avoided. Lynn, as the staff member on the trip, could have been more observant of group dynamics and more proactive in resolving the situation. Larry, as the construction expert and Habitat for Humanity employee present, could have structured our time with Habitat for Humanity more instead of leaving us to ourselves. Finally, Nora could have structured our group more democratically and been more sensitive to appearances and feelings from the start, and not continued pushing Jim to get the board games when he showed resistance. 

Sunday, October 23, 2016

Post 8: Team Production

For my example of team production, I will put forth a hypothetical situation. I feel this to be a valid interpretation of the prompt that, because of the flexibility of hypothetical situations, will provide more fertile ground to explore the concepts shown in the articles than any real life example I could provide.
            Deep in the Appalachian Mountains, far removed from the rest of civilization, there exists a commune called "Econ Land". The citizens of Econ Land chose to live there in order to escape the income inequality, classism, and crony capitalism of mainstream society. As such, the production and power structures of Econ Land have arisen with the goal of minimizing those structures' capacity for being gamed or manipulated unfairly, and to encourage and enforce a view that all citizens of Econ Land are equal. The productivity requirements of Econ Land are high due to its removal from the rest of civilization, with the commune needing to produce all of its own food, textiles, and shelter. There is an occupation for every citizen and every citizen must take an occupation. There is a large amount of collaboration needed to provide for the needs of the commune. The farmers raise livestock and crops. The wheat, corn, beef, and other food materials are given over to the cooks to make food that feeds everyone. The wool and cotton produced by the farmers go to the cloth weavers to make cloth goods, including aprons for the cooks and jackets to keep the farmers and construction workers warm as they work outdoors. The construction workers chop down the trees that the farmers raise for wood to be used in building structures that house everyone and provide indoor spaces for the cooks and cloth weavers to work in. Such structures are also used by the farmers to keep the livestock in during the Winter months. If any type of worker slacks in their production, the other workers will lack important inputs to their own production and everyone will lose as a result. There is no punishment needed for slacking in production, as everyone in the commune sees each other every day and will not want to hurt their friends and neighbors.
            As said before, the power structure of Econ Land was put together in the hope of minimizing the system's openness to manipulation. Econ Land's citizens wanted to take the "politics" out of Econ Land's power structure, and as such, unlike in mainstream society, Econ Land's sole leadership position, the President, is decided by pulling a name out of a hat containing the names of every citizen of the commune each week. The citizen whose name is pulled becomes President for that week. The President decides the allocation for that week's produced goods. Any leftover goods that the President did not have a specific allocation for that week, along with any goods that were returned because the citizen they were given to did not need them, are placed in an "honor box" that citizens can take from on a first-come, first-served basis. Also, citizens are of course free to give their allocated goods to each other.

            Overall, the workings of Econ Land show a system that works to encourage cooperation and egalitarianism and discourage selfishness and manipulation of the system. As noted in the first article linked, production resulting from true collaboration rather than simply working at the same time encourages egalitarianism. Econ Land's methods of production are comparable to that marble machine where both toddlers had to pull their ropes at the same time in order to get any marbles. Like with the toddlers, having to collaborate to produce makes the citizens of Econ Land more willing to share, which might be shown through a willingness to give to the honor box or else by sharing goods privately. The random allocation of power in the commune is similar to the "Random Dictator" game shown in the second article linked, where decisions are made by the person whose name is pulled from a hat. Because there is no condition that makes someone more likely to gain power, there is little capacity for systematic favoritism, and any group in the commune (such as farmers, construction workers, etc.) that has a member represented in the Presidency during one week knows that a member of another group will most likely be in power the next week. If the relationships between work groups in Econ Land are a game where the player has the option of playing fair (fair allocations as President) or cheating (unfair allocations) then the system is like a repeated game where everyone is encouraged to pick fair options due to the possibility of punishment from others in later games. Even the honor box is allocated on a first come, first served basis so that no single person or group has a better chance of getting leftover goods than any other. That no punishment is needed for slacking in production is reminiscent of what is shown in the third article linked, which posits that a moral view of one's actions can give as good or better results than a more economic view. Workers work hard to produce what they can because they know that anything other than that will result in the detriment of their fellow citizens. Working to one's capacity is viewed as a moral imperative rather than a choice in a financial transaction with the rest of their society, and the commune is well-off for it to the point where no financial transactions are needed in that respect.  

Sunday, October 16, 2016

Post 7: Risk Preference

My future income risk management during my undergraduate years has had its ups and downs. As someone who will be receiving a B.A. in Economics, the subject matter of my major is applicable to a wide variety of jobs in the business world. However, when one looks at the major divisions of business practice -- e.g., finance, accounting, marketing and sales, and administration -- the classes in the Economics Department, while generally tangential in some way to all of them, do not prepare students particularly well for any one of them. In other words, a B.A. in Economics is broadly applicable but unspecialized. If preparing for jobs in the business world is looked at in terms of investment strategies, time spent on classes could be looked at as funds invested and preparedness for jobs could be looked at as the return. In this case, pursuing an Economics degree could be compared to a diversification investment strategy, in which time is invested in independent assets, or types of business jobs, in the hope of not losing a significant amount of money from any particular asset going through a rough time in the market. This should lead to consistent returns that are close to the market average. A quick look at statistics in the public domain will show that Economics degrees do, indeed, allow for average starting salaries at or above the average for those of other degrees pertaining to business. Because of this, I consider investing in an Economics degree to have been overall a good decision that led to lower income risk. This analogy is more applicable to diversification than to hedging because different types of business jobs can encounter a good market at the same time.
            Student loan debt is another important factor in preparing for life after undergrad. As was said recently in class, higher operating costs mean a higher amount of revenue is needed to achieve a given profit level than when operating costs are lower. In this case, less money to be paid to student loans will mean more money left for one's consumer spending (the "profit"). Effectively, lower student loan costs can mean a lower income risk ceteris parabus. I have been fortunate enough to have parents that kept my income risk very low on this front. Student loan debt is one area where future income risk is highly determined by luck, although less fortunate students can find some alternatives ways to decrease income risk, such as through scholarships or military service.
            Summer and extracurricular activities are where my income risk preference has been for higher risk in exchange for more immediate returns in terms of enjoyment. My only internship experience has been several months this past summer spent helping to review charitable services contracts and organize administrative records for Boat People, SOS, a not-for-profit dedicated to helping underprivileged Vietnamese-Americans. While this has given me some relevant business experience and connections, there has definitely been an opportunity cost to choosing not to start finding internships earlier. Pertaining to my extracurricular activities, I am a member of a service fraternity, where I have chosen to spend more time helping other members develop leadership and professional skills than on the actual service component, and I am also a member of the Illini Statistics Club. While both have given me relevant leadership experience and opportunities to practice professional skills such as communicating in a professional environment, I have not had many opportunities to make relevant business connections as a member of those organizations. Such connections could have helped further lower my future income risk by giving me a greater chance of making an average or above average salary through pathways to good job opportunities. This is where the opportunity cost of my choices on this front lies. However, I have had more fun and free time during my undergraduate years as a result of that tolerance for risk in the usage of my undergraduate time, since that tolerance led me to pursue activities I found more enjoyable over more "boring" but useful ones. This aspect of my risk management has shown me a possible connection between high risk preference and opportunity cost, which can tie the two parts of our course together.

            The most easily accessible person to me that has already been through the job market has been my father, who started his undergraduate experience as a chemistry major but switched to accounting partway through. During his freshman year of college, my father managed his income risk with the return of a good job as a chemist in mind, taking relevant chemistry courses and joining chemistry clubs. However, over the summer of his freshman year several chemical plants closed down in his area which led to him realizing that, due to the unreliable job market for chemistry, a chemistry career will inherently have a higher income risk than a career in say, accounting. Realizing that chemistry did not line up with his preference for low risk, he started managing his income risk with the goal of a career in accounting in mind, taking accounting classes and internships while working to make connections in the accounting field. In my father's view, a given investment of effort in an accounting career inherently carries a lower risk than the same investment of effort into chemistry. In other words, choosing to switch career paths was a major part of my father's income risk management. As he found an accounting job soon after graduating, this risk management paid off. My take away from this is that, when evaluating risk, one should look at the industry they are investing their resources in and see how returns in that industry are comparing with returns on similar investments in other industries. If it looks like risk will be significantly reduced by simply investing the same amount in another industry, one should consider making a change. I can see this happening in real life by looking at how well the biotechnology and healthcare industries have been faring in the wake of the recent recession. I believe the success in those industries is partly because people have been more willing to invest in those sectors because of the relatively inelastic demand for their products which leads to consistent returns.

Saturday, October 8, 2016

Post 6: Reflection

One theme I have noticed across multiple posts from my blog is the theme of efficiency as an economic goal. Efficiency in terms of logistics in a team structure is mentioned in both of the posts where I talk about teams. When I use the concept of efficiency in those types of contexts, I am thinking of how much time and effort it takes across an entire team to accomplish a given goal. In my second blog post, I talked about how leadership in organizations was structured and restructured in pursuit of efficiency in managing the organization at its current stage of growth or decline. In my fourth blog post, I talked about efficiency in terms of how my organization's leadership structure affected it. In my fifth post, I touched on the concept of market efficiency and how Illinibucks and a "bidding up" system for determining who goes to the very front of a line maximizes the efficiency of the market for spots in line. Efficiency is maximized through having those who want to move further up in line the most (and are therefore willing to pay the most) move up the furthest. The two different senses of the word "efficiency" that appear in my posts contrast on the surface, but a closer exploration will show that both uses of efficiency pertain to how well a system is being used to accomplish one or more people's most desired goals. The frequency with which this concept appears in my posts shows to me how important it is to economics as a whole.


There is one additional way to tie my posts to themes in our class that I did not notice before. Pertaining to the blog post on team structure, I realize now that my service fraternity's lack of need for a formal system of accountability ties into our class's concept of repeated coordination games. Many people in my division of the fraternity are friends both in and outside of meetings, and it is common for groups of people to spend multiple semesters working in similar positions where they have to coordinate their activities. All directors and committee members in a semester will have to interact and cooperate with each other to some extent to plan activities, so someone that was a poor teammate during a previous semester would often have to work with the same people later.  Working together during a semester can be considered the equivalent of a coordination game with two options for each player: be a good teammate that is willing to compromise and does their fair share of the work (cooperate) or be a poor teammate that slacks off or refuses to compromise on important topics or even betrays their teammates' trust in some way (cheat.) There is a fairly high chance that the game will be repeated, either in the same form of cooperating as team mates or in a different but equivalent form of the future of a social relationship. Social relationships can be thought of as a cooperation game with two options: keep the relationship strong, which, like a "cooperate" option, will lead to a Pareto optimum of a good friendship if both players choose it, or let the relationship end, which, like a "cheat" option, will lead to a non-optimal equilibrium of the end of a friendship. The close-knit quality of the fraternity's brothers means that there is a high likelihood of cooperation games being repeated in one form or another, which means that the value of the theta variable in this case is relatively large. This acts as an informal system of accountability encouraging cooperation, as potentially uncooperative brothers know that choosing a cheat option will likely lead to their teammates choosing a cheat option themselves in the future, resulting in both players experiencing less than optimal outcomes.


My process for writing these posts has evolved in a way that I hope is noticeable. I try to focus less on quantity (the number of situations and ideas touched on) and more on quality (explaining those situations and ideas in economic terms in depth.) This is because, based on Prof. Arvan's comments, I realize that focusing on quality results in an overall higher quality post than focusing on quantity. I am changing my focus by listing out on paper the different topics that come into my mind after reading a prompt, and then just picking a few of those and exploring them to the best of my ability. I write my post based on what I think of at that point, and if an appropriate length has been reached, I conclude the post. If not, I pick another idea to explore.



In future prompts, I would like to see more opportunities to evaluate hypothetical situations like the "Illinibucks" prompt. Such prompts give us the power to create our own small economic world in our head with mechanics and dynamics we can play with for our edification. I find that the freedom that comes with evaluating a hypothetical situation allows for deeper exploration of economic ideas than exploring the economics of a real-life situation. I feel that this may be because a hypothetical situation can be shaped into a perfect exploration ground for an idea we are exploring, which is unlike a real life situation where exploration will be bounded by what did and did not actually happen. While being able to relate economic ideas to practical and applicable situations is important, I feel like the deeper exploration that comes from hypothetical situations will make this a more interesting class.