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.  

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. 

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.