Endemic species are ones that exist in small geographic areas. The most common examples of these are creatures that live on islands, where the species adapt to life on their little plot of land and become distinct from those on the mainland, or other islands. Similarly, animals that live on the tops of mountains effectively live on an island where there may be other environments not too far away that would suit them, but there is a vast distance between mountaintops that they are not well equipped to cross through.
For a long time, the notion of an endemic species evoked some sense of pity in me. It brings to mind images of flightless birds being devoured by invasive snakes, rats, humans, or whatever else might come their way. Little chicks helpless, unable to deal with change, species so specialized they can’t live outside the bounds of their little space walled off from the rest of the world.
But another word for specialization is efficiency. Endemic species have become so effective at living and reproducing in their habitats that they’ve given up on some flexibility in order to thrive in a very specific place. I can marvel at how the Olympic marmot co-evolved with the plants in the Olympics and make homes in extreme conditions where they have to hibernate more than half the year. I have to wonder at what great evolutionary marvels the dodo developed that we will never know about. I have to be impressed that despite the many adaptations polar bears now have, they can still re-learn how to fish like grizzlies.
One can consider companies in a similar way. Some companies develop in a certain business environment, and so long as there aren’t any drastic changes, a company could be very successful by specializing to that economic environment. This is why companies hate uncertainty. Not only does a business want to be able to plan ahead, the less change there is, the more a business can focus on improving efficiency to thrive in a specific regulatory, political, and economic environment. The more things change, the more businesses have to invest in being able to change their strategies to adapt to the changes in their world. Overall, there’s a tradeoff between being extremely efficient and being adaptable.
Game theory is often presented as a framework for making better, more rational decisions. I often find myself sitting down and trying to put aside my concerns and emotions and work out what the ‘correct’ most optimal response to a problem is. But while weighing the outcomes of the different options is valuable, there are often times where how I feel is just as important as how much the decisions cost. Sometimes it’s really important to me to do what seems right, what makes me happy, or what allows me to act upon my anger. We are taught that rationality means setting aside our emotions, and yet sometimes our emotions will prevail.
Not only do our emotions sometimes win over, but the way we feel has value to us. The cost of an act based on emotion can be quantified, at least within a specific case, based on what other options we are willing to forego.
Is it time to stop?
Consider for instance a situation where you are in a heated argument with a friend. You know that the conversation is leading to nowhere good, and fast. You can either break off the conversation or continue. Game theory would tell you that the further you argue, the more both of you are going to lose. Despite this, some will continue to argue. Perhaps there is something important that one feels needs to be said. Perhaps the argument is in itself the reason to damage the friendship. Or perhaps despite the desire to argue, to lash out, it is not worth the consequences. Whether one chooses to argue or not argue, it can be a rational choice. Is it worth more to vent, or is it worth more to not damage the friendship? It could also be an irrational choice, made without considering the consequences.
Let’s say your friend needs a loan for car repairs and their credit is shot. You know that there’s a chance they will never pay you back. You also know that you can get a better return on your investment elsewhere because it’s not socially acceptable to charge interest to your friends. Some people are going to offer the loan anyway. Partially because some friends and friendships are more reliable than others, but most likely because it’s a nice feeling to help someone out. At best, you lost unearned interest, at worst you lost the entire loan. A rational choice requires one to weigh these costs against the good feelings one may feel. An irrational choice is to assume the loan will be paid back, or to decide that because you can get a better return elsewhere, you should never help your friends.
Is it worth the trouble?
Say you’re working on a project and one of your team members has been slacking off or otherwise not putting in a full effort to get their part of the project is done. You do not have the skills necessary for this part of the project. The deadline is coming up and there’s a lot of work to do. Your choices in this hypothetical situation are:
encourage your teammate to get the work done while keeping a calm and helpful attitude
get angry and refuse to cooperate, which makes it even more difficult for your teammate to work
Given only these two options, we all know which one is the ‘rational’ choice and yet, we also know that sometimes people choose the second option. And we have probably all been in a special situation in which taking the second option seemed more than appropriate. Your teammate might have a completely unacceptable reason for being distracted, may not have the greatest personality, or is making unreasonable demands. In other words, you could be really angry for a very good reason, making it very hard to be helpful and calm.
The consequences of failure may also vary. Your very job may depend on its success, or it may be an unnecessary favor you were attempting to make. One must consider the stakes and how much value there is in not having to pretend to be positive. It is perfectly rational to ask oneself whether it is worth the effort. What would not be rational is to always assist your teammate, ignoring your feelings, no matter how badly they may be behaving.
Do I want to shop here anymore?
A while back, I had returned a book to Amazon and thought there was an error in their calculations of what I was owed. They did eventually correct the error, but while I was waiting for their reply to my inquiry, it occurred to me that I save so much money using Amazon over any other alternative that not only would I continue to buy from them if they do not fix this mistake, but they would have to make enough mistakes to amount to hundreds of dollars worth of… dollars, time, and/or aggravation before I would be willing to stop doing business with them.
While game theory helps me quantify my choices, it did not affect my decision. Many people keep shopping at places that have made unfortunate customer service mistakes in the past or sold products that turned out undesirable. I think that I am more willing to walk away from a company than the average person, but it’s much easier when substitutes are readily available, such as bars and restaurants.
We value how we feel. That is why we avoid doing things that make us upset and try to do things that make us happy. If we are to make truly rational decisions, then we should factor in the emotional costs and benefits as well.
For a long time, I struggled to reconcile my emotional desires with game theory. I would often turn to game theory when my emotions clouded my judgment. I’d realize that while I’d like to vent my anger, it would have a price. While I would like to do the thing that is more pleasant, there would be a cost. Then I realized that things that make me happy or sad or angry are things that give me utility. How else do I measure my want of an item if not by how happy I think it will make me, or unhappy to do without? Wanting to avoid pain is far more sensible than wanting a book.
One may wonder if this is just an excuse for bad behavior. This is not the case. No matter how angry or upset I may be, the long-term benefits in terms of goals or reputation almost always outweighs the temporary desire to act upon an emotion. When the stakes are high, one can put aside pride or indignation.
But sometimes a different response is required. My happiness has a price. My ability to vent or cope with sadness has a price. My integrity has a (very high) price. Anyone who is not a doormat has a limit. What is important is to not act as agents devoid of emotion, but to know what price we must pay for the emotion we want.
Whatever you do, make sure you know what it will cost you.
I was reading a charming fantasy novel and it reminded me of how difficult it was to understand value. In economics, we measure utility in dollars and expect goods to be interchangeable. But there are so many items we can trade that are less tangible than guns and butter.
In this book (Guardian’s Key, if you want to know), the protagonist is stuck in a magical castle where you cannot get something for free, but must trade “value for value” and this could be just about anything: food, gems, thoughts, advice, even simple companionship. It’s a perfect barter economy.
When we see the monetary impact of things that do not have monetary value, we often file this under the realm of behavioral economics, but many of these phenomenon are simple decisions based on individuals’ value of things not easily pricetagged. Take for instance at work, the value of responsibility or titles or trading a cubicle for an office, sunlight from a window. These items have value. They are tools of compensation and the savvy manager will recognize that there are many ‘free’ benefits that can be offered. These are not a mystery of psychology but merely differences in individual preferences.
Next time you consider who gets the new vacant office, remember, some people are going to value that extra space more than others.
It’s easy to think that because suburbs are being built and people are moving into them, that these are the sorts of places that people want to live in. It turns out that there are a lot of people who would prefer a small-town environment.
Here is a lecture by Andres Duany, an architect and housing development planner.
What stuck with me most were images presented early on, of one standard separate-use housing development and one old, mixed-use neighborhood. The second one looked absolutely more attractive, built on a human scale, and more expensive a place to live.
The other lasting impression I had was that the people who think traffic needs to be fed into faster-flowing arteries are probably the same people who thought that channelizing and paving streambeds was a great idea for flood control.
I keep thinking there must be more options, that there are more things to be cut, more places to shave, more details that could lead to some good solution, but I know the truth, that the referendums, extensive earmarking, and federal laws (ironic given California’s attempts to have stricter legislation elsewhere) form the walls of a very nasty little cage.
I went with 18bil in cuts and 6bil in tax increases (gas, of course). I kept the parks and community colleges too. I’m not dead-set against other taxes, but something has to be done about the base budget. No furlough band-aid is going to fix it.
I was speaking to a friend in Australia who had been house hunting for months and suddenly she wasn’t anymore. I asked her what happened.
It turns out that her government was giving out a first-time home owner incentive and that she was going to use it to buy an apartment. But the incentive was set to expire sooner than most applications could get through the pipe so this incentive was increased and extended ‘indefinitely’.
This caused the real estate market to respond by raising prices, negating the benefits of the incentive because a significant number of home buyers would have exactly that much more money available to buy a house with. Gotta check that elasticity before setting up those incentives.
I’m sure we wouldn’t mind a misguided housing price bump around here.
A while back, Thomas L. Friedman was on the Daily Show to advertise his new book Hot Flat, and Crowded. It may be that he oversimplified his explanation for the show, but I am terribly unimpressed. He said we should overinvest in green technologies, cause a bubble, and reap the benefits.
He said that the dot-com bubble left us internet infrastructure and the financial crisis left us with overpriced condos, and now we need a green bubble to get us out of the financial crisis.
The definition of a bubble is putting in more money than it’s worth. Period. If it is going to pay off in the future, that would be called an investment. So this guy wants us to throw more money into an industry’s R&D than it’s worth, he wants us to lure people into investing in the training, experience, and time that is going to dump their job when the bubble comes due. Ask those bankers and financial analysts if there’s too many to go around. He wants us to do it right now so that we can solve or past excesses, not by learning from our mistakes but by repeating them.
The money that Friedman advocates wasting could be better used in making bigger differences on other problems. Those people who are now considering their careers possibly for the rest of their lives may have been more valuable to society learning and performing in other industries. Our current opportunities as they are, to make investments, could be better spent on less ridiculous schemes.
We did not have to overindulge in internet startups to benefit from investing in IT infrastructure. We didn’t have to make ludicrous choices about home ownership in order to gain what dubious benefits we will get out of this mess. And we certainly don’t have to do it again.
To recognize underinvestment is one thing. To deliberately waste money when there are better uses is absurd.
I’ve had some interesting experience with two insurance companies. I find the contrast in their business models to be quite interesting and their relative behaviors of economic note.
Insurance Company 1 was extremely professional, very polished, respectable, and downright thoughtful. When I came in for an interview, the manager had water on the table, sitting on coasters. He knew I had a bit of a hike to get there. It didn’t take long for both of us to realize that this job was not for me, but he and the front desk treated me with the utmost respect. If I ever want to buy financial services, I would go to this company.
Insurance Company 2 seemed to find things like honesty and integrity to be irrelevant criteria for picking employees and in business practices in general. They may even be a hindrance. I made the mistake of having my contact information available and I received a call, offering me an interview. The phone conversation moved very fast, and deliberately kept me off balance. Long story short, I ended up cold-calling to book interviews for a day.
The job is pretty simple. You take a stack of names and phone numbers from Monster or Craigslist etc, of all the recently updated resumes. There is absolutely no weeding or grooming. You call. You tell them you’re from the company of a very vague name and want to set up a personal interview. You put in a few questions to see if they are open to selling insurance in the most general sense. You ask a couple questions to strengthen legitimacy. You consider if they will actually show up if you book them. Most likely, you tell them they have an interview tomorrow at some specified time. Here’s the address. Dress well. Have a nice day.
So basically their job is to trick people to come in for interviews, ideally without letting on that the business has anything to do with selling insurance and that the company is interviewing tons and tons and tons of people in group interviews, anyone they can convince to show up.
The pay schedule for bookers works like this: A flat fee for every interview you book, an additional flat amount per person that actually shows up, and bonuses for the first two hires that month. They expect a certain percentage of booked individuals to actually show up to the interview.
A booker wants to hit the percentage of shows, but maximize the number of interviews booked from their pile. They want to convince as many people as they can to show up. They are not selecting for people who are best suited to the job. They aren’t looking for those who are particularly inquisitive, bright, or interested. They’re selecting for those who are either complacent or coerceable.
The strategies of these two companies couldn’t be more different than night and day. The first company while they were willing to speak to anyone, were highly selective and conveyed a sense of integrity. They are looking for people who will have faith in both the company and the product.
The second company relied on less than honest means to bring people in. Neither did the company select for integrity nor did their employees self-select for integrity. They were merely going for quantity hoping to find adequate individuals.
This same strategy applies to the lowliest individual. Bookers are not selected for their integrity. Instead, they must be tolerant of some underhanded tactics. Consequently, the managers cannot trust the bookers. No-shows may have been faked. The management does not quite endorse a sense of honesty in whom they train. I watched one say one thing, then smoothly transition into the opposite, followed by “I believe that honesty is important here.” Oh really. It’s even possible that she lied about how many people showed up. I wouldn’t normally think this, but given I was paid in cash, all the alarms were already going off. Hoo boy.
There are two kinds of salespeople: those who sell products they believe in, and those who sell products they don’t believe in. The ones that are good at selling products they believe in tend to do poorly when selling products they don’t believe in. However, they tend to do better with a product they believe in than the other kind of salesperson with the same product. The first company is looking for those salespeople who will believe in the product. The second company is looking for salespeople that can sell anything.
In the long run though, it is hard to imagine that the second company is going to survive. It’s one thing to look for salespeople who will sell things they don’t believe in. It’s another to pick only from the candidates that have been duped by the booker selling them the interview, free as it may be.