I work in a student run event planning company that functions like an RSO. For anonymity I will call it company H. We are registered as an LLC because we specialize in doing parties at clubs and bars. Although we are a company, the employees are not paid, and all of the profits are further invested into buying equipment and holding bigger events. The process of H holding an event is team production with gift exchange because the employees collectively give up their time for a sense of accomplishment from holding an event. There are experiences during my time in H that relates to the examples in the article, and some that do not.
H has three teams: creative, marketing, and music. The marketing team requests fliers and posters from the creative team, marketing distributes the material, and the music department invites musicians or prepares DJ sets that fit the theme of the party. If one team does not meet a deadline, other teams can get delayed as well, and the party can fall apart. Since planning and preparation takes weeks, members in every department frequently face deadlines that coincide with exams or major assignments. Because H does not offer any form of payment to its employees, one would expect delays from people prioritizing schoolwork during busy periods. However, we generally do not face delays from missed deadlines. Some members tell me afterwards that they even went as far as to stay up late night finishing their work for H before an exam. This could be explained through the moral lens in the "power of altruism" article. If the employees were paid an hourly rate, or per project, they would probably pass on these projects during exam time. Without pay, they instead feel a moral obligation to meet their deadlines. If they do not, they could negatively affect the entire event, or other teams that are expecting to start their work on schedule. Busy students are potentially sacrificing their school performance to fulfill an obligation to others in the organization, without any expected profit.
A few weeks ago, the president of H asked all of us to do market research on potential sponsors for our events. I thought that this was strange, considering that we have a marketing team that specializes in this field. As all members of the three teams uploaded their results on the shared google doc, I noticed that much of the work was not detailed or relevant enough to actually be used at all. Considering that 2/3 of H specialize in the visual/musical aspect of the event, this was not surprising. I could only assume that he had been receiving complaints about some members not doing work, so he tried to create fairness by giving everyone work. This seems to be the "Tit for Tat" approach mentioned in the game theory article. In order to have everyone participate equally, he gave the same assignment to everyone. I found this to be a terrible approach for many reasons. One, the whole reason why we separate members into teams is because we have different field of expertise, and different roles to fulfill. To assign everyone something that the marketing team is supposed to do actually seems more unfair to non-marketing members. Furthermore, he did not give detailed directions for the assignment. This means that people would either put in the minimum amount of work required just to say they completed the assignment, or the non-marketing members would not know what the expectations were. It is difficult to define fairness in practice. Should people be forced to put in the same amount of time? What if people are putting in different levels of effort? What if everyone is trying his/her best, but do not have the same level of productivity?
Sharing marbles is slightly more difficult to apply in this example. Everyone in H is tugging the rope to create a successful party. But the profit all goes back to the company, so it is unclear if fairness or distribution should be applied in this case. However, we could discuss the power to make decisions on how to use the profits for the company. In this case, the team leaders and the president get together in a board meeting and come up with several ways to spend the money. Then, every member gets to vote for a specific plan in a general meeting. The reasoning is that everyone contributed time into making the event possible. This is analogous to tugging the rope analogy mentioned in the sharing marbles article.
Sunday, October 23, 2016
Sunday, October 9, 2016
Connecting the dots
(1) Are the themes from one post that tie into other posts? if so, what are those connections?
I explore two main themes in my blog post, decision making and incentive. My first post was about Milton Friedman. Though he is known for his work on macroeconomics, I discussed one of his earlier papers written on decision making. In my second blog post I explored what affects one's decision to take an opportunistic act. In my third post, I discussed my experience of being on an effective team, and that it was effective because each member had the skill and incentive to make good decisions in volatile situations. The conclusion of these posts is that incentive seems to be the key to why one chooses one decision over the other. Self-preservation had a huge role in motivating the members of my team in the army. Calculation of the expected outcome was a main factor discussed in Milton Friedman's paper.
(2) Aside from addressing the prompt are there ways to connect what you wrote about to course themes? Were there connections that are more obvious to you now than at the time you wrote the post? if so, can you elaborate on that?
In the Illinibucks post, I discussed its implementation aspect. However, along with the excel homework, I realized that it addressed the topic of economics within an organization. Furthermore, it relates to the topic of how one should make decisions within an organization on price.
(3) Has your process for writing these posts evolved? Please explain how that has come about.
Although this is a blog, personal experiences can quickly go off topic or become unrelated to economics. As such, I started providing a frame for my posts. For some posts, I define the terms that will be discussed. For others, I try to read the textbook or an academic paper to see what others have already said about the topic. I also incorporated some data for my post on successful organizations. These three elements seem to provide a foundation on which I could analyze my experiences from an economic perspective.
(4) Now put yourself in the position of writing the prompt (this one or other prompts for future posts). What would you like to see? Can you give some reasons for that.
I would like to explore information asymmetry in detail, although we did discuss some of this during lecture in the context of trading companies in the past. In the modern age when communication is instantaneous, information asymmetry still exists in organizations. So my questions would be the following: What does a lower ranking employee miss that managers do not? What do managers miss that lower ranking employees do not? What kind of inefficiencies does this cause? How should it be improved?
I first experienced information asymmetry during my military service. When I was a private, I could not understand why so much individual freedom had to be taken away from soldiers. As I became promoted to a sergeant and squadron leader, I began to understand why some rules had to be in place. What is best for the team is not always best for the individuals. At the same time, I began to forget the troubles I had faced as a private, and how much impact certain rules had on my experience.
I explore two main themes in my blog post, decision making and incentive. My first post was about Milton Friedman. Though he is known for his work on macroeconomics, I discussed one of his earlier papers written on decision making. In my second blog post I explored what affects one's decision to take an opportunistic act. In my third post, I discussed my experience of being on an effective team, and that it was effective because each member had the skill and incentive to make good decisions in volatile situations. The conclusion of these posts is that incentive seems to be the key to why one chooses one decision over the other. Self-preservation had a huge role in motivating the members of my team in the army. Calculation of the expected outcome was a main factor discussed in Milton Friedman's paper.
(2) Aside from addressing the prompt are there ways to connect what you wrote about to course themes? Were there connections that are more obvious to you now than at the time you wrote the post? if so, can you elaborate on that?
In the Illinibucks post, I discussed its implementation aspect. However, along with the excel homework, I realized that it addressed the topic of economics within an organization. Furthermore, it relates to the topic of how one should make decisions within an organization on price.
(3) Has your process for writing these posts evolved? Please explain how that has come about.
Although this is a blog, personal experiences can quickly go off topic or become unrelated to economics. As such, I started providing a frame for my posts. For some posts, I define the terms that will be discussed. For others, I try to read the textbook or an academic paper to see what others have already said about the topic. I also incorporated some data for my post on successful organizations. These three elements seem to provide a foundation on which I could analyze my experiences from an economic perspective.
(4) Now put yourself in the position of writing the prompt (this one or other prompts for future posts). What would you like to see? Can you give some reasons for that.
I would like to explore information asymmetry in detail, although we did discuss some of this during lecture in the context of trading companies in the past. In the modern age when communication is instantaneous, information asymmetry still exists in organizations. So my questions would be the following: What does a lower ranking employee miss that managers do not? What do managers miss that lower ranking employees do not? What kind of inefficiencies does this cause? How should it be improved?
I first experienced information asymmetry during my military service. When I was a private, I could not understand why so much individual freedom had to be taken away from soldiers. As I became promoted to a sergeant and squadron leader, I began to understand why some rules had to be in place. What is best for the team is not always best for the individuals. At the same time, I began to forget the troubles I had faced as a private, and how much impact certain rules had on my experience.
Sunday, October 2, 2016
Illinibucks
Transfer pricing is the setting of price for goods and services sold between legal entities in an enterprise. In the case of the hypothetical "Illinibucks," the university is setting prices for faster service to its students, and rationing out the currency to pay for "moving up the line".
There are a few things that come to mind that Illinibucks could potentially pay for. As mentioned in the prompt, priority for class registration is huge. During the summer, I spent hours adjusting my fall schedule because courses were prioritized to students from certain majors. I sent out emails to professors, constantly refreshed the course catalog page, and registered for backup classes to get my schedule in order. If I could have just payed something to guarantee that I could have priority in registering, I would have saved a lot of time and energy. From my experience of being in RSO leadership positions, renting out equipment and rooms for meetings can be a challenge. Getting priority for renting spaces is really important for RSO's that want to retain structure and professionalism. Renting group study rooms at Grainger library can also be something that people would be willing to pay Illinibucks for, especially near the end of the semester when group projects are due. The issue with low pricing of Illinibucks could be that the demand for "getting ahead in line" for a service "A" could be higher than the equilibrium price. In that case, there would be another line to get ahead of for those that are spending the Illinibucks, which gets rid of the purpose of its existence. A high administered price for Illinibucks could get rid of this problem, but it might also lower the number of uses by too much. In that case, the infrastructure that the University has to put in place to administer this system might be too costly for the benefit that it gives the University. Another issue is that students who get a lot of financial support can buy Illinibucks and use it to get priorities on things like class registration. This would raise moral issues because students in the university would be better educational opportunities based on wealth, rather than merit. |
Monday, September 26, 2016
Successful Team: R.O.K Army DMZ Reconnaissance
Background:
North and South Korea are still technically at war. Their peace is maintained by an armistice agreement that established the 160-mile long, 2-mile wide buffer called the "De-militarized Zone." Contrary to its name, it is the most heavily militarized border in the world, seeded with landmines.
The Korean Army's main goal is to deter North Korean attacks by having strong defense capabilities, and to maintain the status quo of peace in the peninsula.
In Korea, all male citizens over the age of 18 are required to serve in the military for 21-24 months depending on the branch of the military. In 2012, conscripts got paid an average of 100 dollars a month. Alternatively one could fulfill the duty by volunteering to serve as a commissioned officer or an NCO, and start with a monthly pay of ~1300 dollars. Another advantage is that an NCO/officer will start with a higher rank than any conscript. However, NCO's and officers have to serve a minimum of ~4 years.
Conscripts make up the operating core of the organization. However, they have almost no incentive to perform well. As stated above, they get paid 1200 dollars a year, or approximately 50 cents an hour. This is 5% of the Korean GDP per capita, which is 26,000 dollars. Furthermore, almost no conscripts are put in combat situations. Since their lives are not endangered, there are no clear disincentives for performing badly.
Perhaps as a result of no incentives, there is a strong culture of discipline based on physical or verbal abuse in the Korean army. There is a strict culture of hierarchy among conscripts, based on the order of military service start date. Whoever started service earlier month is considered the "superior," even if one has gained a true higher rank over his "superior" through early promotion. For his superior, a junior is forced to do his laundry, clean his dishes, make coffee, clean his boots, and anything else that he might demand. Incompliant conscripts are bullied, insulted, humiliated, or beaten. Officers and NCO's turn a blind eye to this "acceptable" level of discipline. Other times, they are unaware.
This disciplinary culture has negative consequences. From 2012-2014, there was an average of 200 non-combat deaths per year. These deaths include an average of 70 suicides/year, mass-murder suicides, being physically bullied to death, and other safety-related accidents. Furthermore, people with ideas and more expertise cannot speak out to superiors due to fear of "discipline." Also, there is no reason to speak out when the organization's goal is maintaining "status quo".
Junior officers and NCO's make up middle management of the army. They take orders from Battalion/Regiment/Division headquarters, and relay them to the conscripts for execution. However, junior officers and NCO's are promoted without merit because there is no good measure of performance due to the lack of combat. Second lieutenants are promoted after a year, and first lieutenants are promoted to captain in 2-3 years.
The DMZ Reconnaissance unit:
I started my military service in October 2012. Near the end of my six-week basic training, I went through a mental and physical screening process, and I was chosen to go through the 4-week DMZ Recon selection process. It was pretty much designed to make one despise one's very own existence. After a week of intense PT, we spent two weeks learning how to identify and use South Korean/North Korean weapons. In the last week, we spent 72 hours awake, evading capture from our lovely drill sergeants. After passing the course, I spent an extra three weeks in sniper training, one week in emergency medical training, and another two weeks in path finding.
During peace time, the main objective of a DMZ Recon Battalion was to "assert strategic dominance" over the North Koreans in the DMZ. This included going on recon-patrol missions during the day to identify any signs of North Korean crossing over to our side to set IED's or mess with our communication lines, night watch/ambush missions in strategic locations, and to safely guide any defecting North Koreans. In wartime (which would presumably be the result of a North Korean attack), our objective was to somehow safely walk up into their territory as their soldiers crossed down into South Korea, and identify their high-value targets.
Despite all of the issues the Korean army confronts as a whole, my Recon team was very effective at performing our "peacetime" missions. We went on 3-4 missions every week. During the ~120 DMZ missions I took part of, nobody on my team ever got injured. None of us faced any disciplinary action for breaking any South Korean or U.N regulations. I attribute this to the following:
1. We had clear incentives. We had to go on recon-missions in a minefield. Slacking off or not paying attention could mean death or serious injury. Also, every mission was mentally and physically draining. Being effective as a team meant more time to rest and recuperate.
2. Each role was highly specialized, and each team member was an expert in his role. As such, even the team leader (NCO/officer) would be well advised to listen to a junior conscript.
3. As the squadron leader (I managed my team's barrack life), I personally eliminated discrimination based on seniority. I reasoned with the more senior teammates that our team would perform better if each was at his mental/physical peak. Dividing work fairly and putting a stop to "discipline" would be the best solution to this.
With this background, I define a "successful" team in the R.O.K (Republic of Korea) army as one that can fulfill the checklist in chapter 5:
1. High-performing teams translate common purpose into specific, measurable performance goals.
Every mission had a lot of external variables. The objective of our mission could be changed at a whim of the upper management in Division, even on the day of the mission. Furthermore, weather forecasts never seemed to be able to predict the conditions in the DMZ. Rain could become hail or snow within minutes. Temperature was off by +/- 5 degrees celsius, which could cause frostbite/hypothermia in the winter, and heatstroke/dehydration during the summer. Furthermore, North Koreans could sneak in, destroy our communication lines, or even set IED's around our ambush spots. It is difficult to account for these external factors by following strict military regulations for equipment and actions. Rules for Recon units are often laid out by Division commanders who have little to no experience in DMZ missions, they are often outdated, and do not account for the complex situations one encounters in the real world. However, the higher-ups' lack of expertise also meant that we had more freedom in which equipment to bring, and what course of action to take in the DMZ. Even if we did break some regulations from time to time, they had no way of finding out. In the end, this autonomy played to everyone's benefit. We could rely on our experience and knowledge to accomplish missions safer and faster, and the headquarters got their objectives accomplished.
5. High-performing teams develop a common commitment to working relationships
Everyone had a clearly defined role, and we made sure that each understood what part he was playing in the big picture of the team. Work was divided among the team by his expertise and role. We had frequent live-ammo training exercises where people moved autonomously to carry out their responsibilities even before specific orders were given.
Overall, we had a vertical and lateral structure. There was a strict hierarchy based on rank, but our small size and individual expertise in different fields made our interaction lateral. Before every mission, we had a full meeting where every member memorized the routes and the time frames for accomplishing every objective. Aside from the big picture, every member had clear division of roles depending on his expertise. The division of labor, a common objective, clear incentives, and an inclusive team hierarchy created an effective team.
Sources:
Statistics on non-combat related deaths in the Korean military:
http://www.index.go.kr/potal/main/EachDtlPageDetail.do?idx_cd=1701
Korean Army Pay:
http://www.mma.go.kr/index.do
Team Structures/High-Performing Teams:
Ch 3-5: Reframing Organizations
North and South Korea are still technically at war. Their peace is maintained by an armistice agreement that established the 160-mile long, 2-mile wide buffer called the "De-militarized Zone." Contrary to its name, it is the most heavily militarized border in the world, seeded with landmines.
The Korean Army's main goal is to deter North Korean attacks by having strong defense capabilities, and to maintain the status quo of peace in the peninsula.
In Korea, all male citizens over the age of 18 are required to serve in the military for 21-24 months depending on the branch of the military. In 2012, conscripts got paid an average of 100 dollars a month. Alternatively one could fulfill the duty by volunteering to serve as a commissioned officer or an NCO, and start with a monthly pay of ~1300 dollars. Another advantage is that an NCO/officer will start with a higher rank than any conscript. However, NCO's and officers have to serve a minimum of ~4 years.
Conscripts make up the operating core of the organization. However, they have almost no incentive to perform well. As stated above, they get paid 1200 dollars a year, or approximately 50 cents an hour. This is 5% of the Korean GDP per capita, which is 26,000 dollars. Furthermore, almost no conscripts are put in combat situations. Since their lives are not endangered, there are no clear disincentives for performing badly.
Perhaps as a result of no incentives, there is a strong culture of discipline based on physical or verbal abuse in the Korean army. There is a strict culture of hierarchy among conscripts, based on the order of military service start date. Whoever started service earlier month is considered the "superior," even if one has gained a true higher rank over his "superior" through early promotion. For his superior, a junior is forced to do his laundry, clean his dishes, make coffee, clean his boots, and anything else that he might demand. Incompliant conscripts are bullied, insulted, humiliated, or beaten. Officers and NCO's turn a blind eye to this "acceptable" level of discipline. Other times, they are unaware.
This disciplinary culture has negative consequences. From 2012-2014, there was an average of 200 non-combat deaths per year. These deaths include an average of 70 suicides/year, mass-murder suicides, being physically bullied to death, and other safety-related accidents. Furthermore, people with ideas and more expertise cannot speak out to superiors due to fear of "discipline." Also, there is no reason to speak out when the organization's goal is maintaining "status quo".
Junior officers and NCO's make up middle management of the army. They take orders from Battalion/Regiment/Division headquarters, and relay them to the conscripts for execution. However, junior officers and NCO's are promoted without merit because there is no good measure of performance due to the lack of combat. Second lieutenants are promoted after a year, and first lieutenants are promoted to captain in 2-3 years.
The DMZ Reconnaissance unit:
I started my military service in October 2012. Near the end of my six-week basic training, I went through a mental and physical screening process, and I was chosen to go through the 4-week DMZ Recon selection process. It was pretty much designed to make one despise one's very own existence. After a week of intense PT, we spent two weeks learning how to identify and use South Korean/North Korean weapons. In the last week, we spent 72 hours awake, evading capture from our lovely drill sergeants. After passing the course, I spent an extra three weeks in sniper training, one week in emergency medical training, and another two weeks in path finding.
Despite all of the issues the Korean army confronts as a whole, my Recon team was very effective at performing our "peacetime" missions. We went on 3-4 missions every week. During the ~120 DMZ missions I took part of, nobody on my team ever got injured. None of us faced any disciplinary action for breaking any South Korean or U.N regulations. I attribute this to the following:
1. We had clear incentives. We had to go on recon-missions in a minefield. Slacking off or not paying attention could mean death or serious injury. Also, every mission was mentally and physically draining. Being effective as a team meant more time to rest and recuperate.
2. Each role was highly specialized, and each team member was an expert in his role. As such, even the team leader (NCO/officer) would be well advised to listen to a junior conscript.
3. As the squadron leader (I managed my team's barrack life), I personally eliminated discrimination based on seniority. I reasoned with the more senior teammates that our team would perform better if each was at his mental/physical peak. Dividing work fairly and putting a stop to "discipline" would be the best solution to this.
With this background, I define a "successful" team in the R.O.K (Republic of Korea) army as one that can fulfill the checklist in chapter 5:
1. High-performing teams translate common purpose into specific, measurable performance goals.
The DMZ is a dangerous and a tiring place. The longer a mission drags on, the higher chance we have of stepping on a mine, injuring ourselves in the rough terrain, or confronting North Korean soldiers. As such, our common goal was always to finish our given mission with the highest precision and safety, in the shortest amount of time possible. We measured our performance by how quickly we accomplished our objectives in comparison to other similar missions. This was in contrast to other branches in the army who's goals were to just maintain the status quo.
2. High-performing teams are of manageable size/High performing teams develop the right mix of expertise
Our recon team consisted of nine people in three groups. A demolition group, command group, and a fire support group. The demo group consisted of three men specializing in pathfinding and mine/explosives to lead the team into a safe route. The command group had two communication specialists and the team leader who would communicate with the battalion/regimental head quarters to report our mission and relay any changes in command. The fire support group had machine gunners and grenadiers to cover the flank. Each group had a leader that communicated with each other and the team leader. Each were well rehearsed in the mission objectives, and could independently make decisions to accomplish the mission. Because the two group leaders were experienced conscripts, less experienced officers/NCO team leaders always had people to rely on.
Our recon team consisted of nine people in three groups. A demolition group, command group, and a fire support group. The demo group consisted of three men specializing in pathfinding and mine/explosives to lead the team into a safe route. The command group had two communication specialists and the team leader who would communicate with the battalion/regimental head quarters to report our mission and relay any changes in command. The fire support group had machine gunners and grenadiers to cover the flank. Each group had a leader that communicated with each other and the team leader. Each were well rehearsed in the mission objectives, and could independently make decisions to accomplish the mission. Because the two group leaders were experienced conscripts, less experienced officers/NCO team leaders always had people to rely on.
3. Members of high-performing teams hold themselves collectively accountable.
All of our lives were on the line. If our team leader takes the wrong path, all of us could pay with our lives by stepping on mines (this happened to another team). One person's mistake could cause harm to everyone. As such, everyone on the team taught each other in their field of expertise, so that if one of them got injured on a mission, someone else could take over their role if necessary. This was not a requirement, but an effort on everyone's part to reduce risks and make sure that we could always accomplish our common goal of completing the missions and coming back home safely.
All of our lives were on the line. If our team leader takes the wrong path, all of us could pay with our lives by stepping on mines (this happened to another team). One person's mistake could cause harm to everyone. As such, everyone on the team taught each other in their field of expertise, so that if one of them got injured on a mission, someone else could take over their role if necessary. This was not a requirement, but an effort on everyone's part to reduce risks and make sure that we could always accomplish our common goal of completing the missions and coming back home safely.
4. High-performing teams shape purpose in response to a demand or an opportunity placed in their path, usually by higher management.
Every mission had a lot of external variables. The objective of our mission could be changed at a whim of the upper management in Division, even on the day of the mission. Furthermore, weather forecasts never seemed to be able to predict the conditions in the DMZ. Rain could become hail or snow within minutes. Temperature was off by +/- 5 degrees celsius, which could cause frostbite/hypothermia in the winter, and heatstroke/dehydration during the summer. Furthermore, North Koreans could sneak in, destroy our communication lines, or even set IED's around our ambush spots. It is difficult to account for these external factors by following strict military regulations for equipment and actions. Rules for Recon units are often laid out by Division commanders who have little to no experience in DMZ missions, they are often outdated, and do not account for the complex situations one encounters in the real world. However, the higher-ups' lack of expertise also meant that we had more freedom in which equipment to bring, and what course of action to take in the DMZ. Even if we did break some regulations from time to time, they had no way of finding out. In the end, this autonomy played to everyone's benefit. We could rely on our experience and knowledge to accomplish missions safer and faster, and the headquarters got their objectives accomplished.
Everyone had a clearly defined role, and we made sure that each understood what part he was playing in the big picture of the team. Work was divided among the team by his expertise and role. We had frequent live-ammo training exercises where people moved autonomously to carry out their responsibilities even before specific orders were given.
Overall, we had a vertical and lateral structure. There was a strict hierarchy based on rank, but our small size and individual expertise in different fields made our interaction lateral. Before every mission, we had a full meeting where every member memorized the routes and the time frames for accomplishing every objective. Aside from the big picture, every member had clear division of roles depending on his expertise. The division of labor, a common objective, clear incentives, and an inclusive team hierarchy created an effective team.
Sources:
Statistics on non-combat related deaths in the Korean military:
http://www.index.go.kr/potal/main/EachDtlPageDetail.do?idx_cd=1701
Korean Army Pay:
http://www.mma.go.kr/index.do
Team Structures/High-Performing Teams:
Ch 3-5: Reframing Organizations
Sunday, September 18, 2016
Opportunism and Economic Inefficiency In Econ 490
opportunism
1. the policy or practice, as in politics, business, or one's personal affairs, of adapting actions, decisions, etc., to expediency or effectiveness regardless of the sacrifice of ethical principles.
I have passed up on many opportunistic chances in my life, especially in the last week. In this blog, I will discuss my own experiences because it would be inefficient for me to speculate another person's thought process when I already have full access to my own experiences and my thoughts.
I personally believe that there is never a fully opportunistic chance in real life. The sacrifice of ethical principles always comes with a price. On a personal level, one would always feel guilt after committing an unethical act. The act of feeling guilt or dealing with it would incur a cost. If one did not feel any guilt after an act, then it must not have went against one's morals, for how could one not have a "feeling of responsibility or remorse for some offense, crime, wrong" if one knows that one has committed a wrongful act? I would assume that a rational agent would have the capacity to remember what one has done. To not feel guilt would mean that one did not perceive that act as wrong, therefore no ethics were broken from the person's perspective.
Taken from dictionary.com:
Ethics: "system of moral principles".
Moral: "... concerned with the principles or rules of right conduct or the distinction between right and wrong."
Guilt: "a feeling of responsibility or remorse for some offense, crime, wrong, etc., whether real or imagined"
One thing that is difficult to measure would be the quantity of guilt one would feel, and whether that would outweigh the utility gained from committing the opportunistic act. Regardless, ethical principles isn't the only thing being sacrificed.
Recently I ordered food from a restaurant. When I tried paying with cash, the cashier told me to wait and eat first because there wasn't enough change in the register. After I was done eating, I forgot to pay the bill and left. The cashier had clearly forgotten as well because we exchanged a "good-bye" as I left. However, I went back to pay when I remembered that I had forgotten to do so.
The meal was 15 dollars. After I remembered, I had a choice to go back and pay or not. I had no risk of being confronted about it because I had already tried paying from the start, and it was clear that the cashier had forgotten. If I went back and paid, I would lose 15 dollars, and 20 minutes of time. If I didn't pay, the cashier might remember later, but recall that I had already tried paying, and conclude that I had made an honest mistake.
I went back and paid the cashier at the expense of my time. Here is why:
1. From my experiences of working in business, I believe that business should be conducted fairly. If my decision making strategies were reliant on the expectation that I could treat someone unfairly, then I would not expect people to want to continue conducting business with me.
2. I received a service from someone. I would like to give them something of equal value in exchange. This is what I want from others, therefore I would like to treat others this way.
At the end of the day, these are an arbitrary set of beliefs that I might not share with others. However, I calculated that if I were to deviate from my principles, I would have more to lose from potentially opening up thought process to inconsistencies. Inconsistent thoughts will lead to bad decision making, which will decrease my utility output in life.
I believe that there is a cost to breaking principles or ethics that is not easily noticeable. It is difficult to measure the cost of having an emotion or a thought, especially if they are not extreme enough to cause quantitative loss. But I believe that it is there, and that I try to avoid opportunistic decisions for my own benefit. I don't believe that I am inherently good or ethical. I am driven by a desire to maximize utility. If something doesn't seems be a optimal decision in the short-run, then I must be thinking long-run.
Monday, September 5, 2016
Milton Friedman and Choice Involving Risk
The first time I had heard of Milton Friedman was when I was fourteen. I was attending a small boarding school in Aurora, Illinois, when my politically active friend Alex invited me to like a page on Facebook called "Milton Friedman, Free to Choose." Back then, I did not really understand the meaning of freedom or choice. I did understand their denotations, but when had I ever made an important choice on my own? I was always following the path that my parents had set for me.
After I graduated from high school, I was determined to make my own decisions on life. As a teenager with good intentions yet little knowledge, I borrowed Friedman's "Free to Choose" as one of the slogans for my life, though I had never actually read any of his works. For the next six years, I devoted my time to mapping out my preferences through Cartesian doubt. I tried everything and every activity I could come across, no matter what others thought of them. Through this journey, I became a DJ/Music Director for Heartland LLC, a student founded Event Planning Company, and co-founded a tutoring startup. Finding out that I could actually enjoy doing a variety of different things, I was left with a perplexing question: "How does one make a decision?" My search for an answer led me to the "Econ of Organizations" course.
Milton Friedman was a Nobel Laureate in economics. His works showed that changes in the money supply impacts income and prices, challenging the traditional view of Keynesian economics. He rejected the view that there is a stable negative relationship between inflation and unemployment rates. He argued that this relationship arises from the shock of inflation and a lag that occurs before the price levels and wages adjust to the money supply. In the long run, people would be able to anticipate the changes. He then concludes that there is a natural-rate of unemployment, one that is independent of inflation.
His Nobel Prize winning work, without a doubt, had a huge impact on macroeconomics. The terms that he coined in his works were frequently brought up in my econ classes from freshman and sophomore year. However, my interest in individual decision making was better addressed in one of his earlier papers, "The Utility Analysis of Choices Involving Risk." In the paper, Friedman hypothesizes that a consumer unit, given a set of alternatives to choose from, will behave as if:
1. It had a consistent set of preferences
2. These preferences could be completely described by attaching a numerical value-to be designated "utility"
3. The consumer unit chose among alternatives not involving risk that one which has the largest utility;
4. It chose among alternatives involving risk that one for which the expected utility (as contrasted with the utility of the expected income) is largest;
(points 5 and 6 provide constraints for the function describing utility of money for consumer units)
Assuming that I had a consistent set of preferences, how would I attach a numerical value designated to utility? Even if I couldn't get a precise number, could I know with certainty which choice would give me the greater expected utility? Earlier in the blog, I mentioned that I DJ and work with my friend for a startup. I know that I love music. Even listening to music gives me a lot of utility, let alone DJ'ing/producing. On the other hand, continuing to work for my friend's startup, assuming that it will continue to do as well as it is doing now, will certainly get me a decent living wage. Music involves a lot of risks. There is no guaranteed wage, and it is difficult to quantify "good music". As for the startup, there just isn't enough long-term data to show that it might continue thriving. Both have risks, but the startup seems to have a greater expected utility when averaging all possible outcomes. On top of all this, how do I know that I have enough information to accurately attach a numerical utility to my choices, or that I am interpreting the information correctly? My current answer to this is experience. The more I try to make calculated decisions on choices with risks, the more information I will gain about how I make decisions, reducing the risk that comes with the subjectivity of being my own decision maker. Furthermore, I hope to gain a new insight into decision making through this course.
Sources:
Milton Friedman profile:
http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1976/press.html
Friedman's Nobel Prize lecture:
http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1976/friedman-lecture.pdf
The Utility Analysis of Choices Involving Risk: http://www.jstor.org.proxy2.library.illinois.edu/stable/pdf/1826045.pdf
After I graduated from high school, I was determined to make my own decisions on life. As a teenager with good intentions yet little knowledge, I borrowed Friedman's "Free to Choose" as one of the slogans for my life, though I had never actually read any of his works. For the next six years, I devoted my time to mapping out my preferences through Cartesian doubt. I tried everything and every activity I could come across, no matter what others thought of them. Through this journey, I became a DJ/Music Director for Heartland LLC, a student founded Event Planning Company, and co-founded a tutoring startup. Finding out that I could actually enjoy doing a variety of different things, I was left with a perplexing question: "How does one make a decision?" My search for an answer led me to the "Econ of Organizations" course.
Milton Friedman was a Nobel Laureate in economics. His works showed that changes in the money supply impacts income and prices, challenging the traditional view of Keynesian economics. He rejected the view that there is a stable negative relationship between inflation and unemployment rates. He argued that this relationship arises from the shock of inflation and a lag that occurs before the price levels and wages adjust to the money supply. In the long run, people would be able to anticipate the changes. He then concludes that there is a natural-rate of unemployment, one that is independent of inflation.
His Nobel Prize winning work, without a doubt, had a huge impact on macroeconomics. The terms that he coined in his works were frequently brought up in my econ classes from freshman and sophomore year. However, my interest in individual decision making was better addressed in one of his earlier papers, "The Utility Analysis of Choices Involving Risk." In the paper, Friedman hypothesizes that a consumer unit, given a set of alternatives to choose from, will behave as if:
1. It had a consistent set of preferences
2. These preferences could be completely described by attaching a numerical value-to be designated "utility"
3. The consumer unit chose among alternatives not involving risk that one which has the largest utility;
4. It chose among alternatives involving risk that one for which the expected utility (as contrasted with the utility of the expected income) is largest;
(points 5 and 6 provide constraints for the function describing utility of money for consumer units)
Assuming that I had a consistent set of preferences, how would I attach a numerical value designated to utility? Even if I couldn't get a precise number, could I know with certainty which choice would give me the greater expected utility? Earlier in the blog, I mentioned that I DJ and work with my friend for a startup. I know that I love music. Even listening to music gives me a lot of utility, let alone DJ'ing/producing. On the other hand, continuing to work for my friend's startup, assuming that it will continue to do as well as it is doing now, will certainly get me a decent living wage. Music involves a lot of risks. There is no guaranteed wage, and it is difficult to quantify "good music". As for the startup, there just isn't enough long-term data to show that it might continue thriving. Both have risks, but the startup seems to have a greater expected utility when averaging all possible outcomes. On top of all this, how do I know that I have enough information to accurately attach a numerical utility to my choices, or that I am interpreting the information correctly? My current answer to this is experience. The more I try to make calculated decisions on choices with risks, the more information I will gain about how I make decisions, reducing the risk that comes with the subjectivity of being my own decision maker. Furthermore, I hope to gain a new insight into decision making through this course.
Sources:
Milton Friedman profile:
http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1976/press.html
Friedman's Nobel Prize lecture:
http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1976/friedman-lecture.pdf
The Utility Analysis of Choices Involving Risk: http://www.jstor.org.proxy2.library.illinois.edu/stable/pdf/1826045.pdf
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