Incentives Matter | What Are You Optimizing For?

Please, listen to the whole thing, but my EFE antenna really started twitching at around the 7:45 mark.

The truth lies somewhere in the middle, so I don’t agree with John Cochrane 100%, but as always, definitely worth a listen:

What Are You Optimizing For, Weird Art Edition

A Danish artist who pocketed large sums of money lent to him by a museum – and submitted empty frames as his artwork – has been ordered by a court to repay the funds.

So begins an article in the Guardian (h/t John Burn-Murdoch on Twitter). It is a short article, won’t take more than a couple of minutes to read it. But it will take you a fair bit of time and effort to understand its implications in their entirety.

An artist called Jens Haaning was commissioned by the Kunsten Museum in Aalborg to recreate two earlier works by him. One of these was titled An Average Danish Annual Income. It simply displays krone notes in a canvas. Another work by the same artist is apparently pretty much the same idea, but using euro notes instead.

So this time around, the Kunsten Museum provided about 61k Euros, give or take, to recreate the work. The result?

But when staff unpacked the newly delivered works, they found two empty frames with the title Take the Money and Run.The museum put the new artworks on display, but when Haaning declined to return the money, it took legal action.

Well, is it a crime or not? Did he create a work of art or not? What does the law say, and what does economic theory say?

Here’s my understanding from an economic perspective:

  1. Yes, he created a work of art. One may not like it, one may not approve of it, but it is there all right.
  2. Was he obligated to use the currency notes that had been supplied? My take is that he wasn’t, unless this was explicitly specified in the contract. I have of course not seen the contract, but I found this interesting: “The work is that I have taken their money. It’s not theft. It is breach of contract, and breach of contract is part of the work”.
  3. I find this interesting because the artist seems to be making the argument that even if the contract was explicit about using the supplied currency notes in the artwork, his interpretation of the commissioned project involved breaching the contract. What is more important when it comes to a case like this? The legal interpretation of the contract or the (artistic) interpretation of the same document by the artist?
  4. As regards that last question in pt. 3, how should the artist think about this? How should a lawyer think about this when on the prosecuting side? How should a lawyer think about this when on the side of the defense? How should an economist think about this? How do you think about this?
  5. The article ends with this (deeply troubling for me) quote: “I encourage other people who have working conditions as miserable as mine to do the same. If they’re sitting in some shitty job and not getting paid, and are actually being asked to pay money to go to work, then grab what you can and beat it”
  6. “Working conditions as miserable as mine”? Who decides? On what basis? By what benchmark? Is the benchmark a universal one, or does it change by country? Or by some other variable(s)? How do we decide?
  7. Does this apply to all creative endeavors? What if I don’t teach Principles of Economics well, or at all? Do students learn better when they are forced to learn on their own? If yes, am I actually being a good teacher by refusing to teach?
  8. Writing contracts out explicitly matters. Institutions matter. Repeated games in game theory matter.
  9. And dare I say, ethics matter.

What Are You Optimizing For, the Hollywood Edition

What Are You Optimizing For, The Software Version

I’m an amateur cook, and not a very good one.

It kills me to say it, and I wish it weren’t so, but I don’t have a “feel” for cooking. You know what I’m talking about of course, because regardless of whether you’ve tried cooking yourself, you have certainly had a meal, and you know what a tasty dish of food is all about. Some cooks have that oh-so-elusive feel for cooking. They know just the right amount of spice that a dish needs, and they know just for how long a dish needs to remain on high heat. They know what the phrase “stop cooking the pasta when it is 80% done” means. The whole armada doesn’t come to a grinding halt for these guys when an ingredient is not to be found in the kitchen. These are the sort of people who will open the refrigerator, grab something else, and nonchalantly say “Ah, this will do just as well.”

I hate those guys.

Me? I’m the mad slapdash cook. My dishes are just the wrong side of done to perfection, and “add salt to taste” in my universe means “fancy a swim in the ocean?”. I, in other words, don’t know when to stop.

But that, it would seem, would make me a good (?) coder. I’m joking, of course. But at least some coders seem to suffer from the same problem: apparently, they just don’t know when to stop.

The article that this picture is from is a lovely little rumination on “feature creep“.

Feature creep is the excessive ongoing expansion or addition of new features in a product, especially in computer software, video games and consumer and business electronics. These extra features go beyond the basic function of the product and can result in software bloat and over-complication, rather than simple design.

It’s ingredient creep in my case, but potatoes, poh-taa-toes.

So why does it happen? Clive Thompson, the author of the piece, comes up with two good reasons:

Granted, some of our problems with feature creep are just pure nostalgia. We fall in love with the early version of an app, and almost like a band’s first album, associate it with a simpl’r time in our salad days; then we get all itchy and pissy when the band moves on. You sold out, man! And for their part, software firms have many excuses for why they shove in all those new features. Users demanded ’em. Sure, only 1% of people use that feature, but they’re crucial users. And anyway, we gotta keep pace with the competition. Swim or die!
Fair enough. But look — sometimes the enclottification of an app really just is feature creep. And you can understand why it happens! Developers love to develop; marketers want new stuff to market. Adding new features, shipping new code, is fun and exciting. Merely maintaining a successful app? Bleah. So dull.

And how should we avoid falling into this trap? Clive speaks about a concept he calls the “Maximum Viable Product”:

What if more developers developed a sense for the “maximum” number of things a product should do — and stopped there?
What if more software firms decided, “Hey! We’ve reached the absolute perfect set of features. We’re done. This product is awesome. No need to keep on shoving in stuff nobody wants.”

As he says later on in the article, it is just about having confidence in your amazing design.

As an economist, I would argue that what he is saying is that one should be clear about what one is optimizing for. This could be software coding, this could be an economic policy, or it could be a simple banana bread. But if it is a simple bana bread, maybe stop at the walnuts? Do we really need the cocoa powder, the chocolate chips and the cinnamon powder? And if you pop open the fridge door and begin to think about whipped cream as a garnish, that is what feature creep looks like in the kitchen.

Don’t, not-so-young lad, don’t. Stop. As Clive puts it, this product is awesome. There is no need to keep on shoving in stuff nobody wants.

Decide upon the core problem you are trying to solve, try your best to come up with a near-perfect solution to that core problem, and ignore all of the distractions. It works in the case of software, it would seem, and it also works in the case of policymaking. Always – I repeat, always – be clear about what you’re optimizing for.

And if you’re wondering, the second time around, the simpler banana bread came out much better. My 9 year old sous chef insisted on adding chocolate chips, I’ll admit, but then again, I was optimizing for her happiness.

P.S. If you don’t follow Daring Fireball, John Gruber’s lovely blog, please do. That’s how I came across Clive’s post.

What is Cricket Optimizing For?

What if you asked an economist how to go about analyzing the answer to this question? I’m not so interested in the answers to this question in today’s post, but in trying to figure out how to go about thinking about how to set up this question for analysis. But I will conclude today’s post by trying to answer some of the questions/points I will have raised by then.

  1. What do we mean when we say “cricket”? Do we mean the players, the administrators, the viewers, the businesses interested in informing the viewers about the sport, or all of the above? If it is to be all of the above, are they all pulling in the same direction? If not, should we not be analyzing what each of them are optimizing for?
  2. What do we mean when we say “cricket”? Do we mean international cricket, or the leagues?
  3. What do we mean when we say “international” cricket? Do we mean Test match cricket, or One-Day Internationals os T20 internationals?
  4. What is cricket optimizing for, but also over what time horizon? What is best for cricket this year, in 2023? What is best for cricket in the medium run – say over the next five years? What is best for cricket over the next ten years? Do the answers change given the horizon, and do the answers change given the answers to the first three questions?
  5. If any one, or more, of the answers to these questions are such that they are in contradiciton to one another, how should we prioritize? On what basis?

The larger point behind today’s post is not to figure out how to figure out the answers to these questions. The larger point is to help all of you realize that analysis can only begin in earnest once the questions are clear in your own head. And while a throwaway question like “What is cricket optimizing for?” is fun to think about over a couple of beers, breaking it down into its constituents is always helpful. When you tackle any big picture question, spend some time in breaking it down into its constituent parts. Oh, and make good ue of the MECE principle while doing so.

For example: what is China optimizing for isn’t the correct question. Who within China are you talking about? Ditto for Russia. And for the USA.

“What are you optimizing for?” is a great question to ask, but only if you really and truly know who the “you” in the question is.

But having said all that, here are some (not all!) points from me for having considered these questions:

  1. What do we mean when we say cricket?
    • Players will want to maximize their incomes. This is not me being sarcastic, or saying that players are mercenaries. This is me saying that players are human beings. Had it been you or I in their place, we would also have wanted to maximize our incomes over the 15 years or so (at most) that we could have realistically played the game at a professional level. That is not a bad thing, it is a perfectly rational thing to do!
    • Administrators are optimizing for maximizing revenue streams. This is also a perfectly rational thing to do, but I do think that administrators are maximizing revenue streams over the short run, and are damaging the long-term health of the game while doing so.
    • The viewers (en masse) are optimizing for alleviating boredom. There will always be some eyeballs for a match, no matter where it is being played, and no matter between whom, and no matter how inconsequential. This results in the point above, and this is a great example of why thinking long term is A Very Good But Very Underrated Thing.
    • Businesses are optimizing for maximizing their long term returns, but across many diverse businesses. Amazon Prime doesn’t show you cricket matches from New Zealand because they are passionate about cricket, but because Amazon is passionate about getting you hooked on to Amazon Prime. Which, in turn, will get you hooked on to using Amazon. But that is just one example of a broadcaster (loosely defined) optimizing for its larger business interests (also loosely defined). ESPNCricinfo is also a business that is about informing you about cricket, but they have a much more direct interest in (and passion for) the sport. But obviously a very different business model, and this before we start to think about ESPN, and Disney. Note that this is a hugely complicated point, and difficult to speak about in a single blogpost, let alone a sub-point of a point in a blog post!
  2. In an ideal world, we would be optimizing for maximizing the long term health and popularity of the game. But we do not live in an ideal world. We therefore need to ask ourselves which of these groups mentioned above are likely to hold sway, and at what cost to the interest of all the other groups. That administrators and businesses are likely to take most decisions is a given. That they are likely to do so in favour of their own interests is obvious. Getting their interests to align with those of the viewers, and to have all interests be focussed on the long run would be a good way to get going towards living in that ideal world. Think long term, everybody!
  3. There is no escaping the fact that we really should be having a conversation about having the 2023 ODI World Cup being the swansong for the format at large. Scrap T20 Internationals, save for only a T20 World Cup, held once every two years.
  4. These apart, T20 leagues in all major cricket playing nations.
  5. Cross-subsidization of Test matches for as long as possible, and the eventual demise of this version of the sport too. I hope this is delayed for as long as possible, but it is an eventual inevitability.

Pts. 3, 4 and 5 are assertions/predictions on my part, but I see no way out of these conclusions. Cricket, if it really is going to optimize for maximizing the long term health and popularity of the game, needs to shed an entire format and cross-subsidize another one for the foreseeable future. And bilateral cricket should die a natural death with Test cricket, whenever it happens. To be clear, my personal hope is that it never does. But I am betting, alas, that it will.

I would love to be wrong, but I fail to see how.

“What Are You Optimizing For?”, The International Macro Edition

It is one of my favorite questions to ask whenever students come to me with doubts about “what to do next” in terms of either further education or a job.

(Side note: asking me what to do next probably isn’t a good idea, because my career has been gloriously unplanned. But that’s a whole separate story)

But one should be clear about what one is optimizing for: is it income, or free time, or job satisfaction, or rapid career growth – or something else altogether? And whatever it may be, optimizing for one will quite probably mean having to give up on some or all of the others.

And this applies to many more things than just the What To Do Next question, of course. In fact, relentlessly asking this question in many different contexts can take you a very long way in terms of understanding what seem like really difficult and complex topics.

Such as, for example, what China has been up to in terms of international trade, and what went so gloriously wrong.

The simple story of international trade (or trade in general for that matter) isn’t difficult to grasp. Bear in mind that reality is a little more complex, but it really boils down to comparative advantage.

As Michael Pettis points out at the start of this excellent Twitter thread, the so-called “China shock” *is* a shock, but it is not an indictment of the basic concept of international trade. China, as we’re about to find out, was playing a zero-sum game.

One of the most glorious things about economics is the fact that trade is a non-zero sum game. Both parties that have voluntarily entered into a trade with one another benefit for the trade having gone through, and so nobody loses. This is as true at your local chai tapri (you give ten bucks for a cup of chai, and both you and the chaiwala are happy with the trade) as it is in the context of international trade between the United States of America and China.

But beware overly simplistic stories, for they can trip up many a happy ending:

Isabella Kaminska, in an old but excellent article on FT Alphaville made a very similar point. I’ll get to that point in a bit, but may I also use this opportunity to urge the good folks at FT to make FT Alphaville free again?

Here’s the point from that old article:

What those who accused China of using its exchange rate to gain advantage probably misunderstood was that it wasn’t the currency which was being undervalued, it was the people. Stephen Roach, then chief economist of Morgan Stanley, explained this point in the Financial Times in 2003 (our emphasis):
“The Chinese phenomenon hardly amounts to grabbing market share from the rest of the world. It is more a by-product of the struggle for competitive survival by high-cost producers in the industrial world. Last year, a record $53bn of foreign direct investment flowed into China, making the country the largest recipient of such funds in the world.
These investments did not occur under coercion. A high-cost industrial world has made a decision that it needs China-based outsourcing to ensure competitive survival. Dismantling China’s currency peg would destabilise the very supply chain that has become so integral to new globalised production models in Japan, the US and Europe.
There are several other reasons why China should leave its currency unchanged. Contrary to widespread perception, China does not compete on the basis of an undervalued currency. It competes mainly in terms of labour costs, technology, quality control, infrastructure and an unwavering commitment to reform. (Emphasis added)

This article was written in 2015, but it holds up very well. In fact, it is instructive to see how, in addition to labour costs and infrastructure, China has now centralized under government authority technology as well. It is also instructive to think about how (and in what direction) the “unwavering commitment to reform” has evolved, but that is a separate story.

To come back to the common thread between the old FT Alphaville article and the Twitter thread by Michael Pettis:

Stephen Roach, in 2003, spoke about how China was undervaluing its people. Isabella Kaminska in 2015 spoke about China competes (at least in part) on labor. And Michael Pettis in 2021 is talking about China competing by suppressing its wages (relative to productivity levels). But they’re all making the same point, and it is a point that merits greater emphasis:

The China shock needn’t have been a shock, in the sense that it is not as if economic theory stopped working once China started trading more with the rest of the world.

China, as it turns out, wasn’t optimizing for international trade. China was – and is – optimizing for an increase in her exports, and that over time.

That problem manifests itself in many different ways: The USA’s persistent trade deficit with China is just one glaring example. The Belt and Road Initiative is another (what the hell do you do with all those forex reserves, dammit?). And there’s many, many more.

But as Michael Pettis reminds us in this thread, the “China Shock” phenomenon becomes way more comprehensible when you ask a deceptively simple question: what is China optimizing for?

What is India optimizing for when it comes to international trade? What should India be optimizing for? In both cases, whatever your answer, why?

Critique this blogpost, and write your responses to the questions above. It is a great way to test yourself if you think you’re good to go in open macroeconomics or international trade.

On The Economics of Time Wasting in Football

Or soccer, if you so prefer.

So what is the issue here? If you are a football fan, you know it all too well. But if you are not, here is some background:

The International Football Association Board (Ifab) has ordered referees around the world to clamp down on time-wasting and add on the exact time taken for goal celebrations, substitutions, injuries, red cards, penalties and VAR checks. Referees would previously add 30 seconds for each goal or substitution.
An average of 16 minutes and 34 seconds was added to matches on the opening weekend of the EFL season, with 29 bookings for time-wasting compared with two on the final day of last season. Any player who stands in front of a free-kick to prevent it being taken quickly or kicks the ball away to delay a restart, for example, will be cautioned.

… and you’d think that’s a good thing, right? Even the most casual fan of football is all too aware of the fact that there is a lot of time-wasting that goes on. So anything that helps eradicate it is a good thing, surely?

Well, turns out there’s two ways to “deal” with time-wasting. One, do it hockey style. Field hockey uses a stop-clock, and the clock is, well, stopped when play is stopped. The countdown timer is reactivated when play begins, and we “count down” the amount of time that needs to be played.

The second method, which is the one that football currently favors, is to not use a stopwatch, but rather to count the number of minutes that play has been stopped for, and add those minutes as “extra” time.

So why the second method, and not the first?

Well, economics:

Why is this happening? As ever, follow the money. The drive to increase active “game time” (itself a vapid, ill-defined concept) comes directly from Fifa. And Fifa is essentiality a TV rights distributions agency, its entire model based around increasing screen revenues. What we have here is the laws of the game being employed as a tool to doctor the perceived TV entertainment value of the product; as expressed via a massively overengineered notion of what the referee’s role should be, clumsily grasped value judgments of what entertainment looks like, and how this sport, our own shared treasure, should feel and look.

If you found it difficult to untangle the simple message in that paragraph, here is the quick takeaway: longer games means more advertising opportunities. But it also means more goal-scoring opportunities, which means more entertainment… which means, well, more advertising opportunities.

Is that a cynical hypothesis, or is this backed up by data?

In the 49 games played so far, the average match duration is now 101 minutes and 40 seconds, an increase of three minutes and 36 seconds on last season. This means Premier League games are lasting even longer than matches at last year’s men’s World Cup, where world governing body FIFA pressed the need to give fans better value for money in terms of action.
Even more dramatic is the uplift in effective playing time — the amount of time the ball is in play — with that increasing by four minutes and 25 seconds to 59 minutes and 30 seconds.
These extra minutes have produced more goals, with 151 being scored already this season, 3.1 per game. And 22 of those goals have come in added time, compared to only five at this point of the season last year.

So who’s complaining? We have more people watching more goals being scored, and therefore advertising revenue has gone up. Seems like a good thing all round. No?


The move has not been greeted by everyone, though, with several prominent managers and players pointing out this would lead to more fatigue, injuries and potential burnout. European football’s governing body UEFA has refused to implement the new guidelines, opting instead to tell their match officials to keep the game moving.

So what should we be optimizing for?

  1. Should players be optimizing for not doing time wasting? What if they see their opponents doing it? How does the game theoretic solution then work out? How does it work out under the stopwatch rule? How does it work out under the added-time rule?
  2. Should the organizers be optimizing for players’ well-being? Or for advertising revenue?
  3. Should player recruitment change to account for the fact that matches will last longer? Should the number of substitutions be increased to account for longer matches? But will that not affect smaller clubs disproportionately?

If you are a fan of the sport, thinking through all this (and more) gives you a way to understand how one decision can impact so many others. Learn to transfer this type of interconnected thinking into other domains.

If you are a fan of economics or public policy, use the tools of your trade to think through the “best” solution. But realize that no solution is perfect, and that somebody, somewhere, will end up complaining. Maybe the players will play for too long, maybe you’ll stymie revenue growth, maybe coaches will come up with strategies to “work around” this problem.

And if you are a fan of both football and economics/public policy tell me what I’m missing!

Learn By Arguing

We don’t argue enough in our classes here in India.

That is obviously a blanket statement, not backed by data, and I’m sure that there are exceptions to what I have stated is the norm. But all that being said, I am very much willing to defend the idea that our classes are more about listening than they are about conversing, let along arguing.

Which is a pity, because nothing helps you learn better than arguing. Not arguing for the sake of arguing, but arguing in order for all parties involved in the argument to walk away with a better understanding of the issue at hand. If your side of the argument “wins”, good for you. But don’t enter into debates in order to win them – enter into debates in order to sharpen your thinking, and in order to build better defenses for your claims. Also enter into debates to appreciate better the opinions of “the other side”, and learn what is best about their arguments.

When this process works well, much learning can ensue.

One limitation of my classes at the Gokhale Institute this year is the fact that I’m teaching one hundred and fifty (give or take) students at the same time. As with everything else in life, this comes with pros and cons.

  1. I save on time, because I don’t have to teach two divisions (or sections, if you prefer) separately.
  2. I don’t have to teach the same thing again, so I get bored lesser.
  3. I don’t get to teach the same thing again, so I don’t get to practice more as a teacher
  4. But by far and the most important factor: students don’t get as much time to ask questions.

A “lecture” to a hundred and fifty students isn’t a lecture. It is a speech. That’s the only way a one hour session with an audience that large will ever work. You can answer the odd question here and there, but a detailed back and forth between any one student and the professor leaves the other hundred and forty nine students twiddling their thumbs, and so in-depth back-and-forth dialog is pretty much out of the question. I hate myself for it, but I often have to cut off students from asking a follow-up question, or ask them to make their questions shorter. Whatay tragedy, if you ask me.

I can understand why colleges would want to do this from the point of view of finance, sure. When colleges choose to combine divisions, they’re giving a very clear answer to the question “What are you optimizing for?” They’re minimizing expenditure, instead of maximizing learning. Smaller classes work better for learning, larger classes work better for minimizing expenditure.

And if that is what they’re optimizing for, they should follow through on their chosen path and outsource the learning to the internet altogether. But there are elements of such an equilibrium that are worrisome for a college to think about, and so we will continue to have ever larger classes, more’s the pity.

But students can outsource the having an argument bit to the internet if the college can’t oblige! We live in the age of ChatGPT, and whatever topic you would like to have an argument about, ChatGPT will happily play along.

How about an argument about the usefulness of supply and demand diagrams, for example? If your professor cannot spare the time for an argument in class about this, ring up your always available arguer online, and have some fun:

You can read the rest of this debate here, if you’re interested. But please figure out how to put me out of a job, by getting ChatGPT to argue with you more often about issues in economics (and other subjects, naturally).

Arguments really and truly are a great way to learn, and have fun going up against ChatGPT. I wish you all the very best 🙂

Minimizing Soul

The local JW Marriott in Pune has fed me thousands of calories over the years. I’ve been going there to eat hog for the last twelve years, and I’ve always left the premises with a full tummy and a truly contented mind. The ingreditents have always been top-notch, the preparations have always been tasty, the service has always been very good, and the staff have always been a perfect combination of friendliness and professionalism.

All good. But you knew there was a “but” on the way, didn’t you?

They have this loyalty scheme at the Marriott, called Club Marriott. Pay a certain amount of money upfront, in order to get discounts at restaurants, discounts on their spa services, the ability to use their swmming pool and some other freebies thrown in. It costs a little more than ten thousand rupees for the year, and if you are a reasonably regular patron at their restaurants, it certainly makes sense. And as my friends and family will queue up to tell you, the phrase “reasonably regular” is an understatement in my case.

The good thing about this membership scheme, at first glance, is that the price has stayed constant over the years. For as long as I can recall, it has been about the same price – a little more than ten thousand rupees per year. It used to be a coupon booklet and a membership card earlier, and it is now an app on your phone.

But inflation has certainly not been low over these years, let alone the same. Nor has the popularity of the hotel and its restaurants been the same. It has only gone up, as it should – for the service is truly top-notch.

Something’s gotta give, right?

And what has given way over time has been the return on the ten thousand rupees that one spends at the start of the one year period.

In the earliest version of the loyalty scheme, it was the case that two people could eat at half price. Three people could eat at a third off, while four or more (until a cap of twenty guests) could eat at one fourth off. You could book most rooms in the hotel at half off. You could make use of the jacuzzi, steam and sauna if you used the voucher that allowed you access to the pool.

And then, over time, it became the case that regardless of the number of people at the table (until twenty), you would always get only a thirty-three percent discount. Only the base rooms were made available for booking at a discount. You could use the pool, sure, but nothing else.

And this year, they have reduce the discount further still, to twenty-five percent.

All this might sound like me moaning and grumbling about what is very much a first world problem, and you wouldn’t be wrong. But the larger point I want to make is in relation to a post I wrote about two years ago:

Getting the most out of life can be thought of in two ways. It could mean living life to the fullest (however you might define this for your own sake). It could also mean getting the most out of life by minimizing time, effort and cost spent on any activity.

To me, that Marriott membership is about living life to the fullest. I am happy to pay more to get more, and that indeed is what the scheme is about from a microeconomic perspective. It is very much a form of price discrimination. It also involves the sunk cost fallacy, but that is a story for another day. But I have always thought of the membership as being about maximizing soul.

But by keeping the price of the membership the same and reducing over time the benefits associated with said membership, Marriott has turned it into a penny-pinching scheme. Purchasing the membership for the same price every year to get slightly lesser benefits is one way to evolve its pricing. Purchasing the memership for a slightly higher price every year to get slightly more benefits is another way to evolve its pricing.

It absolutely makes sense for the bean counters at the Marriott to maximize efficiency when it comes to inventory, labor, raw material purchases, electricity usage and the like. But should schemes about customer delight be about maximizing efficiency, or should they be about maximizing delight?

What is Marriott optimizing for, in other words? And when a luxury hotel optimies for penny-pinching, I’d argue it doesn’t make much sense.

My belly-aching about the pricing strategy at the Marriott aside, the larger point I want to get across is this: as a seller, you should be clear about the kind of business you are in, and the kind of experience you want you customer to have. Do you want to sell to the pay more to get more segment, or do you want to sell to the pay lesser to get lesser segment? Do you want to position yourself as a luxury good/service provider, or do you want to position yourself as a cheap and efficient good/service provider?

Either approach is fine, to be clear. But when you choose the second option in the case of the first question, and the first option in the case of the second question, you are likely going to face trouble down the road.

In the case of the Marriott, there are plenty of other factors at play. The propensity of Punekars (or Indians, for this is a pan-India scheme) to pay, what the competition is doing, how many other luxury hotels are there in the area are other obvious questions you must analyze.

I’ll still renew my membership, in all probability. But it no longer is a scheme that delights me. It has become, instead, a scheme that can save me some moeny every time I go to the Marriott. In the language of the microeconomist, it is more about the budget line than it is about the indifference curve.

The membership no long maximizes soul.

And more’s the pity.

All for One, and None for All

Let’s say you are a student of economics, and have got placed with a mid-tier firm, and with a ho-hum salary to boot. Not what you were expecting at the start of placement season, and not as plum a placement as some of your peers.

Worse, the rules about placement mean that you can’t sit for any other firms that come on campus. Should you then try to get a job by searching on the labor market all by yourself? If you find a better offer, you can choose to not take the job your placement cell got for you.

How should you model this problem as a student of economics?

Two questions that you might want to begin with:

  1. At what level are you analyzing this question?
  2. Over what time horizon are you analyzing this question?

Let’s deal with the first of these questions.

  1. Should you be analyzing this question at an individual level or an institutional level?

    You might think that the answer to this question is fairly simple. Of course it should be at the individual level! What does any institution have to do with your career?

    But hang on for a second. You ditching the job that you got through the placement cell is you walking back on your word – and you will be seen as a representative of the institution. The firm in question will call up the placement cell breathing fire and brimstone about “the students from your institute”. The placement cell will attempt to placate the f&b breathers, and will, in turn, breathe f&b while haranguing the student in question.

    No “character certificate” will be issued to you, the institution will threaten. And not just now, it will say ominously, but forever more. Just you wait and see, good luck getting a character certificate from us for the rest of your career.

    Are you tempted to shrug your shoulders and say “So what?” I would be, in your place.

    But sit in your little time machine, go back to the start of your placement season, and imagine learning about some of your seniors. Learning what about them? That they remorselessly and thoughtlessly pulled the same stunt that you are thinking about. And as a consequence, that particular firm no longer comes on campus.

    Fair? Of course not. Of course not, that is, from your perspective back then. Now that the shoe is on the other foot, and now that it is you who might have to sacrifice a higher salary so as to give your juniors a better chance at placements, you don’t want to think about what is best for them. You want, of course, to think about what is best for you.

    In fact, you have always been thinking about what is best for you. At the start of the placement season, you disliked your seniors for having pulled this stunt. Now, you dislike your juniors, and so see no reason not to pull this stunt.

    Try drawing a 2×2 matrix and see if Uncle Nash deserved his Nobel.

    So, should you be analyzing this question at an individual level or an institutional level? Well, it very much depends on whether you’re about to sit for placements, or have been placed with a mid-tier firm, and with a ho-hum salary to boot.

    The truth, you see, is relative. Just as a politician will change their opinion about something depending upon which side of the speaker they are seated in Parliament, ethics when it comes to placement is an elastic, relative concept.

  2. And now for the second question: over what time horizon are you analyzing this question?

    What do you want? The highest possible salary that you can possibly get, right here and right now? In which case, of course you should withdraw from the offer made via the placement cell.

    But think of the costs of such a move too, not just the benefits. At the margin (for we are economists after all, are we not?) do we make it more likely that we will never be able to apply for a job to this company ever again? Do we make it more likely that the placement cell will not provide us assistance in the future as alumni?

    Let’s say you’ve asked a senior, a mentor, a professor for help in getting this new job. What message are you sending these people? If these folks are asked five, ten, fifteen years down the line about your reliability and trustworthiness – what might they say? How are they likely to react if asked, “Is this person someone who will keep their word? Does a handshake with this person mean that this person can be trusted?”.

    In other words, what signal are you sending to your network? The signal of reliability and trustworthiness, or that of a fickle chaser of immediate gratification?

    Might it make sense to stick around for a year, see what options come up after a year, and leave with a year’s experience under your belt? Might not that mean a pretty good jump, but with your relationship with the placement cell, the firm in question and your network intact? In fact, if anything, your network will have increased in size, for having worked in this firm for a year.

There are other factors to consider, of course.

  1. It could be that you, or your family, have need for as much money as possible right away. Maybe you have a loan on your head, maybe there are health issues at play – who know? Life is tough, and none of us can know all that goes on in each other’s lives. Sometimes, jumping to a higher paying job maybe the right thing to do, even if it is the wrong thing to do. But in such cases, I would recommend that you have an off-the-record conversation with your placement officer and your mentor(s), letting them know that you’re jumping for personal reasons. Not only is that just fine, but you’re likely to get ongoing help and support.
  2. Maybe the firm in question isn’t the kind of work you want to do. I would still advise you to spend a year there, for you knew that when you sat for placements, surely?
  3. Maybe the location is an issue. You just don’t like Gurugram, or Bangalore is too far from home, or you might not enjoy the food in Kolkata, or something along these lines. I would still advise you to spend a year there, for that is no reason to give up on a job. Surely your word is worth more than that?

Finally, a thought experiment. What if the company that has hired you goes on to find later on that there is this other college that has much better students, and it makes sense to cancel the offers made to your Institute, and hire from there instead?

“Ho do you know they don’t do that anyway”, you might want to retort. And sure, I’m under no illusion that a firm will do what is best for itself. And believe you me, for all the “we’re one happy family” extended disco remixes that HR departments will play during your induction into a firm, firms can be pretty darn impersonal and ruthless.

But that’s my point: if that is the transactional view of the world that you hold, then go ahead and jump. Budget, of course, for the fact that this will be a two way street.

And if, on the other hand, you think this to be wrong, and that the word of the firm ought to mean something, well then. Do unto others

There is, in conclusion, no “right” answer to the question of whether or not you should jump. There only needs to be clarity and honesty on your part when it comes to the answers to these two questions:

  1. At what level are you analyzing this question?
  2. Over what time horizon are you analyzing this question?

All the very best, and my thanks to the person who asked me this question.