Economythology

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What does an economics textbook have in common with a fairy-tale?

Hint: it’s not a trick question.

According to Richard Thaler–author of  Misbehaving: The Making of Behavioral Economicsmost economists might as well be studying unicorns.” (Click here for his interview with Hidden Brain’s Shankar Vedantam, posted online under that title)

Thaler, behavioral economist-extraordinaire, reasons that the study of wholly rational people is nonsense–they simply don’t exist. As Hidden Brain put it:

We don’t always act like we’re supposed to. We don’t save enough for retirement. We order dessert when we’re supposed to be dieting. We use the tickets we bought to a concert even though we’re sick. In other words: We misbehave.

The hypothetical beings of traditional economics are known as “econs.” They act independently of factors like self control, sentimental value, and aesthetic preference. They are perfectly rational, acting solely to maximize their own utility and assumed to have infinite knowledge and computing abilities to inform their decisions. You wouldn’t want to play one in a game of pool. 

Meanwhile, humans are vulnerable to an impossible number of irrational factors. We experience fear, attraction, guilt, and adrenaline. We draw on past experiences to inform new decisions. Unlike econs, we tend to ignore sunk costs, as proven by Daniel Kahneman, who won the Nobel Prize in Economics while collaborating with Amos Tversky on this topic.

Physics-envy

Behavioral economics shifts the focus to real people and real world scenarios, considering abstract ideas and social sciences along the way. The econ’s world, in contrast, sticks to the sterility of hard-sciences and mathematics.

Economist and Nobel Laureate Robert Shiller suggests that a phenomenon called “physics-envy” might be to blame:

(From an interview with SAGE/Social Science Bites’ Nigel Warburton)

Robert Shiller: I think that the economics profession suffers from physics-envy. I really do. We all wish we could be Einstein. It’s too strong a model, we can’t all develop the theory of relativity. The world of people isn’t like that.

Shiller then elaborates:

When you look at what happens for example in a financial crisis, you’ve got to get immersed in a lot of detail… what’s driving people, what’s on their minds, what they don’t know… what the people are assuming the government might do if such and such happens.

Shiller’s Conclusion

[Life] involves a lot of real world thinking which doesn’t fit with the Einstein model.

And it doesn’t quite fit with the econ model, either.

Thaler isn’t just joking around by calling the all-rational beings mythological. While it may be an inevitable hypothetical construction, the econ world can never really exist. The contrast between real human experience and what might as well be called econo-mythology makes a need for questioning obvious.

Behavioral Economics is outpacing traditional economic theory, re-thinking the way we study patterns in consumer spending, international trade, and even health and social interaction, and putting all of these behaviors in human terms.

“…and the econs lived rationally ever after.”

THE END

 

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Do What You Want, Get What You Need

 

bingo kids cropBy encouraging innovation, we allow individuals to leverage their strengths, work on their weaknesses, and show what they’re capable of.

As an employee, I’m all for it.

But I’m also a manager—I’m accountable for the success of my students. I’m responsible for making sure they stay on track and meet specific goals before the deadlines.

I think most leaders will relate:

While intrapreneurship is exciting, it can also be intimidating.

Isn’t it a little risky? What if side projects take away from important day-to-day work?

How can we hit the target if we’re focused on what lies around and beyond it?

You wish you could offer more slack, but feel restricted by the stuff that has to get done.

Good news for the leader who’s wary:

Intrapreneurs will innovate, but “in with the new” does not mean “out with the old.”

When it comes to standardized testing, resistance is futile. Teachers know what I mean—it makes us cringe, but it has to be done.

You want to foster innovation, but don’t have the flexibility to recreate Adobe’s Kickbox. Bottom-line stuff is your top priority—as it has to be.

how can you do what you want and still get what you need?

I often let my students choose their own activities, as long as they follow the lesson. At one point, I set the curriculum aside completely and asked what they wanted to learn about.

Their response was surprising:

They didn’t go crazy and ask about Frozen or Spiderman. Instead, they brought up practical vocabulary—stuff I’d assumed that they already knew.

It turned out, my students wanted to be able to do what I asked.

It’s not fun to be confused or feel left behind. People want to know what they need to know.

They used their freedom to fill the gaps.

My students took this opportunity to learn words that would help them succeed—words they’d seen in the book’s instructions but never understood. Together, we strengthened weaknesses that I didn’t know existed.

On top of that, they used vocabulary that I’d never taught them. I wouldn’t have known these secret strengths if we’d stuck to the lesson all along.

What started as a fun (and admittedly off-topic) exercise turned out to be incredibly valuable: our discoveries improved my leadership and their performance on regular assignments.

Conclusion:

If we think intrapreneurship competes with objectives, we’re wrong.

It may seem risky to try something out-of-the-box. But intrapreneurship is more than fun, games, and invention: it’s an effective way to optimize daily performance.

People want to be good at what they do.

When your people get better, your product gets better.

You can do what you want and get what you need.

Thanks!

Molly

 (see also, Part I: Fixing Information Gaps with Intrapreneurship)

What do you think? Tweet @miss_mollyjane:

How can we bring intrapreneurship to non-creative industries?

What would this look like in your workplace?

What are you waiting for? (Hesitations about risk, strategy, effectiveness..?)

Fixing Information Gaps with Intrapreneurship

It goes without saying that we want to hire innovators.

Creative problem-solvers give companies an edge. And while I hate to reinforce the stereotype, millennials generally are looking for opportunities to think outside of the box.

I recently read an article from the Huffington Post about Adobe’s initiative to encourage intrapreneurs:

They created an “innovation-in-a-box” kit called Kickbox… The box, red in color, contains the items below to meet the intrapreneur’s needs:

Money. Each red box contains a pre-paid credit card in the amount of U.S. $1,000. Innovators use these funds to validate their idea.

Instructions. Kickbox includes quick reference cards outlining the six levels in the red box. Each card includes a checklist of actions innovators must complete to advance to the next level.

Other innovation tools. These include scorecards, frameworks, exercises, and other materials employees use to develop ideas.

Caffeine and sugar. Each red box includes a Starbucks gift card and a candy bar, since they know that two of the four major food groups of innovators are caffeine and sugar!

To sum it up, here’s what they found:

…based upon 18 months of results, they have found that the program helps innovators:

  • Be more effective and have more impact
  • Build valuable life skills and experience (for example, ideation, divergent thinking, and business creation)
  • Increase job satisfaction and engagement (as demonstrated by participant evaluation scores)
  • Discover (or rediscover) their passion for delighting customers

(You can read more about the program’s overwhelming success by clicking through to the article.)

I think what Adobe has done is pretty cool. But coolness is not the winning element here…

As a millennial, I feel like I’m cursed with a stigma of restlessness and nonconformity.

But I don’t want a ping-pong table, I want to make exceptional contributions in my work.

I’d love to consider intrapreneurship in a more practical context—the way I’ve encountered it. It’s more than just coming up with new ideas.

Intrapreneurship empowers employees to:

  1. Use strengths employers didn’t know they had.
  2. Solve problems employers didn’t know existed.

Employer-employee information gaps prevent leaders from bringing the best work possible out of employees, and accordingly, employees aren’t as satisfied with their contributions. Intrapreneurship fills these gaps.

Information gap #1: Employers can’t know workers as well as workers know themselves.

Over the past five years, I’ve worked with three different (awesome) employers. Thanks to these experiences—along with StrengthsFinder, BadBobby.com, The John Perkins Center, and some fantastic business professors—I know what it means to be an intentional, self-aware contributor.

Because I know my strengths inside and out, I’m hungry for opportunities to take advantage of them. However, I know there’s a gap. Other people know how I work, but no one else is going to have all of my leadership assessments and strengths tests in hand.

Intrapreneurship allows employees to show what they know. Employers gain by discovering strengths they didn’t know workers had.

Information gap #2: There’s a gap between what employees know and what they could know.

Or, what bosses would like them to know—what workers need to know in order to get the job done with maximum efficiency and effectiveness.

Enter: The language barrier.

I spent the last year teaching English as a foreign language in Thailand.

When explaining assignments, I often struggled to give instructions that the students could understand. I had no idea how to fill in this gap. Because of the language barrier, I couldn’t figure out what they didn’t know.

These gaps not only reflect what the employer is missing (information), but what the employee is missing out on. My students couldn’t complete assignments because they didn’t understand the instructions. I didn’t know that was the missing information: I just saw low performance and assumed they were behind.

Intrapreneurship can fix these kinds of gaps.

By encouraging innovation, we allow individuals to leverage their strengths, work on their weaknesses, and show what they’re capable of.

Thanks!

Molly

(See also, Part II: Do What You Want, Get What You Need)

I’d love to hear your thoughts. tweet @miss_mollyjane:

Have you used intrapreneurship to make work better?

How do information gaps affect you, your work, and/or your Employees?

How can non-creative industries adapt Adobe’s idea?

Other comments?

What If 50 Shades Is Actually Good?

WHAT IF 50 SHADES IS ACTUALLY GOOD?

I MEAN, IT’S PROBABLY NOT. BUT TO BE FAIR, I CAN’T KNOW FOR SURE.

I DON’T READ *THOSE KINDS* OF BOOKS.

Twilight? No.

Hunger Games? How I feel when I didn’t have time for lunch.

I just don’t read this stuff.

But what puts pop fiction at the bottom of my list? How do I know, without ever reading a page, that a book is indefinitely terrible?

I’ll confess—I recently peeled an Oprah Book Club sticker off of my copy of 100 Years of Solitude, just to purge it of the pop lit stigma. I seem to have an inherent bias against what everyone else is reading.

But obviously E. L. JamesStephenie Meyer, and Suzanne Collins must be onto something. What am I missing? What if these popular books are actually good?

FIRST, LET’S PLAY WITH ECONOMICS.

We all know that Gen-Y’s world is super-saturated with options. We’ve got fast food, fast fashion, and endless entertainment options. And we don’t exactly benefit from this abundance. We become less healthy, harder to please, and more wasteful as Forever 21 and its counterparts crank out more and more of whatever they’re selling. Why is this?

HERE’S WHAT HAPPENS:

Company X goes into business selling some product or service.

  1. X makes money selling jeans. Z wants to make money, too. Enter: competition.
  2. Barrier to entry is low. Enter: lots of competition. Each pass go. Collect $200. Etc.
  3. *A bunch of economics* Basically: supply breeds like rabbits, and things get cheap.

As a result:

  • We can get a “meal” for a few bucks at Wendy’s (which is actually OK… if it’s after midnight)
  • …And a pair of pants for $5 at H&M (true story)

If you can get those pants for $5, it’s going to be a hard sell for the guy with the $10-20 version next door. *A bunch more economics.* Prices plummet, and then here we have heaps of impulse-buy-worthy trend pieces that will fall apart before you can lose the receipt.

And we buy them! A lot of them. But $10-jeans and $100-jeans are not the same thing.

The price is based (to a degree) on the cost of production, the cost is based (ditto) on inputs, and herein lies the difference: the quality. When you put fair labor and good materials in, you generally get good product out.

When you buy a $100 pair of jeans, you get better jeans.

It’s okay to buy the cheap jeans, but let’s be realistic: the $10 guy simply can’t provide the same quality. Producing a quality pair will cost more than his jeans retail for, and that’s not how profits happen.

The cheaper product is pretty much always inferior.

WHO BUYS INFERIOR PRODUCTS?

…PRETTY MUCH ALL OF US

Fast fashion retailers offer low-grade products for pennies on the dollar and sell a lot of them to make money.

And it works. The CEO of Zara is one of the richest people in the world

It’s not a terrible deal for us, either. We can afford to switch up our wardrobes with a little less cash. But we know (I hope) that we’re sacrificing quality when we flock with the masses to the $10 rack

Knowing this, we make judgments about the quality of a product based on its popularity

The number of people who can afford an item says something about the price. The price magnifies the cost, which reflects the quality of the input. Extremely popular items, like fast food and $5 pants, fall under the first assumption:

ASSUMPTION #1: IF A LOT OF PEOPLE ARE BUYING IT, IT’S A LOWER-QUALITY GOOD.*

  1. If a lot of people are buying it, it’s relatively inexpensive.**
  2. If it’s less expensive, it must be cheaper to produce.
  3. If it’s cheaper to produce, it must be made with lower-quality input.
  4. …thus, it’s a lower-quality good.

Well, yes. Provided I’m able to weigh price vs. quality, I’ll usually lean toward the better product (especially if it’s something I care about) even if it costs a little more. When I can, I stay away from mass retailers, because I know this assumption to be almost unfailingly true.

So far so good.

Which brings us to the second assumption…

I have nothing against ‘what everyone is wearing,’ I really don’t care. But as a symptom of the supply/demand hurricane of fast fashion, the fact that everyone has an item nowadays probably means it’s less than investment-worthy. Assumption two is the projection of this logic that I’ve caught myself using:

ASSUMPTION #2: IF EVERYONE IS READING IT, IT’S A LOWER QUALITY BOOK.

To me, books like Twilight and 50 Shades are the K-Mart jeans.

I’ve never tried them, but can confidently assume that I’m not missing out.

Not trying to hurt anyone’s feelings here, but I think you know what I mean. These titles sell a lot of copies, K-Mart sells a lot of jeans. From a distance, seems like the exact same thing.

But what if they’re not?

WHAT IF 50 SHADES IS ACTUALLY GOOD?

I’m not giving up my convictions about popular fiction, but I’m willing to admit an injustice on my part.

I’ve automatically disqualified these books. I’ve assumed that popularity implies cheap input, and, in turn, inferiority.

BUT CUTOFF SHORTS AND CREATIVE WRITING ARE NOT THE SAME THING.

A book does not depend on paper like jeans depend on denim.

Still not going to read it. But I’ll try to at least be nice… 50 Shades can’t help it that it’s so popular.

Thanks for reading! I welcome your feedback.

Molly

Follow me on Twitter & IG: @miss_mollyjane

*The opposite is overwhelmingly true, too. Let’s play along by limiting the context to fast fashion for now.

**In order for the business to exist, it must be profitable. In order to be profitable, goods that are relatively inexpensive must be (and usually are) high demand. Demand drives production, which drops marginal costs, which lowers prices; repeat until marginal cost exceeds marginal benefit; become multibillion net-worth CEO.