Wednesday, July 11, 2007

A nerdy econ joke, by Me

Q: Why did the chicken cross the road?

A: Because it had the proper incentives.


Monday, July 09, 2007

Lesson of the day...

Professors who teach classes on incentives and pay-for-performance almost univerally point out that incentive systems usually work *exactly* as set up. Unfortunately, this doesn't mean that the system will reach the intended goal, since the mechanics of the incentives may or nay not be in line with the overall objective or they may be off in terms of the strength of the carrot on the stick. (Those of you computer programmers that insist that "the computer isn't doing what it's told" have a good idea of what I'm talking about it or not, the computer is doing exactly as it was told- it can't help it if the instructions were erroneous!)

I illustrate via a personal example. When I was in kindergarten (full disclosure: I was probably a difficult child), my teacher tried to reward students for good work with a cute hand stamp of some sort. Now, I really don't like hand stamps- even now, I get very annoyed when I go to a club or a concert and the bouncer insists on the hand stmp policy...I think the skin on my hands is abnormally porous, and the stamps are a pain to wash off. Anyway, my mother had been very careful to teach me that when someone is violating my person in a way that makes me uncomfortable, I am to say "no" in my sternest voice possible. So of course I chose this moment to actually do what I was told. The other kids thought about my behavior for a bit and figured that there must be a reason that I didn't want the hand stamp, and a mutiny began. Now, my mother was not pleased when my teacher explained this to her, so she offered me a quarter for each time I came home with a hand stamp. Apparently I liked money more than I disliked hand stamps, since my response was to find a friend that had a stamp and make sure that she stamped my hand before I went home each day. I'm pretty sure my mom eventually caught on, but I think it illustrates my point nicely.

This cartoon also gets the point across...a picture really is worth a thousand words. Thanks to Jeff for the link. :)

Sunday, July 08, 2007

Let's not make this a popularity contest...

In a previous post, I talked about how a number of liberal arts colleges were threatening to stop participating in the U.S. News rankings of colleges and universities. I am happy to see that they seem to be against the explicit ranking rather than the provision of (hopefully) useful information.

In an article from the July 4th NYT, a number of higher education officials say that there are plans in the works to provide comprehensive school information via a collective web site. To quote the article:

"Katherine Will, the president of Gettysburg College and chairwoman of the Annapolis Group, said, “Our sense is, we’re educators — if you feel that there is not enough information out there, well, by golly, we’ll give it to you.”

“I think the key thing that institutions are saying is, compare schools, don’t rank them,” Dr. Will added."

I appreciate the sentiment, I really do. However, I have a feeling that this system may not be as useful to prospective students and their families. Why? People suffer from the curse of bounded rationality and also limited time. In other words, who is going to sort through a two-page summary for every school in the country and then try to make sense of it all? Fair or not, the rankings provide a heuristic for at least giving a student a starting place for considering schools. Furthermore, people tend to suffer from confirmation bias, whereby they seek out and interpret information that supports their previously held beliefs.

The issues that I mention generally center around the problem of overchoice, and could be mitigated through a clever navigation system on this new hypothetical web site. You know how on Amazon and Netflix they have a box that says something along the lines of "if you liked product X, you are likely to also like products Y and Z"? The college site could do the same thing- "if you are considering Williams, you might also be interested in Swarthmore and Amherst". (Hypothetical example only of course- I have no idea whether this would hold in practice.) This way students wouldn't only take the time to look at schools that they were already curious about and could be introduced to new options, just as she probably was when looking at the U.S. News rankings. Unfortunately, these features are also easier said than done- I foresee the same arguments over any sort of potential "relatedness" algorithm that schools are currently having with the rankings! I think they'd better be careful, lest we revert back to a system of children either going to the parents' alma mater or the school that they happened to hear about when they were little. I'm sure schools like Washington University in St. Louis, currently ranked 12th in national colleges, would have a lot to say about that. I really don't think that schools need any more of an incentive to invest in brand equity.

Friday, July 06, 2007

Shame on Us Impatient Youngsters...??

Here's another one for the incentives brainstorm...

Some quotes from a WSJ article entitled "New Grads Are Impatient for Promotions (originally from June 20, and available for 7 days):

"Twentysomethings are accustomed to meeting short-term goals in schools with quarter and semester systems. They expect to see results on the job just as quickly and when they don't, impatience sets in. The disgruntled say that they don't necessarily want more money, they want stimulating assignments that give meaning to their lives."

"Ryan Paugh, 23, is already concerned that he's wasting his life at his first full-time job. In January, the Flemington, N.J., resident started working as a contractor, with no benefits, in the communications department of a Fortune 500 company. Frequently, he finishes a day's work in three hours, he says. "You feel really useless." Up until recently, Mr. Paugh asked for more work from his boss every other day. "Once in a while they hand something off," he says. Now he doesn't ask so much."

"Nikhil Thakur was impatient after two years in his first job out of college, at a technology company. Three raises didn't dent his malaise. "The first one briefly made me turn a blind eye to other shortcomings," he says, "but each subsequent one did nothing to increase my job satisfaction." "

Are we in the midst of fundamental change in desires from new workers, or have companies been getting it wrong for a long time? How can companies provide incentives to these workers, given that increasing their responsibility doesn't seem to be an option? Are efficiency wages purely a monetary concept or could they be more broadly defined? The system must be somehow inefficient if at the same time there are companies wringing their hands trying to motivate workers to be productive and workers wishing that they could be given more to do.

Thursday, July 05, 2007

More on Merit Pay for Teachers...

I have to admit that I'm getting a little tired of articles like this that posit that "higher test scores may not be the best way to judge teacher effectiveness". My knee-jerk response? No @#!$. I am well aware of the fact that productivity gets distorted when a job involves more than one dimension and only one of these dimensions is explicitly rewarded. (See this page for more detail and examples.) As such, researchers also point out that in some cases it MAY be better to not pay for performance at all in these scenarios. I think the *may* aspect of this conclusions goes largely ignored, and the educational system is in a state of "well, the plan we have may not be globally optimal, so we're just going to do nothing instead". I get the concerns about teaching to a test, I really do, but it seems as though there are a couple of straightforward solutions:

1. Oversee educators' lesson plans to make sure that, at least in the planning phase, real content isn't being sacrificed for test scores.
2. Even better, make the standardized tests more comprehensive in terms of what students are supposed to be learning. Advanced Placement tests do this quite well, and in fact it makes a lot of sense in this context to "teach to the test". My suspicion is that the underlying problem is that the education community has little idea of exactly what it is that non-AP students should be learning!

That said, I have a secondary issue with the teachers' protests that isn't getting nearly as much attention in the press. Consider the following excerpt from the article:

Deborah Torres-Gore, who teaches second- and third-graders in Fontana, Calif., said other factors must be considered when judging the effectiveness of teachers. "When I look into the eyes of a student who I have taught in the past — or I stand at the door in the morning and my students say Mrs. Gore, 'I love you,' or Mrs. Gore, 'You're such a good teacher' — am I effective or not? I think I'm effective," she said.

Apparently what others perceive as "effective" I perceive as "getting one's ego stroked". These people want to be considered as professional adults, and, as such, need to realize that being effective and being popular are not the same thing, and are often at odds with each other. Even here at Harvard, I've had to weigh the costs and benefits of disciplining students for things like cheating, knowing that these students would likely be upset and give me poor ratings as a result. (This logic held empirically some, but not all of the time, and I decided that the cost was worth it.) Furthermore, it is rumored that a particular instructor used to get good ratings because he did almost the exact exam problems in his review session the night before. (He is actually a very good teacher, so I'm hoping it's just a rumor.) My point comes back again to the idea of devision of labor- how much of a teacher's job is instruction and how much is that of a social worker, therapist or even life coach?

I fully realize that I am not representative, but in looking back I can say without doubt that Josh Angrist was by far the most effective undergraduate professor I had. How is this relevant? There are a number of reasons- first, for those of you that have never interacted with Prof. Angrist, he may as well be Ben Stein's drier and more sarcastic cousin (and even bears a striking resemblance to the actor). Not exactly the friendliest of guys, at least not to undergraduates! Furthermore, I can reasonably conclude that this guy has no idea who I am, for we have never had a face-to-face conversation. (Well, there was that time when I showed up late and he stopped class and forced me to make my way to the seat directly in front of him, but my guess is that wasn't the first or last time that has happened.) These tidbits don't exactly add up to the "I love you" sentiment of the teacher quoted above, but I learned more in Prof. Angrist's econometrics class than anywhere else. More importantly, even though I may not have realized it at the time, in retrospect I am very appreciative to have had this experience, and am likely better off than I would have been with an instructor who focused more on being popular. Think about it- an easy way to be popular is to not be challenging, since students then feel very good about themselves and their abilities. While self-esteem is clearly important, it is not ultimately helpful to the student that thinks he is going great and then fails his standardized test and is "left behind".

Monday, July 02, 2007

You know you're an econ geek if...

Okay, so the lease was up on my car and thus I had to get a new one. (Okay, technically the "had to" part is questionable, since I live in Cambridge, but whatever.) I am a very loyal Volkswagen consumer, so I was very happy to see that they had a new model that I was interested in:

(If you are curious, it is a VW Eos, and it's AWESOME. This should also partially pacify those of you that emailed me to point out that my picture isn't showing up- I'm glad you focus on the important things. =P The photo is hosted on the HBS server, which is currently experiencing some downtime.)

Enough about the car, since that isn't really the point. The point is that I saw the following poster in the sales office and I really really want a copy to put in my office.

Maybe if I locate a copy I can get George Akerlof to sign it.