I came home from the airport today to discover my car had been broken into again, only this time they decided to enter by shattering my front window, which will now cost me $200 to replace.  I feel bad for the person who is in a situation where he has to break my window to steal what amounted to about $4 and some pens, but I can’t imagine that it was worth the effort.  It also nets a $204 loss to me, while only a $4 gain to him.  The Coase Theorem teaches us that we would both be better off if I just gave $5 to him. He’d have an extra dollar, and I wouldn’t have to replace my window.

Of course, some people call paying someone not to break your stuff extortion.  If only I could pay a group of people to protect me from potential car-robbers.  I could even pool my money with other car-owners and they could protect all cars, not just mine.  And maybe, while they’re at it, they could protect people from murders, or guard public events.  And as long as they’re protecting everyone, maybe we could fund them through some sort of tax scheme - after all, their protection would be a public good.

But what would we call such a group, and who would stop them from beating the crap out of everybody?

Categories: Community, Governance, Incentive Centered Design, Law, Politics
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To celebrate Israel’s 60th Birthday, The American Jewish Committee has put out what may be the worst web advertising campaign ever.  Just now I clicked on a flash-ad on Slate.com that described different American cities and their characteristics.   Thinking it was an ad for a ranking of American cities (I love to critique their methodologies), I clicked through, only to come across this page from the AJC pointing out how Israel is Diverse, Innovative, Friendly, and Free.  In fact, that’s all it does.  The entire content of the website is a picture of a black couple at a strip-mall with the text:

Diverse. Innovative. Friendly. Free. These are just a few of the countless ways to describe Israel @ 60. A modern democracy with an enduring history, Israel’s unique mix of culture and ingenuity makes it a lot like home and yet like nowhere else on Earth.

I clicked through the ad to get what could very easily be a print ad hastily stuck at a URL.  There’s no content for me to explore, no call to action, no history of Israel, tourism info, testimonials or interviews with Israelis, anything.  Just a paragraph of text and a stock-photo.  I haven’t researched around yet to figure out the impetus behind this campaign, but to consider it a terrible waste of donor funds would be an understatement. If you’re going to advertise on the web, at least advertise something.

To break it down for the AJC, Indecipherable/Misleading Ad + Contentless Page = Worst Web Campaign Ever.

Categories: Israel, Marketing
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David Maister has posted a commencement address delivered by Stephen C. Ellis, the managing partner of a successful mid-sized law firm.  While he’s focused on the law (the address was at Case Western’s law school), it’s great advice for any professional, and I’m circulating it within my own firm and clients.  He has some great nuggets in there, including this interesting assessment of why the law can be such a miserable profession today:

The fact is our profession has become increasingly unhappy over the past couple of decades. I am convinced the vast majority of that unhappiness derives from a singleseemingly innocuous event in the late 1980’s: The American Lawyer magazine began publishing the AM LAW 100, and listed the profits per partner of the 100 largest firms. Virtually all of the firms in this country immediately bought in to that statistic as the only credible measure of success. The game was on - we lawyers would now take our measure almost entirely from money, at least in terms of what was publicly discussed. Without question, integrity, service and professionalism were important, but how we measured ourselves was money.

There’s also this great advice for aspiring lawyers:

If you’ve decided to become a lawyer solely to make money if to you it’s simply a job I fear you’ll hate it. As a career and a calling it’s great, and unbelievably interesting, but as simply a job, it’s way too hard and stressful. It’s the people, the pace and the endless puzzles of the law that make being a lawyer fulfilling. If you want tons of money for working twenty hours a day and nausea-inducing stress, Wall Street investment banking may be just the thing . In that business the grand old men are burnt out at 45.

I’ll frequently refer to investment banking as selling your youth - they pay you a fortune, but you spend the time in you have in your 20s and 30s working, and for many, large law firms have taken on the same climate.  But the people who don’t love it and just want the money won’t be able to work as hard or effectively as those who are passionate about their field, and subsequently, will never grasp the same rewards.

Categories: Business and Economics, Careers, Law
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A coworker thinks that Kevin Jonas, of the apparently famous Jonas Brothers (which I hadn’t heard about until this morning) looks like me:

Thoughts?

Categories: Ephemera
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My roommates and I do a decent job of keeping our apartment clean, but there’s definitely room for improvement in our systems.  The problem is that cleaning our apartment is a public good, and like any public good, there’s tons of room for free-riding.  Anyone who has ever had roommates has most likely dealt with dirty dishes in the sink, or papers on the table, or piles of unread mail.  Unfortunately,  my brilliant idea, described below, is something only an economist could love, and I live with lawyers.

The solution to our problem, of course, is to attach a price to the various household chores we want done and compensate the person who accomplishes the task by having the other two roommates pay him.  I struggled with how to set the optimum level of payment for each task.  We could have each person decide how much they’d pay for the task, but what if nobody wanted to work at that level?  An alternative is to say how much each person wants to charge, but what if nobody pays it?

Co-op housing attempts to solve this problem through a system of fines and penalties, but if the fines are too low, then it will be seen as a charge for the service and not a penalty (thanks behavioral economics!).  You can force compliance by making the charges too high, but then there’s an opportunity for trade - between people who want to clean or need money and those who don’t - that’s being missed.

The optimal solution goes back to game theory - which teaches us how to incent both action and truth-telling.  There’s a classic problem in game theory where two business partners are trying to split a pie, or their company, or something.  Anyways, two people are trying to split something - and the best way to find an equitable split is to have the first player propose how much the pie/company is worth to them, and the second player decides whether to buy them out at that price, or sell to them at that price.  Because Player One doesn’t know which option Player Two will choose, they want to be as honest as possible about their true value of the pie/company/something, and will be indifferent between the two options.

The same goes for cleaning the apartment.  Give one roommate the option of saying what they value the chore at.  The other roommate has the option of either completing the chore at that price, or they can pay to have it done.  Running through the register of household cleaning tasks should create an equitable outcome, or give one roommate some supplemental income as a maid.  Either way, everyone wins - we all get to live in a clean apartment.

How’s this for a long post, Mom?

Categories: Behavioral Economics, Crazy Theories, Governance, Incentive Centered Design, Information Economics, Strategy
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American Express recently sent me an e-mail with this offer:

From June 2-12, 2008, there will be one U.S. destination on sale each weekday, with some packages retailing below $3,500. Once on sale, the price of each package drops every 20 minutes. So when the price seems right, you better grab yours before it’s gone. Visit the website now to check out in-depth trip details and photos, and to sign up to receive an e-mail reminder for when the trips you want go on sale.

It looks like they’re selling the vacation packages using an Open Descending Bid Auction, also known as a Dutch Auction.  If we think back to our Auction Theory, this should give us the same result as a Sealed-Bid First Price auction, but American Express has an excellent opportunity to test whether or not that holds in a real world environment.  From a behavioral perspective, in the real world and not a laboratory, will bidders react the same way in both situations?  My hunch is no, but I don’t have data to back it up - could my readers who still have unfettered access to academic journals find some?

Dutch Auctions are currently used by the Federal Reserve Bank of New York, Dutch Flower Merchants, and a variant was used for Google’s original IPO.

Categories: Behavioral Economics, Business and Economics, Incentive Centered Design, Information Economics, Matching Mechanisms, Travel
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Looks like my move to Chicago was a smart one: it’s now Fast Company’s City of the Year.

Now if only I could squeeze in some time to spend there with my travel schedule.

Categories: Community
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From Infoworld, Guerrilla IT: How to stop worrying and learn to love your superusers

The reason superusers go rogue is usually frustration, says Marquis. “It’s a symptom of the IT organization being unable to meet or even understand the needs of its customers,” he says. “Otherwise, it wouldn’t be happening.”

The solution? Put them to work.

“Most IT managers have too many requirements and not enough time or budget to get everything done and keep everyone happy,” says Jeffrey Hammond, senior analyst at Forrester Research. “If your infrastructure is flexible enough, you can let superusers solve their own problems, take the heat off your developers, and provide some of your business needs.”

Good ideas in principle, but I don’t think the article goes far enough.  I realize there are governance issues around having your users do things like host their own web servers, but some of the most productive apps in business are made with VBA, Lotus Notes, and other quick-and-dirty languages that end-users can use without much risk to solve immediate business problems.  Not every enterprise issue needs an enterprise-grade solution.

Granted, as a super-user who isn’t in IT, I probably have a different perspective than most of Infoworld’s readers.

Categories: Uncategorized
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If you offer free nights and weekends, and then you offer anytime minutes, aren’t those just daytime minutes with a different name?  Just a thought.

Categories: Behavioral Economics, Business and Economics, Technology
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According to the scientists at Predictably Irrational:

Finally, we wondered how less attractive individuals rationalized to themselves, their selection of less attractive others. Using a speed-dating study we found that more attractive people placed more weight on physical attractiveness in selecting their dates, while less attractive people placed more weight on other qualities e.g. sense of humor. Much like the famous line from Crosby, Stills, Nash, and Young, people find a way to love the ones they can be with.

My takeaway - ugly people have the same definition of attractive as hot people. They know they can’t get hot people, so they value hotness less, and therefore say they care about personality more. In other words, people care about personality because they have to, or at least because they think they have to.

Categories: Behavioral Economics, Dating, Information Asymmetries, Matching Mechanisms
1 Comment »

The fundamental problem with the quality of American medicine is that we’ve failed to view delivery of health care as a science. The tasks of medical science fall into three buckets. One is understanding disease biology. One is finding effective therapies. And one is insuring those therapies are delivered effectively. That third bucket has been almost totally ignored by research funders, government, and academia. It’s viewed as the art of medicine. That’s a mistake, a huge mistake. And from a taxpayer’s perspective it’s outrageous.

From the New Yorker’s Annals of Medicine: The Checklist

Categories: Uncategorized
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CollegeHumor shows us what happens when Carmen Sandiego grows up:

Gen-Xers: today’s college student is talking about the TV show, not the video game.

Categories: Funny, Generations, Video Games
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To prevent myself from posting every time he comes up with an awesome Wii hack, I present the Wii page of hack-Godfather Johnny Lee. The latest, which shows how to create 3-day head tracking, is simply unreal.

Categories: Technology, Video Games
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The blogosphere is no longer the cool and edgy place to publish, where maverick innovators shatter the world with their out of the box thinking.  The establishment has joined the party, with the director of the Congressional Budget Office - the Bureaucrats Bureaucracy - starting his official blog.

Via MR.

Categories: Business and Economics, Social Software, Technology
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Joel Spolsky just posted three parts (1,2,3) of a speech he gave at Yale in which he warns students to avoid corporate IT:

Now, at a product company, for example, if you’re a software developer working on a software product or even an online product like Google or Facebook, the better you make the product, the better it sells. The key point about in-house development is that once it’s “good enough,” you stop.

Spolsky is 100% right about corporate IT organizations - they are crappy places to work. You don’t get to work on fun projects, you’re disconnected from the business, you’re stuck making things quickly rather than high-quality, and everyone on the business-line hates you, to the point where they keep farming out your job to consultants like Accenture, Deloitte, and IBM.

But the reason IT is miserable is it’s own fault - in house IT is, for the most part, a monopoly, and it’s going to be just as miserable as working at any other monopoly. You don’t have to worry about what your internal customer needs, because they can’t go someplace else (you don’t run competing IT shops). You don’t have to run efficiently because there aren’t market pressures. For every complaint from someone in IT that their creative freedom is restricted, there’s a complaint on the business side for the problems that crop up when developers decide they want to play - for instance every business application needs to have it’s own authentication, with it’s own look and feel, and it’s own user database. Kerberos was invented how long ago? If you’re developing a product and you make your users sign-in a different way to use different areas of your product, creative destruction will take care of you pretty quickly, but when you’re in the monopoly that is corporate IT, the users don’t have anywhere else to go.

And what of the consultants that IT hates so much, who can charge $300 an hour to have a 22 year-old with an English degree and a crash course in .Net write applications for you? They do something corporate IT isn’t very good at - they spend most of their time figuring out what the biggest problem is, and then they develop an application that solves it. In the meantime, corporate IT has an amorphous idea of what the business is and starts developing applications that they think might be relevant. That’s how monopolies work - they push products onto the market as they develop them, without regards to customer needs. Customers, who don’t have a choice, take what they can get.

There are other structural forces that make corporate IT miserable. For instance, maintenance and new development usually come out of separate budgets, so developers have little incentive to make an efficient product that is cost effective to maintain - that’s somebody else’s problem. Because once a project ends they either have to find a new one or move into maintaining the code they wrote, they actually have a perverse incentive to write bad code that’s difficult to maintain, modify, and interact with. The best way to build job security is to invent a role nobody else can do. If you’re looking for anecdotal evidence, just look at the way the owners of legacy applications fight any attempt to modernize.

If you’re developing a product, any new feature you add provides value to the customer, that’s why it’s valued. Great companies value IT (and other support functions like HR) because they drive value to the bottom line. In fact, great companies are usually built on great people and great technology. When done right, IT contributes straight to the bottom line, and IT professionals are valuable parts of the business team.

In the end, the problems with corporate IT are based around the same issue - there is no accountability to the customer. That’s the root of line-managers’ complaints about IT and it drives into most of the problems programmers feel when working in corporate IT. Solve it, and all of a sudden IT becomes a great place to work, and a valued part of the team.

Categories: Business and Economics, Customer Engagement, Incentive Centered Design, Information Economics, Managing, Technology
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