Risk

Neither of my parents went to college and I don’t have any older siblings, so I haven’t really had the opportunity to watch first-hand as someone went through the process of choosing a major and finding a job. With this being the case, I have been for the most part guessing at what the best choices for myself would be.

I am definitely concerned about how the decisions I make now will impact my future, especially in regards to reducing income risk. My decision to attend college in the first place is partially motivated by my desire to make sure I can get the type of professional job I will be likely to want in the future. I know that my access to many jobs is dependent on whether or not I have a college degree, so in order to alleviate some of the income risk, I choose to earn a college degree.

My choice of major was originally made because of what seemed like a good choice in the present, however since them I have added a second major and minor, all with the intention of reducing my income risk. I originally decided that my major would be economics. I chose this major because I really enjoyed the AP Macroeconomics course I took in high school, so I figured that economics would be a good decision for my major because it was something I would enjoy learning about. This decision was based on what seemed like a good choice “in the here and now.”

After I began my first semester at UIUC, I decided to add a major in communication. I made this decision purely as a way of (hopefully) reducing income risk in the future. My thinking was that communication skills would be marketable in any job, and could also serve as a ‘back-up’ degree if I either decided not to get a job working with economics, or if I could not find a job working in that field.

Next, I decided to add a minor in mathematics. This decision was, once again, made only on the basis that I assumed it would help reduce income risk in the future. I found, though, that I really did not enjoy taking the heavy math courses. I chose to drop the math minor for two reasons. My choice was based mostly on the “here and now” because I did not want to keep taking math courses. I also wanted to reduce income risk though; I didn’t want poor grades in these math courses to negatively impact my future chances at getting into grad schools or getting a good job. Instead, I will get a minor in business. This will be more enjoyable for me now, but I figure it will also be beneficial in increasing my credentials for future employment.

My decisions have, for the most part, been made with the plan of reducing income risk in the future, however what seems best now has also been a motivation in my decisions, even if a minor one. If I had to describe my decisions as far as my educational path, I would say that I make choices based on reducing future income risk, except in the situation where I really don’t like the result of that ‘risk-reducing’ decision, at which point I will resort to making decisions based on the present.

Opportunism

I actually had to make a fairly important decision earlier this week in which I was basically choosing whether or I would act opportunistically. This decision was in relation to the amount of money my parents would contribute to my college education and living expenses during college.

My parents got divorced when I was seven years old. During the time of the divorce, a custody agreement was drawn up giving the rules my parents would have to follow regarding the custody and monetary needs of my younger sister and me. One thing that was not detailed, though, was any agreement about the amount of money my father and mother would or would not have to contribute to my sister and my college educations.

My mother recently made the decision to try to get single custody of my younger sister, and along with that, to obtain a formal agreement about college expenses to ensure that my father will be required to contribute money, even if he no longer has any custody of my younger sister. The terms my mother came up with state that she and my father are each responsible for paying 1/3 of all tuition, fees, rent, utilities, groceries, medical costs, cell phone service, and any other living expenses during the four years of college, with my sister (or me) being responsible for the last 1/3 of all expenses.

When my mother called me to tell me about her plans, she told me that she would allow me to choose whether or not she set up these terms to apply to both my sister and me, or to just my sister. I ultimately decided to leave my name out of the document. Had I been acting opportunistically, I would’ve elected to have myself included in document my mother’s lawyer is drawing up. Including my name as well as my sister’s would likely result in me having a guarantee that a certain amount of my college expenses will be paid for by my parents. It would also mean that I would receive help in paying for many of the living costs that I am currently paying for on my own, so I would be much less tight on money than I currently am. Instead, my parents will be able to continue choosing whether or not to give me money for school, and if so what amount they will give me.

I chose not to act opportunistically in this situation mainly because I don’t want either of my parents to be giving me money because they ‘have to’ due to a court agreement. I view any money my mother or father put towards my college education as a gift, and from that point of view I wouldn’t feel right knowing I had elected to mandate that ‘gift.’ I don’t think it would’ve been unethical of me to act opportunistically in this situation, nor was I trying to be a “good citizen,” as is suggested in the prompt. I made this choice simply because it represents my beliefs, and because I think that it was the right thing for me to do under these circumstances.

I think that in many cases, people chose to not act opportunistically because of their personal beliefs about what is right and wrong, and because they see themselves as having some type of duty to those they have relationships with. This means that they are not necessarily acting un-opportunistically because they want some good result of that action, but instead they are doing it to avoid the bad results of acting in an opportunistic way. If acting opportunistically would cause a person to feel guilty or bad, then they have a personal motivation to not act opportunistically and avoid those negative consequences. 

Organizations

I have had several experiences with organizations, both ones that have undergone change and ones that haven’t. While I was in high school, I was a member of the yearbook staff. I joined the staff my freshman year and by my sophomore year the group had gone through large changes. The group was set up so that it was led by one or two faculty members. These faculty members worked closely with the student editors-in-chief of the group, who then communicated with the section editors, each of whom led a small group of staff members. When I joined the group my freshman year, I was a member of the student staff, and became one of the freshman section editors. At the start of my next year of high school, though, the group experienced an almost-complete loss of student staff members; all members of the student staff who had been a part of the group under the old faculty advisors quit because they didn’t like the method the new faculty advisor had used the previous year. 

This meant that there had to be some serious changes in the group’s organization structure. The group was so under-staffed that there simply weren’t enough people to have an editor and assigned staff for every section of the book. I become one of the new editors-in-chief by default, being one of the most senior staff members. The layer of section editors was removed from the organization structure, and the staff members became a general staff, rather then being divided up into groups with specific tasks.

This new organization method was definitely not as effective as the old method of organization. With the staff no longer being split up to work on different sections of the book, the task of creating a 300 page yearbook became very daunting. The new organization structure also was not as good for staff moral. When a person was assigned a certain section of the book to be in charge of completing during the year, it gave them a sense of ownership and responsibility which encouraged valuable work; once the staff was just set to work on whatever needed to be completed most urgently, the work was of a poorer quality and not as likely to be completed. The review of completed pages became much more limited, and more time was needed to communicate with and teach the staff members because they no longer were able to work closely with an experienced member. 

All around, I learned that it can actually be very beneficial to have multiple layers of structure. I have learned in previous economic courses that one of the reasons that diminishing returns to scale occurs is the inefficiency that comes with the many layers of management that a very large organization requires. My experience has shown though, that at least to a certain point, having a layered organization structure can be very beneficial to the overall productiveness of the group, especially when the people managing others have strong communication with the main leadership.

Although transaction costs usually only look at the costs between institutions, not inside of them, under the new organization of this group, the transaction costs for the relationship between members increased. With the middle layer of the organizational structure removed, the top editors and faculty advisors were given the job of assigning projects to and checking in on the staff members. This change was another large factor in slowing down the productivity because of the time it took. 

Who is Paul Milgrom?

Paul Milgrom was born on April 20, 1948 in Detroit, Michigan. He attended the University of Michigan, and graduated from the university in 1970 with a degree in Mathematics. Milgrom worked as an actuary for several years and then in 1975 began an MBA program at Stanford University. There he earned a M.S. in Statistics as well as a Ph.D. in business. He has taught at Northwestern University, Yale University, and is currently the Shirley and Leonard Ely Professor of Humanities and Sciences in the Department of Economics at Stanford University as well as a professor at the Stanford Graduate School of Business. Paul Milgrom won the Nemmers Prize in Economics in 2008, and the BBVA Frontiers of Knowledge award in 2012. He is affiliated with the National Academy of Sciences, Econometrics Society, AEA, American Academy of Arts and Sciences, and the Western Economics Association. In his 65-and-counting years, Milgrom’s largest contributions to the economic community have been in microeconomic theory, auction theory, and market design, with his best know work being in auction theory. Milgrom’s accomplishments have also ranged in many other areas of economics, including incentive theory, industrial economics, game theory, economic history, and economics of manufacturing and organizations. According to Google Scholar, Milgron’s works have been cited an incredible 56,627 times.

Paul Milgrom’s work is important because of his many innovations in the theory of auctions. The design for the simultaneous descending auction that Milgrom contributed to has been adapted for dozens of auctions involving huge sums of money. He has advised Microsoft Networks, Google, Yahoo!, the Oregon Public Utilities Commission, and Mexico in various auctions. Even more personally relevant to us is Milgrom’s work in economics of organizations. Milgrom coauthored with John Roberts one of the textbooks required for this course, Economics, Organization and Management. Although I had not heard of Paul Milgrom before this course, I’m sure that I will have an understanding of his work with economics of organizations after it. 

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