Gift Giving

The New York time’s article “How to Get the Rich to Share the Marbles” shed’s light on the phycology behind gift giving and sharing rewards.  Applying the information gained from the article to an organization or team production could be extremely useful. The idea is that verbiage emphasizing competition, “to each their own”, or “eat what you kill” may not be the best way to curb wealth inequality in America. The study found that when children work together and feel as though they are working towards a common goal they are much more inclined to share the reward, more so than if they were just given an unequal amount of the reward. One might take this information and say that organizations should focus more on team building and striving to meet a common goal rather having an “every man for him” mentality in the work place. As we learned in class, employers do their best to create incentives or give gifts to works to help increase productivity. In an ideal situation, the incentive or gifts perfectly align giving the worker that much more motivation to do the task well. Thinking of the classroom as an organization, the gift Professor Arvan gave us to motivate us to do better on the next exam was 25 points. In class he made us feel as though we were working together, with his help, to achieve the 3 goals we talked about on the first day. This shows that the phycology behind working together to achieve something goes further than simply giving people more points so they can individualistically achieve their desired course grade.

 

I will attempt to apply this framework to an experience I saw this summer at William Blair, first some background: For a long time investment banking was all about receiving a very high end of the year bonus, which varies from employee to employee based on their contributions to the firm. This created an environment where everyone competed against each other to receive the highest bonus. To add more color, these bonuses do not stem from how much revenue you generate for the firm, but are an attempt to quantify how hard you worked during the year usually measurable in terms of how many hours you were in the office. This is important to note because unlike selling stocks or trading, in M&A you are constantly working in a team and you really need to help one another to complete a deal. The competition became so high that the firm was actually losing productivity as people were less inclined to help one another. 

 

This past year the industry has undergone a huge transition. Most investment banks are trying to create a more collaborative environment and are changing the compensation structure. The banks are raising base pay, preventing analysts from working 7 days a week and are monitoring management to make sure the competitive culture is changing. In other words, the banks is gift giving by letting analysts have more free time and less “face time” and rewarding them with higher base salaries to decrease focus on winning that big bonus. They hope this new system will encourage analysts to lend a hand to a coworker even if they won’t get recognized for it or cover for another employee if they are feeling ill. This is much more beneficial for closing deals compared to the “eat what you kill culture” This example has many moving pieces and was simplified to make sure readers from all backgrounds can grasp the main concept. 

Income Protection

I’ve spent the last four years of college accumulating a series of learning experiences to prepare me for entry to the job market upon graduation. In high school I took part in business and economics related competitions, which prompted me to elect economics as my major at UIUC. Although I was fortunate enough to have my parents pay for college, tuition price and the average starting salary of economics majors really influenced my decision making process. My goal was to make the most out of my parent’s generosity while aiming to receive a job with a high enough starting salary that would allow me to be independent from my parents. I’ve spent the past three summers working in finance/economics related internships to help improve my chances of winning a great full time job offer. I spent one summer working in personal wealth management and insurance planning which taught me a lot of valuable lessons regarding income protection and the various methods people use to determine how much money they need to save or budget for their monthly expenses. I also spent two summers working in mergers and acquisitions, which is where I would like to start my career.

Knowing something about income protection and roughly the starting compensation of an investment banking analyst I’ve started to create my budget and saving plan. Although there is no one close to me personally who has already gone through this process, I had the opportunity to pick the brains of the other analysts I worked with to learn more about their income protection process. I plan to purchase workers compensation insurance, save roughly 20% of my income and max out my yearly 401k compensation. I want to be in a position to support myself for at least a year in case I am laid off from work and make a habit out of saving for retirement. I currently do not have much savings; I’ve been fortunate enough to do a lot of traveling while in college. I do hold an on campus-teaching job, which helps pay for my day-to-day expenses.

I recently accepted a full time job offer and have already started to think about what job I will pursue next. I hope of taking what I’ve learned about preparing and building my learning experiences will guide me to my next opportunity. I am extremely interested in private equity and will likely try to read about the industry and network as much as possible over the next two years. I also plan to had another layer of income or job protection by taking the GMAT next semester. If I get laid off or cannot find a second job I will take out a loan and go to business school to rebrand myself and improve prospects. Although this is a huge cost in the short run, I think in the long run this will provide me with more opportunities in the future.

Illini Bucks

Introducing Illini bucks to campus would certainly create an interesting array of opportunities for students to illustrate which services, activities, events or goods they preference. If I understand correctly, the hypothetical situation introduced in the prompt gives each student an equal number of “Illini bucks” at the bringing of the semester. Before spending this campus currency, students would already have an understanding of how much each illini buck can purchase on campus. For example, maybe students can use these bucks to get in the front of the line for access to sporting events, concerts, registering for classes, interviews, library tables, gym lockers etc. It seems as though the potential uses are endless.

There are many aspects of everyday campus life that I wish I could simply, “cut in line”, some of which I mentioned above. We learn in economics that each person has his or her own set of preferences, which makes up an indifference curve and influences their spending habits. All things being equal, and there being no seniority for picking classes based on credit hours, I would choose to spend my illini bucks on picking classes before others. I personally think tuition is meant to purchase education and using this imaginary currency, paid for by my tuition, to increase my learning experience would provide me with the most utility. It is known, that many of the best, interesting, even “easiest” classes fill up first during registration. Those who have the most credit hours in their respective class have the opportunity to pick courses that will, in theory, give them the best educational advantage. There has been many instances where I would (not literally) wish to pay someone just to save me a spot in a highly regarded course.  We mentioned in class that there are many ways other schools across the nation allow students to choose courses; I think introducing illini bucks would greatly change that process here on campus.

However, not everyone shares the same preferences. I know many friends who would rather choose to spend their Illini bucks on getting first picks for basketball season tickets, or the best parking spots on campus.  I cannot say what percentage of students would apply their currency to educational vs recreational benefits, though it would be an interesting study. I have to imagine that the majority of students would choose to use the currency on registration, tutoring session, job fairs, etc. After all, this is the reason why we go to school.  Pricing all these options out would be an interesting process.

Quite frankly, I think it would be impossible to set an effective fixed pricing scheme for illini buck purchases. I don’t see an efficient situation where the campus government could accurately determine the preferences of the entire campus and as a result set prices on a supply/demand basis. If prices are set too low, disproportionate to demand, students will end up still entering a first come first serve basis system as the services in high demand will have long lines with people wanting to spend their bucks first. If prices are too high, then students, I assume, will end up spending the majority of their bucks on educational related services, while all other services continue to operate on a first come first service basis as people deplete their funds.

I think this fixed price system would result in a secondary market for educational and recreational related services. As people change preferences throughout the semester I would expect prices to fluctuate and people willing to either exchange real money, or illini bucks for services in demand.