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UN-learning for Entrepreneurs

An article in Inc.com claims that to become successful entrepreneurs, students need to UNlearn several lessons that schools have made an extraordinary effort to teach them.  I’ll paraphrase here:

  1. Excellence is measured in how well you follow instructions.
  2. Expect micro-management (including milestones, deadlines and constant feedback).
  3. Time off (or “break”) is the highlight of your experience..
  4. Criticism means you’re failing.
  5. Stick to the rules or be rejected.

One of the biggest and most consistent complaints I get in my CEE300Engineering Business Practices is about the lack of structure.  Here’s a sampling of student comments taken directly from my teaching evaluations, in response to the question prompt “What did you like least about this course?”

I felt as though the class was unorganized and kind of haphazard at times.

Lack of structure.

No structure.

That we spend most of the time period without getting any instructions or assignments.

Controversy in class.

Sometimes unclear of what was to be done and when.

Very unorganized and unstructured.

The unstructured nature of the course provided little information on assignment due dates.

Not having a set schedule.

I did not like that the course was unorganized. There were days when I would go into class and have no idea what was going on.

Probably not having an actually schedule and how the syllabus changed every single week!

The fact that there was no consistent schedule that I could plan my weeks around, but that’s life, right?

When I look at the UNlessons in the article and relate them to my course, it looks like this:

  1. Following instructions.  Assignment guides are minimalistic and grading rubrics include a category (typically 10% of the overall grade) that says, “Goes beyond the assignment instructions.  In other words, following the instructions perfectly can only get you to a 90/100 — just enough for an A-.  Students that want an A must do more.
  2. Micromanagement.  There are few deadlines — just some loose guideposts.  In fact, nobody necessarily dies if the students miss a target date.  In most cases, it’s up the students to set their own schedules.
  3. Time off.  We run on a 24/7 cycle.  Class is in session, on-line, all the time.  That includes weekends and what we typically call “breaks”.
  4. Criticism.  It’s when you’re close to being really good that you get the most critique.  My attention is disproportionately allocated to on helping the ‘B+’ students become ‘A’ students.  If students aren’t getting critique, it’s either because they’re already awesome and they’re hearing nothing but praise, or they are so bad it’s not worth my time.
  5. Rules.  Part of the process is allowing the students to make up some of their own rules as they go.  From the comments above, I know that’s frustrating.  Sometimes the students get mad at each other.  Because one of the learning objectives is leadership, it’s important that students have a space in which they can actually emerge as leaders.

Among the negative comments on my teaching evaluations are several from students that suggest they “did not learn anything,” here’s one of my favorites:

Overall a very disorganized, useless class (the way it was taught), and just a waste of time.

The first thing to take from that is pretty positive.  If this student didn’t learn anything in my class, then they are at least saved the trouble of having to UNlearn the class if they ever become an entrepreneur.  The second thing is that entrepreneurship isn’t for everyone.

Although Universities all claim that they are preparing “tomorrow’s leaders,” we know that can’t possibly be true of all their students.  Moreover, not all leaders are entrepreneurs.  Nonetheless, I think the Inc.com article pretty much has it right.  For those students that do have a predilection for entrepreneurship, the usual expectations of the University do little but place obstacles in their path.  I hope Engineering Business Practices is an exception.

Read the full article here: Entrepreneurs: 5 Things to Un-Learn From School | Inc.com.

To Buy or Lease a Car? That is the Question

Suze Orman writes a column for O, The Oprah Magazine on personal finance, so presumably she knows something that Oprah Winfrey‘s readers don’t.  Here’s what she says about the question of whether to buy or lease a car:

The Buy vs Lease Decision

You Auto Think Twice About Leasing a Car

By Suze Orman

It drives me nuts to see all the money wasted on car leases.

In my opinion, leases are a drug for status-conscious people who need the rush of driving a “nicer” car than they can really afford. The auto-financing folks have basically perfected a way to let you think you can have your cake and eat it too. Can’t afford to buy a BMW or Lexus? No problem, just lease it!

Well I am here to tell you it is a very big problem… .

Read more from Yahoo Finance.

By contrast, Mark Solheim at Kiplinger’s finance says that people have preconceived ideas about leasing he calls “myths”:

Five Myths on Leasing a Car

The truth about five common car leasing myths.

By Mark Solheim, Senior Editor

Leasing often gets a bad rap, and no wonder: Its confusing argot sounds like fodder for a course in high finance, and dealers have been known to slip bad deals past confused car buyers who simply wanted low monthly payments.

Read more at Kiplinger’s Finance

Lastly, here’s advice from certified public account (CPA) and video journalist Stacy Johnson that actually attempts some math:

In Johnson’s view, buying is usually less expensive, but he doesn’t go into the details.  He thinks the math is too intimidating for most viewers, and he advising using an on-line calculator (although it’s not clear what you’re supposed to do with the on-line calculator).

In my opinion, Orman, Solheim and Johnson are all full of baloney. Even Khan Academy, which brands itself as the website where you can “Learn almost anything for free” comes up empty on the topic of buying vs. leasing a new car.  

As it turns out, this is one of the most complicated finance problems that most people will confront during their lives, and the vast majority are ill-equipped to understand it (including experienced car dealers).

This series of videos is intended to break down the choice of leasing versus buying a car using the tools of engineering finance.  The first video begins drawing exemplary cash flow diagrams that allow comparison of the options.
This video completes the cash flow diagram for the lease option, and shows the equations necessary to compare the buying vs. leasing options on a net present value basis.
This video explains how a new car lease looks from the perspective of the leasing company and explains the risk that the leasing company accepts regarding the residual value in the lease agreement (or book value) and the market value of the used car at the end of the lease.
The last video compares the cost of buying with leasing a new car.  It concludes that, even in cases where leasing is more expensive, having the option to put the car back on the leasing company at the end of the lease term reduces risk, which may justify the increased expense.
In general, drivers with high discount rates (such as high-rate credit cards) will be better off leasing a vehicle for several years, even if they intend to buy it at the end of the lease term!  This fact is often overlooked by personal finance “experts” that write advice on buying vs. leasing.  This might be because the experts believe it is unlikely that someone with high-rate credit card debt will have the discipline to use the money saved on car payments to pay their debt down.

Time Preferences and Technology Transitions

The conventional wisdom is that the Internet killed Borders books.  Even the rejoinders to this thesis emphasize that poor strategic choices were mostly made by failing to appreciate the changing technological landscape.  Either way, it’s a fact that the money that used to flow into Border’s cash registers now goes to Amazon and iTunes instead.

Collapse in response to technological transition is a recurring business theme.  Digital photography bankrupted Polaroid, then Eastman Kodak — both former high-tech “blue chip” stocks.  Even Apple rose from the ashes of a company on the brink of liquidation, and at the very bottom, turned to arch-rival Microsoft for an infusion of desperately needed capital.  (That was way back in 1997.  MSFT sold their AAPL holdings later, without fanfare.  Compare the tone of the quotes from the executives.  What a difference).

So, if corporate executives have trouble managing technological change, what about consumers?  Here, news stories give us the impression that anything new is all the rage.  In fact, they rarely tell us about the high-tech products that go straight from the laboratory to the dustbin.  For consumers, the choice is often between incurring one-time investment costs (in new equipment, and the time required to learn it), but recouping that investment in cost savings over time.  While people will certainly pay more for increased functionality, or increased convenience, ultimately technological innovation is expected to enable us to do more, cheaper.

To assess the financial viability of any technological comparison, we need to understand the time value of money.  That is, we need to understand if future savings will justify present-day expenses.

Typically, cash flows that accrue in the future are discounted, in comparison to present day balances.  There are several reasons for this, but the two most important are: risk (What if the expected future benefits don’t actually materialize?) and opportunity costs (What has to be sacrificed now to obtain something more in the future?).

This video depicts a study of time preferences in children.  The marshmallow experiment is a famous test of this concept conducted by Walter Mischel at Stanford University in the 1960s.  A group of four-year olds were given a marshmallow and promised another if they could wait 15 minutes before eating the first one. Some children could wait and others could not. The researchers then followed the progress of each child into adolescence and demonstrated that those who waited were better adjusted, more dependable (determined via surveys of their parents and teachers) and scored an average of 210 points higher on the Scholastic Aptitude Test.

Problems of technology transition typically involve questions of time preference, where the new technology is more expensive up front, but results in savings later on.  To illustrate the point, we can study the transition from printed books to e-readers – ostensibly one of the important factors that drove Borders out of business. E-readers cost more now, but they generally offer books at lower prices in the electronic version (in comparison to printed).  So, in the long run an e-reader could save money.

Lots of people might be interested in knowing which technology is cheaper for them, over the long run.  For example, parents of young children generally buy lots of books.  Should they invest in an e-reader that their children can learn to use at an early age?  Or wait, reasoning that as the technology gets better, prices might come down?  Similarly, college students purchase lots and lots of books.  As more popular books (and textbooks) become available on-line, perhaps an aspiring freshman could save money by purchasing an e-reader for school?  Similarly, K-12 schools purchase millions and millions of books.  Would it save the school district money if they issued an e-reader to every student instead?

The classic conundrum of a typical technological transition has always been about large upfront costs balanced by longer term savings.  However, sharing economy apps like Lyft, AirBnB, and Turo present an interesting new twist on the old puzzle: Should they be owners of property, or renters?  While this dilemma has always been present in our lives, new information-communications-technologies (ICT) have changed the cash flow equation.  Once we’ve decided to purchase a smartphone, renting becomes cheaper and more convenient.  But so does owning, provided you’re willing to work to rent your property out to others and willing to accept the risks.

The balance seems to be shifting to renting.  For example, most people would rather stream their favorite movies over NetFlix or Amazon Prime, rather than own the DVD.  Many younger people feel its more convenient to use Lyft combined with public transportation or bicycle sharing, than it is to own their own car.

The economic advantage may be a greater utilization rate of capital — i.e., fewer empty rooms, or idle cars, resulting in cost savings.  But is that the problem that these sharing economy apps were invented to solve?

Cheaters, Bystanders and Free-riders

There are three types of problematic players that were identified in The Externalities Game experience recently completed by engineering students at ASU in Arizona and management students at MDI in India:

  1. Cheaters produced more than the social optimum strategy agreed upon by the group, thereby accumulating more points for themselves at the expense of other players.
  2. Unfortunates attempted to submit production decisions, but were thwarted by the unreliable communications systems on CORE, and thus received no credit.
  3. Screwups did not submit a decision because they didn’t understand the instructions.

In reflecting on the game experience, it may help to think about these players as categories of human behavior and how these behaviors manifest in the real-world.  For example, people often cheat, even if it is just a little bit, in everyday situations.

In the game we saw this as there were a many players that “cheated” by taking a few more points for themselves, but only three people that took as much as they can get (and one player that took nothing).  According to Dan Ariely, players that cheat a lot are rare, but players that cheat a little are common.

The unfortunates might have tried to cheat, but because their messages never got thru to the TEG Administrator, they were disqualified from the game.  Some students (on Twitter) accused the instructor of purposefully altering the numbers, while others blamed the technology, while others say that the students themselves should have done more to make sure the message got through.  In this case, no one person or group is at fault.

The plight of the unfortunates in TEG is analogous (although nowhere near as serious) as the victims of global climate change depicted in our previous post.  In response to the “Climate Justice” video embedded therein, many students tweeted how awful it was that innocent children in Bangladesh are suffering so much and that somebody should do something about it.  But who is to blame in this case?  Is it the children’s fault they were born into poverty?  Is it the industries who create most of greenhouse gas emissions?  Or is is the consumers who buy the energy intensive products on the market?  In problems of negative externalities, it is often difficult to determine where the blame lies, which makes it difficult to reconcile the injustice.  If we don’t know who is to blame for an injustice, or even if we do know who to blame in a particular situation, does that mean we have no obligation to help those who were harmed?

A recent review article in Nature written by Ezra Markowitz and Azim Shariff, entitled “Climate Change and Moral Judgment”, describes why climate change poses extraordinarily difficult challenges for our moral judgment.  The authors explain that because climate change is characterized by abstractness and uncertainty, as well as perceived to negatively impact distant people (geographically and temporally), it is a particularly difficult problem to assess morally.  Therefore, climate change is most likely perceived as an unintended and unfortunate side effect of goal-oriented behavior, which is likely to be judged less harshly than harms caused intentionally, and therefore results in less motivation for mitigation and adaptation.

Unclear blame can be a cause for inaction, but so can the norms of society.  If helping someone means violating the norm of a group, individuals of that group are likely not going to offer assistance.  In what is referred to as the ‘bystander effect‘, people realize someone is in trouble and needs help, but do nothing about it.  The following video shows how people tend to overlook those in need, especially in very public places, because they would have to violate the norm of others around them.

The bystander effect was observed in our class last Thursday.  In the absence of strong leadership, many students were content to remain quiet, or tweet out their complaints, or merely call for action by “someone” to do “something,”  rather than commit themselves to do what they felt was right.  The students waiting for someone else to take action are analogous to the bystanders in the video.

Moreover, research shows that the bystander effect is strongest when the victims belong to a different identity group than the bystanders.  For example, the norm in the ASU class became figuring out how to help the unfortunates at ASU and to let the unfortunates in India figure it out for themselves.  The group assumed that the MDI players would step in and help without even asking them if that was the case.

Also, most players concluded that the ‘screw-ups’ don’t deserve any points from others.  (One self-anointed ‘screw-up’ agreed with this view).  Neither did the one student who submitted zero for her production deserve any assistance, in the minds of the consensus. Everyone knew that these players could use some help, but nobody stood up in class to make a case otherwise; it would have violated the class norm to stand up an offer an alternative opinion.

Related to the bystander effect is what is known as the free-rider problem. This is a term traditionally used in economics and game-theory where someone in the group who contributes nothing benefits from the efforts of others.  For example, in public transit a free rider is literally someone who rides for free while other passengers pay their fares.  In global climate change, if only a few countries reduce their GHG emissions (and suffer economically for it), all countries will still benefit from overall reduced emissions.

The free rider problem often results from public (i.e., non-excludable) goods, where it is impossible to enforce ownership rights that prevent others from consuming the good.    For example, national defense and many highways are public goods because we all use them and benefit from them, yet we can’t prevent others from using them, too.  (Vehicle registration and drivers licensing laws could attempt to prevent access to public highways, just as tolls and user fees attempt to assign the cost of the highways primarily to those who drive on them).  Because the benefits of public goods are shared and non-excludable, there is an incentive to free-ride on the efforts of others.  This video explains the free rider problem in the context of public goods and how a traditional solution to the problem is taxation.  The idea is that everyone contributes to paying for the public goods that the government provides, and therefore users are no longer free-riders and are less likely to misuse the public good they help pay for.

However, not all free-rider problems can be solved through taxation.  We often see free rider problems when working in groups.  For example, sometimes one person in the group ends up doing most or all the work, yet everyone in the group ends up with the same grade.  This is practically what happened in TEG, where relatively few players during the game put effort into figuring out a strategy for the class to follow, but everyone benefited.  Some students did actually stand up, offer strategies and solutions, and told the rest of the class what production plan they should follow. But the majority of the class however never got out of their seats and remained quiet.  Although there was a clear imbalance in effort, the benefit of the strategy proposed (in terms of grade points) is enjoyed by most of the class.

As for the ‘screw-ups’, this category includes at least one person that was sick and missed class and didn’t realize what they were supposed to do for the game.  Is it really their fault that they missed the deadline?  Should we just assume that those players that did not follow instructions are to blame?  Or did something prevent them from submitting that was out of their control?  If it isn’t us that this happened to, it is easy to forget that things do happen to people.  Wouldn’t we want others to sympathize if the tables were turned?

These concepts and questions posed should help prepare you for next week’s reflective class discussion and the assigned personal reflective essay.

Teamwork & Motivation

One of Ken Robinson’s criticisms of Higher Education is that traditional models isolate students, evaluate them all individually, and create a “disjunction between them and their natural learning environment”.  He points out that in a school students are expected to do their “own work“,or risk accusations of cheating that would be called “collaboration” outside the university.

By contrast, one of the explicit learning objectives in accredited engineering undergraduate programs is learning to work in multidisciplinary teams.  Therefore, it behooves us to understand what motivates people and how to structure environments that encourage them to work together — particularly because new information communications technologies (ICT) allow people to work collaboratively more effectively than ever before.

In this video, Clay Shirky introduces us to the idea of “cognitive surplus” — which is term used to describe the otherwise idle hours that people are willing to apply to solve real problems in collaborative settings.  This violates what is understood to be conventional economic wisdom — that people don’t work for free.  (The analogue in education would be that students will not do what is not graded).  However, Shirky’s examples illustrate the difference between things that people are extrinsically motivated to do (working for pay or other rewards from other people), and those that they are intrinsically motivated to do (working for “fun”, or the personal satisfaction derived from the work).

Shirky quotes the famous engineer and inventor Dean Kamen, saying that free cultures “get what they celebrate”, but I suspect that Kamen is no longer concerned with collecting public accolades.  In this video, he tells a series of powerful stories about his personal motives.

As it turns out, Kamen’s motives are not so much different from those of American undergraduate students (the most closely studied population in the history of science).  In this video, Dan Pink explains how cognitive labors are not subject to monetary incentives.  In tasks that require thinking and creativity, people are more driven by a sense of purpose than by pay (or grades?)

This realization calls into question how we assign group work in classrooms.  If we operate on the premise that students will only do what they are graded on and we recognize that group grades allow some students to “free ride” on the labors of others, then we might predict that student work groups will either fail predictably, or result in just a few students doing all the work.

The classic solution to problems of cooperation in groups has been institutionalization.  That is, we form bounded organizations (such as companies and professional societies) that define rules of interaction, belonging, and status.

In this video Shirky attempts to answer the question “How do groups get anything done?”  He argues that advances in ICT have reduced the transaction costs of cooperation so much that we can now substitute coordination for planning.

The “carrots” (incentives, or rewards) and “sticks” (disincentives, or punishments) available to institutions don’t apply to open organizations with transaction costs so low that any individual can contribute any amount.

One of the implications of moving group work outside the institution means that cooperative relationships can form outside the normative goals of the institution.  That is, cooperation can now exist among individuals that are at odds with the status quo ideals of the mainstream.  He predicts 50 years of chaos.

It should be clear that education has already begun the process of de-institutionalization.  As Shirky suggests, “we can see it coming.  We might as well get good at it.”

On Moral Leadership

“The central concept is influence rather than authority. Both are dimensions of power but the latter tends to reside in formal positions, such as the principal or headteacher, while the former could be exercised by anyone in the school or college. Leadership is independent of positional authority while management is linked directly to it.”

– Tony Bush (2012) Theories of Educational Leadership and Management

Leadership requires the ability to influence the behavior or decisions of other people.  From this perspective, leadership might look a lot like advertising, or marketing.  In this TED talk, Seth Godin (speaking as a marketer) makes important distinctions between these.  To be a leader, he says, is to be a heretic.

But Godin fails to give his audience any direction on what it takes to be an effective leader.  There is a vast literature on leadership styles, and any number of effective mechanisms by which to influence others toward pro-social goals (i.e., goals that are good for the entire group, not just one or a few people).

One style of leadership that is often overlooked is moral leadership.  That is, the type of leader that is able to influence others thru moral persuasion.  In this case, the leader does not bribe, or bully, or appeal to the self-interest of others — but to their sense of fairness, justice, or some other foundational moral principle.

This type of moral leadership typically requires sacrifice.  It requires that the leader take personal risks, and from these risks often comes moral credibility.

Introduction to The Tragedy of the Commons

All professionals enjoy a privileged position in society.  For example, licensing laws prohibit entry into professions such as medicine, law, or professional engineering.  As a consequence, the people who DO have a license to practice can charge higher rates.  Additionally, professionals often enjoy public subsidies — either reducing the cost of education or underwriting institutions that enable the practice (such as public hospitals, courts,  research grants, or public works).

In return for this privileged standing, society places expectations on professionals.  Most notably, professionals are expected to hold the social good above their own.

Individually, all professionals have an incentive to cheat society by cutting corners to reduce their own costs, abuse the power that expertise offers, or otherwise unfairly place their own interest ahead of others.  For example, some doctors that own stock in pharmaceutical companies have been charged with preferentially (or unnecessarily) prescribing drugs produced by the companies they own, thereby increasing their own profits at the expense of patients and insurance companies.

However, in these cases it is clear that the abuses perpetrated by the individual will tarnish the reputation of the entire profession, placing the privilege enjoyed by the profession at risk.  Thus, all profession have internal regulatory bodies that sanction those deviants that fail to ascribe to a code of conduct that protects both the public and the profession (as a whole).

The interaction between the individual professional and the  group can be modeled as a problem in non-cooperative game theory.  In this class of problems, individuals can unilaterally (i.e., without making agreements with others) advance their own position, but only at the expense of other individuals in the group.  Alternatively, if all people in the group agree to cooperate, the entire group can be better off.

Without some sort of individual restraint of ambition or avarice, a group confronted with a non-cooperative game theoretic problem will either degenerate into a tragic catastrophe, or result in the savvy players making suckers out of the naive. The first six minutes of the Dark Knight movie (starring Heath Ledger as the Joker) illustrates this point.  Notice how the Joker uses greed to turn the individual members of his gang against one another.

In fact, the entire plot of the Dark Knight movie revolves around the Joker setting up one non-cooperative game theoretic problem after another, just to see what might be revealed about the character of his victims.

The classic example of a non-cooperative game theoretic problem is The Prisoner’s Dilemma.  In this video clip, Salman Khan explains the problem that two prisoners face when they are being interrogated separately by the police, and why the police are likely to get confessions.

A special type of game-theoretic problem involves managing common pool resources.  In this case, every individual has an incentive to take more from the common resource, but if all individuals take too much, the resource will be ruined and everyone will suffer.  This special case is called The Tragedy of the Commons.

Khan explains the problem in terms of public fisheries, but in Khan’s explanation, the individuals also have private ponds in which they can keep their own fish.  In this case, private ownership changes the incentive structure such that owners will more carefully manage the resources and maintain the longevity of the fishery — which is also in the public interest.

However, privatization of some common pool resources, such as the atmosphere, is highly problematic. Elinor Ostrom points out that cooperation between individuals can exist despite the incentive to cheat and in the absence of a third party (meaning someone outside the group) enforcement.  In these instances, groups typically institute their own mechanisms of enforcement.

Because some common pool resources (such as the atmosphere) are not amenable to privatization, Ostrom’s discovery of alternative mechanisms may be especially important to sustainability.  However, recognition of game-theoretic problems significantly complicates moral analysis.  Because the outcomes of an interesting game-theoretic problem depend on interaction between two or more players, where should the moral culpability for the tragedy reside?

In fact, doing the “right thing” in a non-cooperative game theoretic problem might actually encourage other players to do the wrong thing, by improving their payoffs.  The converse is also true.  Doing the wrong thing (that is, defecting or failing to cooperate), or at least the credible threat of the wrong thing, might actually turn out to be the only way to ensure that other players do the right thing, as this video from a popular British game show illustrates.