The winners of the IPL will earn $1.5MM. Works out to $75K for each player if there are 20 in the squad.
Sure, $75k is nothing to sneeze at. Unless you’ve been paid $500K to just show up and take part. The incentives aren’t sloped steeply enough. It is creditable that the stars are playing hard despite the relatively small prize.
For the true geeks reading this post…the formula that describes optimal effort in a tournament is (w1 – w2) = g(0)*c’(e). (w1 – w2) represents the increase in wealth due to winning. g(0) is a measure of how much randomness effects winning. c'(e) is a measure of effort. This formula is lifted from a seminal 1981 paper by Sherwin Rosen and Edward Lazear. If you really want to get under the skin of the formula, you can download the paper from jstor for $14.
The intuitive part of the result is that people work harder to win if the rewards of winning are greater. The fascinating part of this result is that the rewards for winning need to be greater in games with more randomness to extract the same effort. If you can win through pure luck, you’re less likely to work hard to win. So the reward needs to be bigger to get the same hard work.
This Sherwin Rosen paper - and the vast body of secondary research that his paper spawned - is often used to understand why CEOs get paid so much. Everybody in an organization works hard to become the CEO because the reward is so big. That hard work is what creates value for the organization, or for society, which is good. The reward goes to one CEO, one individual who basically got lucky, which feels unfair. Horrible dilemma. The only way to square this circle seems to be to design games with less randomness.
Saturday 24 May 2008
Friday 23 May 2008
Micro Nations
Some Scots want to secede from the UK to create an independent nation of 5 MM people. Some Walloons want to secede from Belgium to create an independent nation of 3MM people. In this news item about Belgium's possible break up, Czechoslovakia’s split in 1993 into the Czech Republic and Slovakia is admiringly described as a “velvet” partition.
Yet ever more countries want to join the European Union. Big nations like Poland and Hungary are in. Giants like Turkey and Ukraine seem likely to become European within my lifetime (the next 50 years?).
So is Europe splintering or coalescing? What’s going on? The dynamic that feels under-observed, that Scotland beautifully illustrates, is that the two processes reinforce each other.
Chest-thumping micro-nationalism is great fun. It derives from the same emotions that cause people to support the home team at football games; these are powerful emotions. What limits the political potency of micro-nationalism is that micro-nations simply don’t have the scale to build the institutions that, ultimately, make people better off.
As European institutions become stronger micro-nationalism gradually becomes costless. People will gradually figure out that the institutions that make people better off are located in Europe. Might as well thump the micro-national chest and have a bit of fun.
The Scottish parliament voluntarily dissolved itself and threw its lot in with Westminster in 1707, at the cusp of the British Empire. Their reasoning was coldly economic (or so says the Lonely Planet guide). Scotland wanted to be on the winning side of the greatest opportunity-to-plunder/ economic engine that history had ever seen. Three hundred years later, the pro-union rhetoric coming out of Scotland is still economic.
Over time, the Euro-zone market will get bigger and deeper, European courts and parliaments and regulators will figure themselves out, the Trans European Motorway will get built. Maybe a European lingua franca will emerge (will it be English?). Union with England will just matter less to a Scotland that is part of a functioning Europe.
What are the odds that Scotland will be an independent European nation 50 years from now? I’ll offer you 50-50. Much longer odds though, on the European lingua franca becoming English.
Yet ever more countries want to join the European Union. Big nations like Poland and Hungary are in. Giants like Turkey and Ukraine seem likely to become European within my lifetime (the next 50 years?).
So is Europe splintering or coalescing? What’s going on? The dynamic that feels under-observed, that Scotland beautifully illustrates, is that the two processes reinforce each other.
Chest-thumping micro-nationalism is great fun. It derives from the same emotions that cause people to support the home team at football games; these are powerful emotions. What limits the political potency of micro-nationalism is that micro-nations simply don’t have the scale to build the institutions that, ultimately, make people better off.
As European institutions become stronger micro-nationalism gradually becomes costless. People will gradually figure out that the institutions that make people better off are located in Europe. Might as well thump the micro-national chest and have a bit of fun.
The Scottish parliament voluntarily dissolved itself and threw its lot in with Westminster in 1707, at the cusp of the British Empire. Their reasoning was coldly economic (or so says the Lonely Planet guide). Scotland wanted to be on the winning side of the greatest opportunity-to-plunder/ economic engine that history had ever seen. Three hundred years later, the pro-union rhetoric coming out of Scotland is still economic.
Over time, the Euro-zone market will get bigger and deeper, European courts and parliaments and regulators will figure themselves out, the Trans European Motorway will get built. Maybe a European lingua franca will emerge (will it be English?). Union with England will just matter less to a Scotland that is part of a functioning Europe.
What are the odds that Scotland will be an independent European nation 50 years from now? I’ll offer you 50-50. Much longer odds though, on the European lingua franca becoming English.
Thursday 22 May 2008
Sandlot Wars
I’m really stretched at work nowadays (hence the relatively low frequency of blog posts). Too much work. Not quite enough people to get through the work. I’m not alone. Most of my peers are in the same situation.
One unexpectedly good consequence is that my peers and I are playing as a team more than we used to. We clearly need help from each other, and are generally quite happy to punt the ball over to each other.
This is in stark contrast to another time, within this same company, when we were overstaffed. We had too many ambitious and talented people, with plenty of time on their hands, looking to carve out bigger roles to match their ambitions and talents. This lead to the Sandlot wars. Almost all conversations were political rather than truth-seeking, and came with an undercurrent of “this is my sandlot and you’re not going to play here.”
Based on that contrast, my top management tip: keep your team slightly short-staffed. Your people will be under pressure. That’s OK. They will learn to take the pressure. An environment where people have a lot of room to play and grow, and have a credible prospect of advancement, creates a much healthier culture.
My inner sceptic just asked a question. Organizations riven by turf wars are clearly less pleasant work-places than those where people co-operate. But are they less successful? Great research topic for a Ph.D. student. But, for sure, you will have more fun working for a light, stretched organization.
One unexpectedly good consequence is that my peers and I are playing as a team more than we used to. We clearly need help from each other, and are generally quite happy to punt the ball over to each other.
This is in stark contrast to another time, within this same company, when we were overstaffed. We had too many ambitious and talented people, with plenty of time on their hands, looking to carve out bigger roles to match their ambitions and talents. This lead to the Sandlot wars. Almost all conversations were political rather than truth-seeking, and came with an undercurrent of “this is my sandlot and you’re not going to play here.”
Based on that contrast, my top management tip: keep your team slightly short-staffed. Your people will be under pressure. That’s OK. They will learn to take the pressure. An environment where people have a lot of room to play and grow, and have a credible prospect of advancement, creates a much healthier culture.
My inner sceptic just asked a question. Organizations riven by turf wars are clearly less pleasant work-places than those where people co-operate. But are they less successful? Great research topic for a Ph.D. student. But, for sure, you will have more fun working for a light, stretched organization.
Wednesday 14 May 2008
The hardest people to manage
It's people who are on their way out of your organization.
My top management tip: don't prolong the agony. If one of your people wants to leave, tell her to just go right now. You may not know exactly how you will cope with the loss, but you will cope.
Just go right now sometimes feels hard. Having a familiar face who knows the ropes running her show for a few more months often feels safer. That is false security. Having an player who is not fully checked-in on your team for a few months is toxic. Best case, safe players start making amateurish errors. Worst case, open-minded, constructive scepticism degenerates into corrosive, contagious cynicism. I've seen it happen too many times. It's not worth it.
The shadow of the future is everybody's best friend.
My top management tip: don't prolong the agony. If one of your people wants to leave, tell her to just go right now. You may not know exactly how you will cope with the loss, but you will cope.
Just go right now sometimes feels hard. Having a familiar face who knows the ropes running her show for a few more months often feels safer. That is false security. Having an player who is not fully checked-in on your team for a few months is toxic. Best case, safe players start making amateurish errors. Worst case, open-minded, constructive scepticism degenerates into corrosive, contagious cynicism. I've seen it happen too many times. It's not worth it.
The shadow of the future is everybody's best friend.
Sunday 11 May 2008
Do better driving tests save lives?
Earlier this morning, I was talking a friend through the painful process of getting a UK driving license. My friend is a Chartered Accountant and a banker. He is bringing up a family. He has been driving for about 20 years in India, the USA and various holiday destinations. It's hard to find a lower risk-profile than him. But getting a UK license remains a painful process, low-risk-profile or otherwise.
Part of the pain is, of course, the sheer bureaucracy. But a part of the pain is that there is a real risk of cautious and experienced drivers failing the test. The UK test is a heck of a lot more rigorous than equivalents in either India or, slightly more surprisingly, the USA.
Does the UK get anything valuable out of these rigourous tests (apart from the perverse pleasure oily government employees get from randomly saying no)?
A quick Google search seems to show that the testing works. The per capita death rate through road accidents in the UK is about half US levels. That is massive, a lot more than I was expecting.
An interesting twist in the data is that almost 65% of the difference in death rates seems to be explained the fact that the US has more cars per capita. A first glance the more money -> more cars -> more road deaths pattern seemed natural. But no. One might have expected a society that is more dependent on cars to invest more in road safety. And at some human level, the risk of death per individual just feels like a much more important metric than the risk of death per vehicle.
Another interesting slant in the data is the ratio of injuries to deaths. The UK and the US are around the same level here, suggesting that there are no material differences in the quality of medical care delivered to accident victims. If anything the much-reviled NHS seems to be delivering a slightly better ratio than the USA.
Part of the pain is, of course, the sheer bureaucracy. But a part of the pain is that there is a real risk of cautious and experienced drivers failing the test. The UK test is a heck of a lot more rigorous than equivalents in either India or, slightly more surprisingly, the USA.
Does the UK get anything valuable out of these rigourous tests (apart from the perverse pleasure oily government employees get from randomly saying no)?
A quick Google search seems to show that the testing works. The per capita death rate through road accidents in the UK is about half US levels. That is massive, a lot more than I was expecting.
An interesting twist in the data is that almost 65% of the difference in death rates seems to be explained the fact that the US has more cars per capita. A first glance the more money -> more cars -> more road deaths pattern seemed natural. But no. One might have expected a society that is more dependent on cars to invest more in road safety. And at some human level, the risk of death per individual just feels like a much more important metric than the risk of death per vehicle.
Another interesting slant in the data is the ratio of injuries to deaths. The UK and the US are around the same level here, suggesting that there are no material differences in the quality of medical care delivered to accident victims. If anything the much-reviled NHS seems to be delivering a slightly better ratio than the USA.
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