Future Income Risk Management

I believe that income risk management has undoubtedly shaped many of the decisions I have made throughout my college career, but other factors definitely have played a role in those decisions. To begin, I transferred to the University of Illinois as a sophomore from the University of Iowa. At Iowa, I had a very high GPA and was on an accelerated track in the business program. However, I was not very happy there. While doing really well in school was important to me, I made a decision to transfer for my own happiness and ambition of a different college experience. Part of my decision to transfer to the University of Illinois was influenced by the fact that my sister was attending the school and was an economics major, but also because the University of Illinois has a much better reputation than the University of Iowa and having a degree from here really made me think about how that would look when it came time to apply for jobs after college. Furthermore, I believed that I would be a stronger applicant for jobs because of the quality of education, which gives the University of Illinois its reputation. 

After getting accepted into the University of Illinois as undecided, I now was faced with the choice of picking a major. Before coming to Illinois, a friend of mine was in the aviation program and wanted to be a pilot. He talked to me about how fun and different it was than many other majors. While flying had always interested me, I really was not sure what to do with that interest until I met a friend of my father who is a captain at FedEx. His described his job as great and when researching the income of veteran captains, which is pretty high, I decided to give flying a try. However, while choosing to join the aviation program here at Illinois, I still wasn't sure how valuable a degree in Aviation would be, especially if my health were to fail and I was no longer able to fly. It is primarily for this reason I decided to major in Economics. While there were many other majors to choose from, knowing that people in the business realm often made salaries that they could survive on as well as having a sister who would soon be entering the job market with an economics degree made me decide that economics was right for me. While many of these major decisions seem to be influenced by the here and now (not being happy with another school, needing a major), I believe that the life after graduation is what drove me to be on the path I am today.

For instance, if I had chosen to become a theater major and my health had failed, the probability of making enough money, or at least the an amount that I could see acceptable for the amount of tuition I pay to come here, is very low. There are many other majors that have this sort of high level of competition for a decent paying job. With economics, where the concentration is perhaps undefined, I felt as though I could hopefully fit in somewhere if I need to.

There are also many decisions I have made during college that I believe were made with the future in mind. For instance, I have done a small amount of research (on Egypt and the role economics played in the Arab Spring), as well as joined the University of Illinois flight team. I also am currently employed as a flight instructor here at the University and hope that will grant me at least more experience. 

One thing that I found surprising from my sister who had to enter the jobs market was the amount of things the told me that she wish she had done in college, both with her future in sight and without. For instance, she tells me to take advantage of the university facilities that can help you get a job, build a resume and work experience. She notes that while you may not want to do them at the time, in the end they really can help you make an excellent candidate for a job. She also notes that you shouldn't make everything about your future and experiences may only come once, especially in college.

Opportunistic Behavior

Opportunism describes the behavior of someone that seems to take advantage of the current set of circumstances for the advancement of their own interests. People are faced with these decisions everyday and there are many driving forces, such as ethics, strategy, and expectations, that influence whether one will chose to behave opportunistically. While behaving opportunistically seems to offer people a chance to maximize their happiness, it is interesting to consider the decisions we make and opportunities we are willing to sacrifice for a seemingly non-quantifiable outcome.

A personal example of a time when I decided to not act opportunistically happened when a few friends and I had purchased tickets to a concert. The concert was in Chicago for 3 days and would eventually sell out. When the day of the concert came around, we went to retrieve our tickets from the front door at will-call. It was there we found out that one of my friends had accidentally purchased a ticket for the next night and they would not let him in to the concert because it had sold out. My friend, who felt bad, offered to take a taxi home so my other friend and I could go in and still enjoy the concert without him. Although seeing the concert sounded very attractive and my friend was willing to leave without making us feel bad, we decided that we did not want to go unless all of us were able to attend the concert.

After leaving the concert, my other friend and I decided that we were going to sell our tickets to the people on the street looking to get into the concert. Because the concert was sold out, demand for tickets was particularly high. On many sights like Craigslist tickets were going for as much as twice their original value. At that point, we really weren't sure how to price the tickets. We eventually came across a couple looking to buy tickets to the event. They immediately were interested in buying tickets for the event and politely asked how much we wanted for our tickets. Although this couple seemed willing to pay more than the original value for the tickets, I decided not to charge them more because they seemed very polite and desperate to get into the concert. Furthermore, because we did not want to go to the concert because our other friend could not get in, I felt as though it was just best to not take advantage of other people and just spend time with my other friends. While I did not get any profit from selling my tickets, I felt good about the transaction because I was able to help someone else out while still being able to spend time with my friends at a place where we could all hang out.

Organizations and transaction costs

Although I have held very few jobs in my college career, my experiences while working have truly made me recognize and appreciate the keys to running a successful organization. While at first the makeup of these structures seem to be invisible to a newer employee, with more work experience they become more apparent, especially when things do not run as smoothly as intended. For instance, as a new worker at a food delivery restaurant, I was able to notice that there was at least some hierarchy that had been established. There was a general manager, then several store managers, then managers in training and then in-shop employees.

While the order of the chain of command made sense to me, I was not clear on the responsibilities of each post and even less clear on how the system relied on the completion of ones job at every level until things didn't run smoothly. An example of this is when a store manager had allowed several deliveries to pile up, he disobeyed company policy to call the general manager to get more people to come in and work and simply let the orders keep piling up. Customers became very unhappy and began demanding their money back because their food was arriving so late. The general manager had not expected the store manager to act on his own and not follow procedure and eventually fired the store manager.

Because I was fairly low on the totem pole in terms of the hierarchy at the deliver restaurant, it wasn't until I became an executive officer in an RSO that I truly understood why strict and good organizational structure were essential to running a successful organization. While I was still not at the top of the chain of command, I still had to work very closely with the people around me in order to attract others to join our organization. Like any group of people working together, there is often a collection of ideas on how to best go about the task as well as who specifically we wanted in the organization. With so many opinions and ideas, conflict was unavoidable. However, with a common goal and interest, we devised  plans (which often took many sessions for people to realize that they were not going to get absolutely everything they wanted) to allow for maximum utility.

Many of the transaction costs associated with being a member of an RSO deal not only with school, but also with your personal life. For instance, in order to make sure the RSO would continue to grow and thrive, others counted on me and my fellow board members to recruit the right people. This meant taking the time to not only meet the students, but also spending time with them to get to know them and attract them to our organization. This subtracted time for studying as well as time I could have spent with my other friends ( or even finding a job, which would have at least made me money). However, I felt as though being a part of the organization and making sure there were going to be people there even after I graduate seemed more important to me and I willingly accepted my duty.

Alvin E. Roth Econ 490 Blog

Alvin E. Roth is an American economist born in 1951. He graduated from Columbia University in 1971with a degree in operations research. Then in 1973 and 1974, he would achieve his masters and PhD in operations at Stanford University. He would then go on to teach at a number of schools, including the University of Illinois, before finally settling in at Stanford University and Harvard as an Economics professor. He has made contributions in game theory, market design, and experimental economics. In 2012, he shared the Nobel Memorial Prize in Economic science for theories in stable allocations and market design.

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