Future Income Risk Management

I didn't know it coming out of high school, but immediately upon stepping on campus as a freshman, income risk management became my priority, and the driver of most of my major decisions. For a long time now, I have had the aspiration to be a lawyer, but that didn't help too much when deciding what to major in as an undergrad. I entered as a history major, that choice made because I really enjoy learning about the past, but I quickly learned that the skill set I would develop in that major was not one that help me get the kind of job I envisioned. At first I thought the way to solve that problem was by adding a double major, math. After a year of crazy coursework I decided to reevaluate and figure out what I really wanted. My job last summer (2012) was the primary force which drove me to my current major, Economics.

Prior to my work during summer 2012, I had little respect for the business world. I viewed corporations as greedy and power hungry, and jobs like accounting just seemed plain old boring. Then I got a taste of the real world, through the lens of a business. I started to understand the concept of earning a living, or being able to afford things at various price points. I saw the ramifications on production and attitude of good versus bad management. And I was fascinated. Economics, its dynamism and practicality, was the major which could connect those experiences with what I was doing in school, and so I switched. In addition to switching majors I also began working on enterprise projects through IBC here at school. My time spent working on those projects and learning how to apply a business model and plan has probably been the most valuable in my college career. The skills I have gained through that work have, no doubt in my mind, made me a more competitive prospect for the job market and were used substantially during the course of my work as an intern this past summer. Even helped me land a job offer, which I had to respectfully decline.

In terms of impending graduation and the great world beyond, I am more excited than nervous. My situation is somewhat of a fluke, as I have been pretty certain of y post-grad plans as of last May. I will be doing Teacher for America in Houston for the next two years, and am already aware of my salary and benefits. This has really minimized my income risk. I am also graduating a year early so as to avoid having to incur debt during my undergraduate years. My idea is to save the money made during TFA and put it towards law school and business school which have been in the long term plan for quite some time. I'm hoping to get scholarship money to lessen the amount of debt I'll have to take on at that point. Originally planning on just getting a J.D., I decided that I also want to go for an MBA to diversify my skill set (thereby lessening my income risk yet again) and land me in a position in roughly 5 years where I can drive real change and be taken seriously as a leader, in whatever role I find myself in. As a person, I have always been very future oriented, so most of the decisions I make take into consideration the long term and have a lot less to do with what sounds good in the here and now. I also think that points to me being a risk averse person rather than a risk taker.

Opportunism in the University Setting

In my time spent here at school I've learned that universities like ours offer the epitome of opportunity, particularly if you are active enough to go out and find it. There are so many instances where “opportunism,” both positive and negative, is present in students’ daily lives. When thinking about this week’s prompt I came up with two illustrative instances where I chose not to act opportunistically. One follows the moral and ethical explanations of explaining behavior, while the other doesn't.

During the great college search 3 years ago, over the course of numerous tours and info sessions, I learned one important thing about college: a student’s time as an undergrad is the best time to go abroad. This was one of the most highlighted talking points for most schools I looked at attending, Illinois included.  After a couple of years here, I think I understand why study abroad is such an opportunity while an undergrad. There is a huge variety of programs offered, in many cases equivalent tuition, living expenses are lower as a student, and at this age we still have the flexibility in our schedules to be able to go abroad for a month, a semester, or even up to a year. At this age, real world responsibilities have yet to kick in and thus study abroad for many becomes a reality. And yet, as much as I’d love to have the international experience, I have elected to forego a semester abroad and thus have not acted opportunistically. I have chosen not to take advantage of the circumstances which make the undergraduate years the prime time for study abroad in order to take advantage of other circumstances which can instead save me money in the long run. Rather than go abroad for a semester or even year, I decided to graduate a year early.  Unlike the moral or ethical motivations for not acting opportunistically, in this case my rational or reasoning for the decision I made was much more economically based. When it comes to a study abroad opportunity, deciding whether or not to take advantage of the opportunity is not a question of right or wrong, good or bad, but instead is the result of other forces, economic, social, linguistic which may push someone to go or not to.

My second example is more in line with the idea of not acting opportunistically in order to “be a good person” or serve some moral and ethical desire.  As a senior this year, trying to figure out what to do with my life going forward has been a big deal. If I wanted to serve my own best interests and be “opportunistic” my best move would be to look for a job with a consulting firm or in a business, where salaries are high, signing bonuses exist, and the job perks are good. Instead, at the end of last year, I decided to forgo that job hunt and apply to an organization where I can really make a difference. Rather than working at a glamorous job with a high salary, I have chosen to be a teacher in a lower income school in a community that at this point I know little about; a job which also has a much lower salary than the positions I’d otherwise be looking at. I view it as my chance to give back and to do my bit for the betterment of society, as well as work for a cause that I firmly believe in. Those motivations have little to do what is most economically efficient and much more to do with what drives me as a person, as well as what I believe. The causes of anti-opportunistic behavior and choices is not necessarily clear cut, and the explanations are very different when looking at my two examples. 

Organizational Splits and Transaction Costs

In the course of my undergraduate career I have been fortunate enough to have been able to associate myself with a wide variety of activities, each of whom has had its own, unique, organizational structure. I have seen various changes occur, some that I agree with and some that I have not. One club ended up experiencing a complete overhaul last semester, with a leadership turnover from the ousted group of older students to a younger batch of newcomers. It was the RSO version of political scandal and in order to refresh the club's good image, anyone associated with the way the club was being run was forced out. Officially I guess I'd call it a change in the outward presentation and the main message of the organization, which subsequently influenced the way it was being run. The scandal ended up driving me away as a member and I am no longer associated with that organization.  Even more interesting to me have been the organizational splits (opposite of mergers) that I have witnessed/experienced n the last year. One through an RSO/club team that I am heavily involved in and the other at work. Midway through last year the Illini Rowing Club team decided to officially split into two separate organizations: one for men and one for women. I am now vice president on the women's side. Organizationally, the split was effective and smooth and we have since doubled the funding we receive for an ever growing team. It has also worked out well in terms of work distribution. We have two official executive boards, but since we both practice the same sport we are able to better allocate the various work involved in running the club. Where last year I would have been trying to coordinate for 65-70 people at once, I am now only really in charge of 35 or half of that, and the increased work distribution definitely makes less work all around for all members and also helps the team to be run more efficiently. What is interesting is that I had a very similar type split occur at work last summer. The umbrella organization decided it was in the best interest of the company to officially split into two factions. Like the rowing team, the two new parts do not function in the market as competition but rather as components to the larger part. By splitting, they were better able to allocate and specialize, and again the split made the running of the organization much ore efficient.

In terms of transaction costs and relationships, I guess the place to start is the outright cost of attending a University. As we discussed in class today, some of the most valuable experience from our time in school is not derived from course material itself but instead by sharing with peers, and thus due to that value there is a transaction cost (tuition) for the interchange of ideas. In addition, many clubs and activities will have a little thing called dues, and in order to participate in the club, organization, or social group members must pay up. In pure social relationships, I envision transaction costs being the time and effort needed to be invested in order to develop quality relationships.

Biography of Armen Alchian

Armen Alchian (April 12, 1914 - February 19, 2013) was an American economist born in Fresno, California. He is regarded as akin to Ronald Coaze as they both were prominent during roughly the same period (both actually passed away this year), and were able to have a wide impact despite a relatively small collection of published works. His first published work was "Uncertainty, Evolution, and Economic Theory" (1950) which discussed the idea of profit maximization of companies, with special focus on the role managers play. Alchian also served in the U.S. Air Force where he did statistical analysis and helped develop the idea of the "learning curve," especially within the context of aircraft production. Following the war, Alchian worked as an economist for the RAND Corporation before becoming a professor of economics at UCLA. He co-authored the bold and unique textbook entitled University Economics with William R. Allen. It didn't have groundbreaking sales, but still had a lasting impact on many students, graduate students in particular and served as the influence for many of today's undergraduate economic textbooks. Two topics upon which Alchian spent a great deal of time were property rights and the subsequent discrimination which arises from it. As an Armenian, discrimination was a topic which unfortunately Armen had some experience with, and he was driven to examine the economic causes of such behavior. He is remembered as a man, an economist, and a professor who had a true concern for the well being of humanity (Library of Economics and Liberty).

His work is important in many ways, but probably is most pertinent to this class because of the shifts in ideas and attitudes relating to undergraduate education in economics that his textbook and other writings were able to instill. Another topic that seemed relevant was the role the manager played in maximizing profits. Discrimination in the work  place through labor unions and other such organizations should also play a role in our class discussions. Prior to being assigned Alchian as my alias I had never before heard of him, but after doing even the little research I have done so far it seems that he is a major player of the field of economics.

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