Tag Archives: Status

Status In Law, Finance

By Robin Hanson · February 3, 2012 8:05 am · Comments (10)

I recently suggested that a big part of what management consulting sells is status, to cow firm opponents into submission, and that this helps explain why consulting firms use so many inexperienced recent grads of elite colleges. JustMe commented:

There are basically three things available to graduates of elite colleges that other students, no matter how hard they work, have little or no access to: elite consulting jobs, investment banking, and corporate law.

Kids from elite colleges aren’t much smarter or harder working than those from the next tier, who are cheaper to hire. But elite grads do have much more polish, shine, etc. – in a word, status. If this helps explain an elite school focus in management consulting, can it also help explain a similar focus in investment banking and corporate law?

Corporate law seems easier. If, as I suggested, our inherited sense of who will tend to win a contest in coalition politics uses certain standard status markers, then the status of one’s corporate lawyers can influence attitudes about who will win a court case. So having a high status lawyer can help get folks within an organization to support standing firm, cow lower status opponents into backing down, and influence the verdict of a judge or jury.

For investment banking, a lot of that is about getting folks with deep pockets to open their wallets to back new ventures. The more it seems that important folks associated with a venture are high status, the more others may be willing to affiliate with that venture as customers, suppliers, investors, compliant regulators, etc. So there should be a big premium on having the key person who represents a venture to potential investors be high status.

I remember Bryan Caplan once suggesting that successful real estate agents tend to be the sort of people who were popular in high school, and that house buyers (especially women) prefer to affiliate with a locally popular person as they enter a new community. Investment banking could be similar, but on higher status scale.

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Status As Strength

By Robin Hanson · February 1, 2012 11:25 pm · Comments (16)

Yesterday I offered a theory of (some) management consulting:

Firms often have big obvious misallocations of resources, where … many highest status folks in the firm resist … changes. … If a prestigious outside consulting firm weighs in, that can turn the status tide. Coalitions can often successfully block a CEO initiative, and yet not resist the further support of a prestigious outside consultant. … Good-looking kids from our most prestigious schools … are the cheapest folks you can buy with our most prestigious affiliations.

What is status? One theory is that status is a commonly-seen summary of one’s value as an ally. In places where physical strength is more useful, strength counts more for status. In places where knowing the king is more useful, knowing the king counts more. And so on. But the consulting tale I tell above seems at odds with this theory.

Imagine that status in a firm was a proxy for one’s usefulness as an ally within that firm, summarizing the threats one could credibly make, the people one could fire, the favors one could plausibly call in, etc. And imagine that the current equilibrium was that opponents of change together held more of these useful resources – they successfully blocked change.

Now imagine that the CEO hires an outside consultant who writes a report recommending change. It should be clear to everyone that this outside firm has no direct power within the firm. It cannot fire anyone, go slow on a project, etc. So if status was just a proxy for relevant local abilities, then this consultant should have little status. Thus if a consultant actually does help the CEO by lending status to the CEO’s side, status must be something else.

So I’m led to consider a sticky-feature concept of status. Long ago coalition politics was important, and foragers had to estimate how useful each person would be if they joined a coalition. So our distant ancestors considered a standard set of features, such as strength, intelligence, charisma, etc., that tended then to indicate that someone would be a useful ally. Humans evolved specialized mental modules for making such estimates, and for estimating common perceptions of such estimates.

Today we have inherited such mental modules, and often use them to estimate which side will win a contest of coalitions. And even though relevant abilities have changed somewhat, our inherited expectations about who will win a coalition contest are somewhat self-reinforcing. For example, if we expect that coalitions of taller people tend to win, then we will be reluctant to cross such a coalition, which will tend to make them win. This can be a self-reinforcing focal equilibrium of the coordination game that is coalition politics.

If the features that define status are sticky, being somewhat locked into mental models that estimate which coalitions would win contests, then outside consultants with no formal power inside a firm could still tip the balance of status by siding with a CEO. Celebrities who know little about a product could make us more willing to buy it by endorsing it, and students could gain status via past affiliation with professors who have no power in their future work world.

If students gain status by graduating from prestigious schools, and if employers hire students for the status they add to a work coalition, is school productive? Well in this situation school is privately productive, both for the student and the employer. The employer isn’t inferring a hidden ability, but buying a visible feature. So this isn’t signaling exactly. But on the other hand, it isn’t obviously globally productive. The gain an employer gets from adding status to his coalition may well come at the expense of competing coalitions.

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Too Much Consulting?

By Robin Hanson · January 31, 2012 6:30 pm · Comments (70)

Last night I discussed the popularity of law, finance, and management consulting with Tyler and many somewhat-libertarian-leaning others. I was surprised that most were skeptical that firms get their money’s worth from consulting, more skeptical than for law or finance. I was also surprised that most focused on explaining why kids from elite schools work at such firms, rather than on why firms pay so much for this consulting.

To me, it is easy to understand why consulting firms attract so many elite students, given the wages, prestige, and job experience they offer. And it is also easy to see why firms might pay a ton for consulting, relative to law and finance – changing your basic business strategy can conceivably add enormous value, while minor changes to contract details and financing terms have limited value.

The puzzle is why firms pay huge sums to big name consulting firms, when their advice comes from kids fresh out of college, who spend only a few months studying an industry they previous knew nothing about. How could such quick-made advice from ignorant recent grads be worth millions? Why don’t firms just ask their own internal recent college grads?

Some say that consulting firms use their access to collect data on best practices, data that other firms are eager to pay for. But while this probably contributes, I find it hard to see as the main effect.

My guess is that most intellectuals underestimate just how dysfunctional most firms are. Firms often have big obvious misallocations of resources, where lots of folks in the firm know about the problems and workable solutions. The main issue is that many highest status folks in the firm resist such changes, as they correctly see that their status will be lowered if they embrace such solutions.

The CEO often understands what needs to be done, but does not have the resources to fight this blocking coalition. But if a prestigious outside consulting firm weighs in, that can turn the status tide. Coalitions can often successfully block a CEO initiative, and yet not resist the further support of a prestigious outside consultant.

To serve this function, management consulting firms need to have the strongest prestige money can buy. They also need to be able to quickly walk around a firm, hear the different arguments, and judge where the weight of reason lies. And they need to be relatively immune to accusations of bias – that their advice follows from interests, affiliations, or commitments.

All three of these functions seem to be achieved at a low cost by hiring good-looking kids from our most prestigious schools. These are the cheapest folks you can buy with our most prestigious affiliations, they are smart enough to judge where reason lies, and they have few prior affiliations to taint them with bias. They can not only “borrow your watch to tell you the time,” but can also cow you into submission in accepting that time.

Yes the information contained in consulting advice can be obtained elsewhere at a lower cost. Firms could hire most any smart independent folks, or set up a prediction market. But alas those sources don’t have the raw strength of status to cow opponents into submission, opponents who in practice can block changes no matter what a CEO declares.

So mine is a signaling and status story (surprise surprise). The weight of status often decides outcomes, no matter what the CEOs commands, and so CEOs often need to bring out status ringers, to cow opponents into submission.

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Why Hate Firms, Love Cities?

By Robin Hanson · January 16, 2012 9:10 pm · Comments (41)

Families, clubs, professions, industries, firms, cities, and states are all important units of economic organization. That is, we coordinate to some extent via all of these units, to achieve mutual ends. But firms and cities make an especially interesting comparison.

First, firms and cities are similar in many ways. They both vary greatly in size, and can be costly for long-time associates to leave. Both tend to be “selfish” in avoiding and excluding those who do not benefit other associates, and thus tend to favor rich folks. People can relate to both kinds of units as investors, suppliers, leaders, and customers.

Second, people tend to like cities more than firms. For example, many movies are love songs to particular cities, yet few movies have cities as villains. Many movies have firms as villains, but few have firms as heroes. Sporting teams tied to cities play in huge stadiums, while teams tied to firms play in local parks.

While people tend to dislike bigger firms more than small ones, cities tend to be bigger than firms, and the biggest cities tend to be the most celebrated. People tend to resent firms more when it is more costly to leave them, yet it tends to be harder to leave cities than firms. So why are cities loved so much more?

One theory is that we related to cities less directly. If a city doesn’t hire you, you can say particular firms wouldn’t hire you. If a city won’t sell you a dress cheap, it is particular firms that wouldn’t sell it. So cities can more easily escape blame. However, a similar argument would suggest that we love shopping malls more than stores, or TV channels more than TV shows. Yet these seem weak effects, if they exist at all.

Another theory is that we often see firms as illicit dominators. We see the employer-employee relation as a dominance-submission relation, because firms give employees orders. Of course customers often give orders to firms, such as to waiters and cab drivers. But perhaps the joy of sometimes dominating does not outweigh the pain of at other times submitting. (And why are landlords seen as dominators, with renters submissives?)

Now cities do often seem to take a dominance relation to their citizens, such as via police, teachers, and rule-bound officials. But people seem to resent this dominance less. Is this because the major is democratically elected? CEOs are also usually elected, its just via one stock one vote, instead of one person one vote. Do people love cities less where local officials aren’t elected? Do people love non-profit firms as much as cities? Color me again confused.

Added 4p: Andrew Gelman says many firms are actually very popular. Alas he doesn’t have comparable data on cities.

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Unspeakable Arrogance

By Robin Hanson · January 11, 2012 10:30 am · Comments (60)

Pretty much everyone thinks they are better than some of the people they meet. Not better on all possible features of course, but better on the features that matter most to them. But it seems to be arrogant to say “I often think that I am better than other folks I meet”, and especially so to say it about particular people. As in, “I am better than George.”

But for the purposes of this post, I’ll have to own up to this. I am in fact often disappointed by the people I meet. For me it is mostly about their intellectual curiosity and abilities in conversation. They either show little interest in fundamentally interesting things, or they show interest but seem incapable of effectively engaging such topics. C’est la vie.

Interestingly, my feelings often go beyond mere disappointment into full irritation – it bothers me to share a room, a department, a firm, a stage, etc. with them. Sometimes I am even angry. Yet such irritation makes a lot less sense that it would seem.

Consider how I would treat a dog, or a young child with similar intellectual capabilities. Abilities that are disappointing in someone with whom I’d share a stage could be quite impressive in a dog or a young child. I imagine I’d be quite happy to associate with such a dog or child, and hardly irritated at all by their lack of capacity. I could easily find activities that they and I would find mutually enjoyable. And I imagine that if I were a racist, classist, or sexist, surrounded by those who shared my racism, classism, or sexism, I could find ways to associate comfortably with my race, class, or gender inferiors, as long as it were clear to all that they were my inferiors.

I’m led to conclude that it I’m not so much irritated by the low abilities of associates, as by rivalry and how my associating with them will reflect on me. If they don’t share my low opinion of them, I’ll have to either hide my opinion, or to create a conflict by expressing it. And even if they do share my opinion of our relative abilities, others might see me as arrogant to visibly acknowledge it. Since there are lots of ways to lose and few ways to win this game, I’d rather not play.

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Low Status Workers Are NOT More “Exploited”

By Robin Hanson · December 30, 2011 5:10 pm · Comments (74)

Russ Roberts once told me that when he lived in Asia he felt reluctant to hire a maid, even though they were very cheap there, and well worth the price. This makes sense to me — I suspect he felt that people would blame him for the poverty of his maid, even if he paid above market wages. It is sad that such feelings discourage beneficial trades.

I recently noted that we mainly limit work hours for low status workers, leaving doctors, lawyers, managers, financiers, artists, writers, athletes, academics, and software engineers to work crazy hours. Responses reminded me of how eager folks are to blame non-poor associates of the poor. Many said that only low status workers need protecting from employer “exploitation”: Continue reading "Low Status Workers Are NOT More “Exploited”" »

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Buying Affiliation

By Robin Hanson · November 17, 2011 11:00 am · Comments (9)

We care about the origins of art. Comparing two physically identical artworks, we pay more for an original than a duplicate, and not because we think originals have better quality, rarity, resources, or effort. Instead it seems we pay for a more direct physical connection to the artist:

Duplicate artworks are judged to be less valuable than duplicate artifacts. We observed this effect even when both the original artwork and the original artifact were one of a kind and were equivalent in value. Experiment 2 helped to further rule out the potentially confounding inferences based on the relative quality of a duplicate artwork versus a duplicate artifact, as well as on the belief that duplicate artifacts are simply more common than duplicate artworks. Finally, the results of Experiment 3 address the alternative explanation that original artworks are valued because they are perceived as requiring more effort and resources to produce. …

The [importance of] degree of physical contact with the original artist (contagion). … was supported in Experiment 1 and more directly in Experiment 5, where artworks made with a hands-on process were judged to be more valuable than those made with a hands-off process. In addition, contagion had a larger impact for artworks than for artifacts. Support for uniqueness of performance as an important dimension came primarily from Experiment 4, where the act of intentionally duplicating a painting (as opposed to accidentally making a similar looking painting) had a twofold impact on judgments of value in driving down the value of a duplicate, while driving up the value of the original. …

[The idea] that people value original artworks solely because they observe that other people value originals more than duplicates—cannot be entirely correct. … Previous research has documented how … mere proximity between two items in a shopping cart or on a table may be sufficient to trigger inferences about contamination, which can raise or lower value. … Similarly, everyday artifacts can gain value through contact with certain special individuals, such as celebrities. Finally, assessments of a performance as effortful or unique may apply to wide array of objects and events, such as evaluations of sports or scholastic achievement. (more)

This lends some support to the suggestion that customers of academia, such as students, funders, and readers, pay in part for a more direct affiliation with certified-as-impressive academics.

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Political Puzzles

By Robin Hanson · November 12, 2011 2:30 pm · Comments (19)

Some puzzling political phenomena I’ve pondered lately:

  1. We trust government more when we feel vulnerable to it, and then avoid info that might undermine such trust.
  2. We don’t elect actors and other celebrities, who we seem to trust, respect, like, know, etc. more than the politicians we elect.
  3. We think we’d be horrified live under a king, but quite enjoy stories set in such places.
  4. We over-estimate leader autonomy, neglecting their need to serve supporting coalitions.

We love to look down on submissive sheep who accept domination by the powerful. And we think of ourselves as quite different, eager to control our leaders via democracy, and to keep them from becoming kings. Some of our actions even fit well with this story. But many other actions fit badly.

I hypothesize that much of this hails from our homo hypocritus heritage. Humans developed language to express and enforce social norms, most importantly to limit domination and related supporting behavior, such as bragging. But then foragers quickly learned to dominate and submit covertly, just out of reach of language-based norm enforcement. So we should expect to have many complex, subtle, and mostly unconscious capacities to dominate and submit, while pretending otherwise.

Thus we should expect to see people giving lip service to resisting domination, while largely accepting it when resistance is costly. We should be prone to telling ourselves that our dominators serve our interests well, when in fact we are just scared of being beaten down. We tell ourselves that our leaders’ power is solid, even when we notice cracks, to avoid appearing disloyal. And we tell ourselves that we want likable leaders, when we are actually more impressed by strength. Homo hypocritus cowers in a corner, pretending to examine a spot on the ground.

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Accepted Inequality

By Robin Hanson · November 11, 2011 8:40 am · Comments (29)

David Brooks reviews socially acceptable vs. unacceptable ways to display one’s superiority. Some accepted forms:

Academic inequality is socially acceptable. It is perfectly fine to demonstrate that you are in the academic top 1 percent by wearing a Princeton, Harvard or Stanford sweatshirt. …

Fitness inequality is acceptable. It is perfectly fine to wear tight workout sweats to show the world that pilates have given you buns of steel. These sorts of displays are welcomed as evidence of your commendable self-discipline and reproductive merit. …

Sports inequality is acceptable. It is normal to wear a Yankees jersey, an L.S.U. T-shirt or the emblem of any big budget team. The fact that your favorite sports franchise regularly grounds opponents into dust is a signal of your overall prowess. …

Technological inequality is acceptable. If you are the sort of person who understands the latest hardware and software advances, who knows the latest apps, it is acceptable to lord your superior connoisseurship over the aged relics who do not understand these things. (more; HT Tyler)

A world that disapproves of most all superiority displays could be one with a distaste for overt inequality, and sympathy for the less fortunate. In contrast, a world that disapproves of only some superiority displays while relishing others looks more like a world where folks with some types of excellence have won a battle to be seen as higher status than folks with other types of excellence.

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Status Drives Poverty?

By Robin Hanson · November 3, 2011 2:00 pm · Comments (24)

A book on poor single moms, discussing why moms break up with guys:

Conflicts over money do not usually erupt simply because the man cannot find a job or because he doesn’t earn as much as someone with better skills or education.  Money usually becomes an issue because he seems unwilling to keep at a job for any length of time, usually because of issues related to respect.  Some of the jobs he can get don’t pay enough to give him the self-respect he feels he needs, and others require him to get along with unpleasant customers and coworkers, and to maintain a submissive attitude toward the boss. (more; HT Bryan)

I suspect much of what makes some cultures more successful than others is how they help folks to avoid seeing unpleasant interactions as direct challenges to their status.

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