Managing Future Income Risk.

Unfortunately, coming out of high school I was extremely naive.  I was more inclined to focus my attention towards recreational activities, friends, and the excitement that I was finished with my high school years and was now moving towards another important chapter in my life, college.  I made the mistake of not realizing the impact my choices were going to have on my future career, during my college years.  However it may seem, I began to accumulate more self awareness to this matter as my college years progressed, and in time, many of my choices transformed towards ones I felt yielded benevolent consequences for managing the risk of my future income.

Both my parents had not finished college and I am the oldest child, but nonetheless, my father harped consistently that my choices during these years of my life would hold more weight than any decision I have made to this point.  My father was a huge reason that my choices began to change for the better.  He emphasized constantly how sometimes I must do what I have to do, regardless of whether I really want to do it or not, in order to secure the comfort of my future.  Because of this, I decided to pick up another major.  I felt this choice would, hopefully, make myself more marketable come the time I was in search of my future career path.  My father himself tried to assist me in managing my future income risk by paying for my education.  This way I would hold no debt after graduation.

As I began to mature through my years here at the University of Illinois, I began to appreciate the actions of my father. I learned hard he had to work to do what he did for me, and because of this felt that it was now time to mature, and focus more of my decisions towards the perceived outcome of my future.  As a result, I began to get more involved in school and other activities around campus.  I became indulged in anything that would buffer my resume, and increase the skills needed to push my level of human capital  farther than those around me.  I felt these actions would facilitate myself in finding a more suitable and lucrative career.

As I mentioned previously, many of my actions were not geared towards future income risk.  During my early educational career, here at the University of Illinois, I made a majority of my academic choices solely because they seemed more reasonable at the current time..  The most glaring example of my carelessness, was my choice for my major.  I have always loved to lift and be active, because of this I first thought I wanted to pursue Kinesiology as my major.  I loved the idea, and knew that I would be more motivated to push myself in this subject matter than in any other curriculum offered here on campus.  That alone would have been an action towards alleviating future income risk, because my drive towards that subject would have spurred me to do better throughout every facet of college.  In spite of all this, I chose Psychology as my first major, simply, for what I feel now were silly reasons, because I was strongly against some of the pre-requisites of Kinesiology.  As a result, I felt Psychology was a better fit, and chose to roll with that as my first major.

Deep down I knew I wanted my future to be in Kinesiology, but at that point in time I selected my major, I wasn't exactly sure what I really wanted.  Because of this, I made a poor decision that I see now inflicting a negative impact on my future career.  In order to soften the blow, I chose to pick up a second major in Economics.  I was more interested in Economics than I was Psychology.  Economics seemed more useful to me and my future career choices.  For once I made the right choice towards managing future income risk.  At this point in my life, my interest towards performing well in college was first in foremost, since I knew that this major was my second chance to ensure a better income for my future.  I knew this choice would make me better off for years to come.  Unfortunately during my teenage years I was among the immature demographic that was too naive to understand the implication of managing future income risk.  I was more focused on making present choices just because they seemed to be good choices at the time.  Luckily, I realized the importance of managing future risk, and from then on out, all options.

Opportunistic Behavior

I feel opportunistic behavior is an issue that is strongly embedded in our human understanding of ethics.  Whether it may be one's understanding of universal ethics, values that become apparent across many cultures, or local, cultural teachings of proper individualistic moral behavior, every facet of our world, in regards to ethics, becomes a major factor in determining whether one exerts opportunistic behavior or not.  This type of behavior is characterized by an individual's desire to take advantage of a set of circumstances in order to further his or her self interests.  This can happen when  a particular party takes advantage of their superior knowledge regarding a particular situation, or simply just takes advantage of their situation in general, such as times when they may be in possession of a desired good with a very limited supply.  Basically, Every instance where one chooses to behave opportunistically, taking advantage of their situation, they most definitely undermine the opposing party that is effected by the same occurrence.  More times than not, acting opportunistically will favor one party, and leave the other party with no benefit at all.

From my point of view, I fortunately do not remember any circumstance where I acted opportunistically at the expense of another.  However, there is a recent occasion I can recall about my previous roommate that appropriately displays an example of opportunistic behavior.

Two of my friends, my previous roommate and fraternity brother, were looking to do undergraduate research work for the university in an attempt to buffer their resumes to increase their chances of getting accepted to the desired medical schools of their choosing.  Both were excellent students and had fantastic standing with the university.  Both participated in different clubs outside the fraternity and engaged in community experiences through different forms of volunteer work.  Because of this, they were each other's prime competitor when a certain research position opened at Beckmann.

My roommate's discrepancy with my fraternity brother was that he was a year older, and therefore his need for the position was greater.  He felt my fraternity brother could just apply for the position again next year or find a different one.  He insisted that it was out of place for my fraternity brother to compete with him for the position since he already had gotten him into a previous lab through his own personal recommendation.  He felt that my fraternity brother's attempt to obtain the same job was a metaphorical slap in the face.  My roommate had an advantage though.  The position he was applying for was in the same lab, ran by the same people he had worked with in his earlier undergraduate years.  Because of this, he was made aware of certain, implicit preparation required for the interview. This undoubtedly would set him apart from all other applicants, including my fraternity brother.

Now my roommate and fraternity brother were both friends, and they often assisted each other in classes, as well as other facets of the pre-med curriculum.  However, in this particular instance, my roommate chose to withhold the information, allowing only himself better interview preparation.  In the end, my roommate stood out amongst the rest, and obtained the job as the research assistant.

Now some of the information may be a little skewed, since this is an event I am recalling from a conversation I had with my roommate on the subject.  His knowledge of the interview before hand allowed him to act opportunistically in order to place himself in a more advantageous position for obtaining the job.  I like to consider my former roommate an ethical individual, so I am not sure as to why he chose to place my fraternity brother at a disadvantage by withholding the information he received.  He could have shared the information, allowing both of them to act opportunistically, or ignored the information all together, and instead, place himself on the same playing field as everyone else.  

I feel he chose to pursue his own self-interests, because he ignored human ethics at the time.  Opportunistic behavior, such as this, seems to becoming evermore prevalent in society today, especially from my own experience in the United States.  I feel a major part is the present emphasis that everyone is capable of achieving great feats, and from an overall sense of individualism that is becoming more and more socially emphasized.  Because of this, a majority of actions are not based on ethics anymore,  and this in turn is becoming a social epidemic.  I feel my roommate acted opportunistically because of reasons such as this, and his actions paralleled what many others would have done given the same situation.

Organizational Experiences and Transaction Costs.

As a young adult, a majority of my own experience in regards to organizational structure comes more from a consumer standpoint, a bit of an outsider's perspective.  However, I have had the opportunity to be apart of a Registered Student Organization's here on campus, and have worked in fields with strict hierarchal organization structures that have blessed me with a basic insight of how organizations may function in pertinence to our daily lives.

Very early in this fragile life, I became very passionate towards any means of physical activity, specifically the sport of football.  Do not be confused however, the sport of football I speak of is the one that many of us Americans refer to as soccer.  As my childhood trudged on, I became evermore intrinsically motivated to participate in daily physical exertions, and even more so in activities that bolstered my skill in the particular sport.  My enthusiasm for football perpetuated into my late teenage years, but due to unfortunate circumstances, it abruptly came to a halt by the time I left for college.

Unfortunately my future in the beautiful game of football had become disrupted by a nasty knee injury.  The nature of the injury briefly brought my physical world to an end. Since I hade become very active early on, I refused to become stagnant in my daily lifestyle.  This refusal ignited a new flame of passion in my being, which now was directed toward the sport of weightlifting.  Unlike football, weightlifting was a sport comprised more of unidirectional movements.  These style of movements alleviated the stress that had since been persistently placed on my knee from a young age.  Considering that my knee was no longer strong against the bidirectional, lateral, and turning movements most often associated with playing football, this new passion fostered a new sense of security and confidence that had been viciously taken from me at the end of high school.

Eventually my new enthusiasm directed me towards the interest of the bodybuilding and powerlifting club here on campus.  It was a student run organization, containing a president and vice president.  The structure was fairly loose, and information was exchanged through the social medium Facebook.  The organization was not multi-dimensional by any means, with the president and vice president having a say in a majority of the organization's matters.   Mostly, the president was more in charge of organizing the group and policing the information that was being exchanged between members.  It was frowned upon to abuse the medium to relay false information, but from time to time certain members would violate this precedent, and it became the responsibility of the president and vice president to handle these matters appropriately.

At first the two clubs, powerlifting and bodybuilding, were separate, but after my sophomore year here at school the two became one.  The structure was still similar, with a very close friend of mine, who had now became the new president, supervising the members from what was originally two different clubs.  With the RSO becoming larger than it had been in previous years, more responsibility had to be allocated to different individuals.  Eventually a small hierarchy was born where the president had elected two individuals, each separately responsible for either the powerlifters or the bodybuilders.  At first glance the two sports may seem strikingly similar, and many may feel as treating the two as separate entities is a little unreasonable.  However I assure you, the worlds or powerlifting and bodybuilding are as separate as peanut butter and jelly, yet they do compliment each other well, much like the two aforementioned sandwich products.  But their differences necessitate a need to create two positions, one for each, that can answer and relay information to the president of the club.  Similar to how many professional organizations may run different departments that are under their supervision.  These two people in charge were deemed the vice presidents of the weightlifting club.

These two vice presidents were not enough however.  Like we discussed in class there were members of the organization, one familiar with the bodybuilding members, and the other familiar with the powerlifting members, who were in charge of speaking to each individual of the club and collecting their opinions and suggestions.  These people were known as the "whips."  This information was then to be transferred to the vice presidents, which was then to be relayed to the president.  This information exchange had a residual nature, and this was necessary to keep the club running efficiently, as well as to assure that every member was satisfied with the RSO's actions as a whole.

The concept of transaction costs seemingly became more applicable to this particular RSO as it continued to grow.  What started out as a loosely organized club, fitted for all fitness enthusiasts alike, quickly became a well-managed student organization.  Accompanying the organization's maturity came an expansion of new activities that were included in the club's operations.  In time the president sought to include annual meets, competitions where individuals could test their strength against one another, provide seminars with valuable information regarding the sport of bodybuilding or powerlifting, and provide new and more advanced equipment geared towards enhancing members' progress in the weight room.

With the new activities came equipment purchases, providing lecturers, and establishing meet registration payments.  All of these involved many facets of transaction costs.  First, the leaders of the organization had to find time to search for appropriate people to conduct the seminar.  Furthermore, compensation agreements had to be made between the RSO and the individual facilitating our knowledge of the sports. Also, finding the right equipment took time, and most of the time cheaper and more useful equipment could be found with longer search attempts.  These are only but a few of the transaction costs that the organization now incurred on a daily, weekly, or monthly basis.  The once simple club was now blossoming into a mature, functioning organization.

Daniel Kahneman Introduction

  Daniel Kahneman is an Israeli-American Psychologist, and winner of the 2002 Nobel Memorial Prize in Economic Sciences.  He is most notable for his work in the psychology of judgment and decision-making, behavioral psychology, and hedonic psychology.  Daniel is a well-rounded, multi-faceted individual, with major influences in both his respective Psychological and Economic fields.  His original vocation was in Psychology, and later he established his foothold in economics following his collaboration with renowned cognitive and mathematical psychologist, Amos Tversky.  Daniel Kahneman was born in Tel Aviv, in what is now Israel in 1934, while his mother was visiting her extended family.  His parents were both Lithuanian Jews, whose permanent home became France after they immigrated there in the early 1920's.  Kahneman's parents were both very intelligent and held  substantial wealth.  His father was even the Chief of research in a large chemical factory.  Daniel was a very introverted individual in his early years, and drew his first graph in 1941.  The graph summarized his family's wealth over the passage of time.  Modest work for a future influential mind of our generation.  The vast wealth and security that he and his family enjoyed during his youth were quickly usurped by the German Nazi regime during World War Two, because of their Jewish stature.  During his youth he had a close encounter with a German SS officer that would further influence his passion for psychology.  During the Nazi occupation of France all Jews were required to bear the Star of David on their persons, and they were also subjugated to a 6 P.M. curfew everyday where they were to remain in their households.  One day however, Daniel was playing with a local Christian friend, and happened to forget about the curfew.  He turned his sweater, bearing his Jewish mark, inside out in an attempt to elude consequential action, and walked his friend home.  Upon his journey home he came across an SS officer of the Nazi army.  At this point he was certain that he would face the harsh punishment for violating curfew, and when the officer beckoned him over, he began to fear for his very life.  But, instead of inflicting punishment, for which Daniel had assumed, the officer greeted him with a smile, showed him a picture of a boy, and gave him a huge hug, sending him back on his way with a little money to use for food.  It was at this moment that Daniel understood many of the things his mother talked about regarding people, and that most individuals hold a much higher complexity than what most people believe upon first impressions.  Although Daniel did not understand this at the time, this occurrence would have a huge impact on his decision to pursue Psychology as his original field of study.  After World War Two, and the liberation of France from the German stranglehold, Daniel and his family ascertained their freedom once again.  Some time after this, during his adolescent years, he went off to the Hebrew University in Jerusalem where he, in two years, obtained a major in Psychology and a minor in Mathematics.  From here he spent some brief time in the military, and then went on to become an undergrad professor.  It was in his beginnings as an undergraduate professor that laid the foundation for a program of research on judgment under uncertainty.  Daniel Kahneman's main contributions to the economic world came in the mid-1970's when he began collaborating with Amos Tversky on why we make wrong decisions.  In their 1979 paper on prospect theory, Kahneman and Tversky examined a simple problem of economic risk, and through this, quantified how most people, consistently, make a less rational choice.  His work was important because it did not treat economics as a self-correcting machine, like most economists do, but instead as a system prey to the fallacies of human perception.  His work also led to the birth of behavioral economics.  Kahneman and Tversky were awarded the Nobel Memorial Prize in 2002 for their work on economic decision-making.  Unfortunately I did not know who this man was before I enrolled in Professor Arvan's Econ 490 course.  I wish I would have been aware of such an esteemed individual, for his work could have had a major impact on my own decision making at different crossroads of my life.  His work is important for the economic 490 platforms solely due to the main focus on decision-making.  Decision-making is without a doubt a major aspect of economics, and can easily facilitate understanding of the different topics that will be discussed in the economics of organizations.  Largely it will provide a guide as to why certain choices made in different economic situations provide more benefits than others, and why certain choices are more costly.  Through this learning, we the students will be able to apply this knowledge to our own economic decision making in our daily lives.

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