Navigate Life With Economic Cheat Codes

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• Behavioral economics offers practical "cheat codes" for handling life's biggest decisions.
• Successful negotiation hinges on understanding power dynamics and information asymmetry.
• Innovative solutions to the housing crisis involve zoning reform and land value taxes.

When we talk about economics, most of us tend to think about dry academic theories, complex financial models, and the daunting world of high finance. We might consider the stock market or interest rates, but we rarely connect these concepts to our daily lives. This perception often obscures the true power of economics: its ability to illuminate our everyday choices. As Daryl Fairweather, Chief Economist at Redfin, explains, "It was showing how this discipline, economics could be used to understand why people make the decisions that they do and why sometimes you get unexpected outcomes from well-intentioned interventions.”

Daryl’s path to becoming a leading economist wasn’t straightforward. She was initially pursuing a career in engineering, but a summer reading assignment from her father—“Freakonomics"—ignited a passion that would reshape her trajectory. Now, she analyzes the US housing market and serves on the Advisory Council of the Federal Reserve Bank of Dallas. In “Hate the Game: Economic Cheat Codes for Life, Love, and Work", she demystifies the world of economics, offering practical "cheat codes" for handling life's biggest decisions.

From career choices and salary negotiations to understanding the housing market, Daryl shares tips on applying economic principles while decision-making. "If you empower yourself with economics," she advises, "these big decisions will hopefully feel less scary and more doable." This article distills some of her most insightful guidance, providing a roadmap for unlocking your economic potential.

Approaching your career with a winning strategy

Daryl recommends approaching career decisions with the strategic mindset of a seasoned chess player. This involves detaching from emotions and objectively assessing the probabilities of success in different fields, much like calculating the odds of a successful gambit. Daryl uses her career as a compelling example. Despite the underrepresentation of women and Black individuals in economics, especially within the hallowed halls of academia, she boldly pursued this field.

While acknowledging the inherent difficulties, she highlights the power of intrinsic motivation. "If you're okay with failing at it because there are other intrinsic motivators," Daryl explains, "that means that failure really isn't all that bad." This perspective reframes "failure" not as a definitive endpoint but as a valuable learning experience within a larger career journey.

Beyond assessing the odds, Daryl introduces the crucial concept of "optionality" in career planning. This forward-thinking approach goes beyond the immediate allure of a job title or salary, prompting individuals to consider each opportunity's potential future pathways. She explains, "Students ask me, ‘Should I take job A or job B? And I always say, ‘Well, think about what options a particular path closes down and what options it opens up.’"

Evaluating optionality isn't about avoiding risk; it's about strategically managing it. It allows for a more dynamic and adaptable approach to career progression, where each decision is viewed not in isolation but as part of a larger, evolving game plan. A job that might seem like a step down in the short term could unlock significant opportunities further down the line. Conversely, a seemingly prestigious role might limit future options, trapping you in a specific, potentially less fulfilling trajectory.

By prioritizing optionality, individuals empower themselves to make more informed choices that align with their long-term aspirations, even if they evolve. It's about playing the long game, strategically positioning yourself for a winning career, regardless of the immediate hand you're dealt.

Mastering the art of negotiation

A key element of Daryl's approach to negotiations centers around "anchoring" — a behavioral economics principle that highlights the significant influence of the first piece of information on subsequent judgments and decisions.

Daryl recounts her experience negotiating her salary at Redfin. Rather than answering the typical "What do you currently make?" question, which often anchors the negotiation at a lower point, she flipped the script. She boldly stated her desired minimum salary upfront, effectively setting a high anchor and shifting the power dynamic. "I said, 'I’m gonna tell you what I want to make. What is the minimum for me to even take this interview? Like, if you're not gonna give me this number, then don't bother,'" she recalls. While potentially risky, this tactic can pay off significantly as it frames the negotiation around your desired outcome.

Daryl also emphasizes the importance of recognizing and leveraging "information asymmetry"—the knowledge imbalance between parties in a negotiation. She illustrates this concept with a captivating anecdote about Beyoncé and Destiny's Child. Feeling undervalued, two original members of the group issued an ultimatum: either Beyoncé’s father (and manager) steps down, or they leave. They miscalculated. They didn't realize that Beyoncé's father prioritized her solo success above all else. "Beyonce's dad really only cared about making Beyonce successful," Daryl explains. The other members were replaceable; Beyoncé was not. The ultimatum backfired, highlighting a crucial lesson in negotiation: Understanding the other party’s motivations and priorities is essential for achieving a favorable outcome.

Daryl stresses the importance of observing how other employees are treated within an organization to gauge your value and replaceability. If others in similar roles are consistently treated better, it might indicate they are perceived as less replaceable. Conversely, being treated poorly could signal that you’re viewed as easily replaceable—crucial information when entering any negotiation. By understanding these subtle power dynamics, individuals can approach negotiations with valuable insights, increasing their chances of success. This awareness also empowers individuals to recognize when a situation is truly disadvantageous and to explore alternative options.

Cracking the housing code

Daryl’s expertise as Chief Economist at Redfin provides a sharp lens through which to examine the housing market. In “Hate the Game”, she doesn't hesitate to propose bold, even radical, solutions to the affordability crisis. Central to her argument is eliminating single-family zoning, a policy that artificially constricts housing supply, especially in desirable urban centers. Allowing diverse housing options like duplexes and multi-family units on land currently reserved for single-family homes would significantly increase housing density and, consequently, affordability. Daryl underscores the pressing need for more housing, citing Freddie Mac's stark assessment: "We have a housing deficit of about 4 million homes… So we need all the homes built that we can get.”

Daryl champions a fundamental shift in property taxation. She advocates for replacing traditional property taxes, which penalize development, with land value taxes. This innovative approach assesses taxes based solely on the value of the land, independent of any structures built on it. Such a system, she argues, encourages denser, more efficient land use and generates increased tax revenue without the market distortions of current property tax structures.

Daryl highlights California as a cautionary tale. The state’s current property tax system, which limits increases in assessed land value, creates a perverse incentive for homeowners to remain in their homes, even when downsizing or moving would be more practical. This contributes to stagnant housing supply and inflated prices. “California's taxes are especially bad because they limit how much the land value can be taxed,” she explains, linking this directly to the state's housing woes.

By addressing both supply-side constraints (through zoning reform) and demand-side distortions (through land value taxes), Daryl offers a comprehensive approach to tackling the housing crisis. Her insights challenge conventional wisdom and provide a fresh perspective on how to create a more equitable and accessible housing market. While potentially disruptive, her proposals offer a compelling vision for a future where housing is not a luxury but a fundamental right.

Level up your decision-making

By applying the principles of behavioral economics, you can approach career choices, negotiations, and even the housing market with greater clarity and confidence. From understanding the power of optionality to mastering the art of anchoring, these powerful concepts empower you to make smarter choices and unlock your full potential.

It's time to stop playing by the old rules and start rewriting the game in your favor.

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This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up for our Newsletter or subscribe on your preferred podcast platform so that you don't miss out on future episodes.