Hate the Game? How to Navigate Life's Economic Challenges ft. Daryl Fairweather

[00:00:06] Daryl

I think people can get wrapped up in just that piece of it. Like, this is going to be embarrassing. I might fail. Am I prepared? And I think zooming out on the entire game and seeing the whole system and understanding this is like a necessary step to get to the next step can make it feel less daunting. At least that’s how it feels for me.

Like if I understand that it’s just a game and I’m just going to play these moves, then it’s a lot more straightforward than getting all the emotions tied up into it. And it makes me a little bit less afraid of making those big decisions. So, that’s what I would impress upon people, is that if you empower yourself with economics, these big decisions will hopefully feel less scary and more doable.

[00:00:51] Intro

Imagine spending an hour with the world’s greatest traders. Imagine learning from their experiences, their successes and their failures. Imagine no more. Welcome to Top Traders Unplugged, the place where you can learn from the best hedge fund managers in the world so you can take your manager due diligence or investment career to the next level.

Before we begin today’s conversation, remember to keep two things in mind. All the discussion we’ll have about investment performance is about the past, and past performance does not guarantee or even infer anything about future performance. Also understand that there’s a significant risk of financial loss with all investment strategies and you need to request and understand the specific risks from the investment manager about their products before you make investment decisions. Here’s your host, veteran hedge fund manager Neils Kaastrup-Larsen.

[00:01:47] Niels

For me, the best part of my podcasting journey has been the opportunity to speak to a huge range of extraordinary people from all around the world. In this series, I have invited one of them, namely Kevin Coldiron, to host a series of in-depth conversations to help uncover and explain new ideas to make you a better investor.

In the series, Kevin will be speaking to authors of new books and research papers to better understand the global economy and the dynamics that shape it so that we can all successfully navigate the challenges within it. And with that, please welcome Kevin Coldiron.

[00:02:24] Kevin

Ok, thanks Niels and welcome everyone. Today we’re going to talk about how to use the lessons from behavioral economics to answer our personal economic questions. Should I ask for a promotion? What salary do I deserve? Should I switch jobs? And how much personal information should I reveal to my employer?

The guest who’s going to guide us in this discussion is Daryl Fairweather. She’s the Chief Economist at Redfin, where she analyzes the US Housing market. She’s also a member of the Advisory Council of the Federal Reserve Bank of Dallas. She has a PhD in economics from the University of Chicago and she’s author of a brand new book just released last week called Hate the Game: Economic Cheat Codes for Life, Love and Work. Daryl, thanks so much for joining us and welcome to the show.

[00:03:17] Daryl

Thank you so much for having me.

[00:03:19] Kevin

Okay, so it sounds like your original plan was to be an engineer, and you were headed to MIT for a summer program just before you started there in the fall as an undergraduate. And your dad hands you a copy of Freakonomics, the book Freakonomics, and he says, hey, you should read this. The guy who wrote it also went to MIT.

For those of you who haven’t heard of the book Freakonomics, it was kind of a sensation when it came out in 2005 and showed how to use the ideas and thought process behind behavioral economics to kind of answer all these unusual questions. So, you say you got on the flight, you read the book, and by the time you landed in Boston, you were sure you were going to be an economist. What was it about that book and the ideas that had such a profound impact on you?

[00:04:08] Daryl

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. And I found that so fascinating. I feel like from a young age I’ve always been interested in human behavior, also animal behavior, but I never really found a satisfactory explanation for why people act the way they do until I discovered economics.

Which is funny because before I read Freakonomics, I thought economics was really just about prices or the stock market. That’s how it had been introduced to me the brief time that I studied it in high school. But it wasn’t until I read Freakonomics that I saw how broad it was and really how universal the applications can be.

[00:05:00] Kevin

And that’s kind of what it feels like in your book. You’re taking the ideas and you’re applying them to the framework to everyday decisions. I want to get into that. But before we do that, I was kind of curious. As I was reading the book, a theme kept reemerging to me and it was, hey, you really need to put yourself in the other person’s shoes. You need to take other people’s perspectives if you want to make optimal decisions.

And that reappeared in multiple chapters, and I was curious, was that a conscious decision when you wrote the book, or is it something that just kind of like falls out of game theory and behavioral economics?

[00:05:51] Daryl

I think it falls out of game theory and behavioral economics. In grad school, when I learned about all the different behavioral biases that can crop up when people make decisions, the reoccurring theme that I saw was that people have a really hard time once they get attached to an idea or a product or whatever it may be. And one way to break free of that is to step outside yourself and see a situation from an outside perspective.

So, that comes up in behavioral economics. And then, in game theory, it comes up, because when you’re playing a game against somebody, whether it’s a negotiation game or any other kind of game, if you want to know what the right move is for you, you have to anticipate what other moves the other players are going to make, what decisions the other players are going to make. This requires seeing it from the other person’s perspective, understanding what their motivation is, what their objectives are. Once you know that, then you can anticipate what they’re going to do, and then you can make a decision that takes that in, that incorporates that to get to the optimal solution.

[00:06:56] Kevin

So, it wasn’t like you sort of set out and said, okay, I want to make sure this theme shows up. It was, as you were writing about these different types of decisions and applying the ideas, that just kept reoccurring.

[00:07:09] Daryl

I think a theme that I purposefully put in there was the idea of detaching. I think empathy is there too. Seeing things from other people’s perspective comes up a lot. So, yeah, I think it was a little bit of both. It fell out of the theory, but then it’s a useful literary device as well.

[00:07:28] Kevin

Gotcha. Okay, so, the second chapter of the book is called Choosing Games, and it’s thinking about situations that you are likely to have success in. And you say, hey, you need to study the probabilities. Who succeeds in this, who doesn’t, and how does this relate to me? And you also say, you know, don’t expect the rules of the game to change because typically only the winners, the people in charge who have the power to change it, and they’re unlikely to do so because they benefited from the system as it is. And that’s all very rational.

Yet at the same time, you chose to go into a profession that the probabilities suggested might not be in your favor. Only 14%, I think you say, of economics professors are women. Only 4% are black. At the University of Chicago, where you went, women failed first year exams at a much higher rate than men.

So that, I guess, on the surface at least, seems to be a game that was stacked against you, yet you chose to pursue it anyway. So, I was curious, why? How does that fit into your kind of framework of thinking about probabilities?

[00:08:41] Daryl

Well, when deciding to go to graduate school, there were benefits to that, beyond whether or not I would be a successful professor, an esteemed professor or not one day. Having a PhD. in economics is very useful on the private job market. And also, just the lessons of economics, as I demonstrate in this book, are incredibly useful for everyday people.

So, I don’t regret pursuing that academic route. But I did come up to a point where I had to come to terms with how unlikely it was that I was going to be a top professor. And, you know, there were reasons for that beyond just my race and gender, but my race and gender I don’t think would have made it any easier.

So, yeah, I think you just have to have both perspectives in mind. And there are different reasons to go to graduate school or to get a job or pursue any kind of goal. And I think if you’re okay with failing at it because there are other intrinsic motivators then that means that failure really isn’t all that bad.

[00:09:43] Kevin

Gotcha.

You know, when you’re thinking about, you know, choosing a game, as you say, and you know, assessing the probabilities, where does sort of optionality fit into your framework? You know, 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. Does that fit into your decision making framework at all?

[00:10:13] Daryl

Yes, it does.

Like with graduate school, you know, even if I didn’t pursue being a professor, there are all these other options that I could pursue in the private sector. So, that made pursuing the academic route less risky. But at the same time, I think there are certain situations where people keep their options too wide open as a way to avoid making a decision.

I remember when I quit my consulting job, my dad was telling me that I should give two months notice so that I leave on good terms so I would have the option to come back. And I just remember thinking like, there’s no way I’m coming back. Like, why would I try to keep that option open? I think some people err too much on the side of keeping their options open when really they probably aren’t going to be looking back.

[00:10:57] Kevin

Right.

You have a chapter on Information as an Advantage, and you kind of work into the chapter through the example of Beyonce and her band, Destiny’s Child. And I was wondering if you would just kind of explain that situation in terms of there was, I think, four original members, and the band was managed by Beyonce’s father, and two of them sort of felt that they weren’t being treated properly, and kind of how that kind of ended up and how it relates to this notion of information asymmetry.

[00:11:36] Daryl

Yes. For all the listeners who don’t know the lore of Beyonce and Destiny’s Child. So, what happened was, I think it was around 2000, Beyonce and Destiny’s Child, they just put out an album. It was a hot album, but they weren’t really established in the music industry yet.

You know, they could have disappeared as one hit wonders at that point, but they were on the precipice of having a lot of success. And two of the members, Latavia and Latoya, were unhappy with Beyonce getting preferential treatment. She was, you know, put in front as the lead singer, getting all the press opportunities, and they felt that all the band members should be getting those kinds of opportunities, not just Beyonce, but the band was managed by her father.

So, they came to the rest of the group and said, you know, it’s either us or the manager, Beyonce’s father, thinking that if they threatened at this really important juncture, they would have to back down in this ultimatum. But what they misunderstood, or the information they didn’t see, was that Beyonce’s dad really only cared about making Beyonce successful. They didn’t understand that they, as essentially backup singers, were interchangeable.

So, their ultimatum failed. Beyonce and Kelly, the other member, chose to stay with Beyonce’s dad as their manager, and they got two new members, and they went on to be really successful. So, I think they overplayed their hand, those other members, Latavia and Latoya at that point, because they
didn’t understand what Mathew, and Beyonce, and the other members were really after as their goal.

[00:13:12] Kevin

Yeah, I was thinking about that, and I was like, so if you’re in a situation, say, at your work, and your boss is treating you less well than you think, how do you tell if you’re Latoya or Latavia or he’s just a jerk? You know what I mean? Like, how do you assess that information asymmetry?

[00:13:34] Daryl

Well, I think you can see how other employees are being treated relative to you. Like if certain employees are really treated better, it’s probably because they’re seen as less replaceable. And if you’re treated poorly, I think you should take that as a signal that they see you as replaceable and it’s probably not the most solid situation to be in. Also, you should want better for yourself and, at that point, explore what other options are out there because not all bosses are bad.

[00:14:02] Kevin

You know, talking about, I guess, bad bosses or you know, experiences you’ve had with employers. So, you know, you mentioned you had a job as a consultant in San Diego and you weren’t happy with it. And then you said, okay, I’m going to apply elsewhere. And you were applying for a job in Seattle.

And you talk about in the book that you had to think quite carefully just about how you presented your resume just to make sure that you weren’t triggering any unconscious bias on part of the employer. So, I was wondering if you could just maybe talk us through your thought process there.

[00:14:43] Daryl

Yes. So, as a grad student at U Chicago, saw many research papers on the topic of resumes and what makes employers reject resumes versus put them through. And there was really interesting research about names and how black sounding names were more often rejected even when they were identical resumes. I believe this was research from Marianne Bertrand and some other co-authors.

There’s also other research about having other signifiers like your marital status, or if you’re a parent or not, or other demographic information, how that usually can often be harmful. It can get you filtered out of the application process.

So aware of all this, I tried to wipe any of that information from my resume or at least be really conscious about what information I wanted to present. And one example of that is just my name. I have an ambiguous name when it comes to gender, Daryl Fairweather. If I include my middle name, Rose, and it like signals that I’m female, but if I leave the Rose off then it more signals that I’m a male, particularly a black male. It’s usually what people assume I am if I’m getting an Uber or something and they’re looking for somebody, they’re usually not looking for me.

So, knowing that I chose to include my middle name because, at least in the research that I had seen, white women were more likely to be approved for jobs than black men. So, I had to make a choice one way or the other, so I just chose the one that would be slightly more advantageous, at least from a research perspective.

[00:16:21] Kevin

Is that kind of, you know, I guess, thoughtful crafting of how you present yourself? Do you think that’s going to be even more important going forward as kind of algorithms become the first stage. I mean, I think they already are the first stage in filtering a lot of resumes. So, presumably we’re going to see even more of that.

[00:16:40] Daryl

I think if algorithm sorting resumes is treated as a black box and there aren’t any checks on how biased, I want to say unconscious bias, but how algorithmic bias can crop into that, then it will fall out of it. We’ve seen this in terms of algorithms being used for credit scores, how anything that even correlates with race can end up demoting a candidate. So, I think if that’s true with credit, it would be true with resumes as well. And it’s something that employers should really be monitoring to make sure that it’s not just happening in this black box of machine learning.

[00:17:17] Kevin

Yeah, I was curious. This is, I guess, a little bit of a selfish question, but it’s also something, stories that I’ve heard multiple times. You know, I’m kind of late 50s and there are a lot of people out there now who have had a full career, want to continue working, but don’t necessarily want to work at the level they did in the past. And they really struggle to get jobs because employers are like, well, you know, this job is “below you”, or you’re overqualified. And, you know, I’ve got multiple friends who’ve been in that situation. They’re like, hey, I just want to come into the office and contribute as part of a team. I don’t need to do anything more than that.

Do you have any sort of suggestions for, I don’t know, crafting a resume as an older person? Do you de-emphasize your experience in that situation?

[00:18:17] Daryl

Yeah, I think if I was in that situation, I would.

If I felt like I was being unfairly discriminated against because I have too much experience, then I would be selective about what experience I choose to include on my resume. Like, the resume is just one page. So, if you have five pages worth of experience. You can kind of pick and choose what to show.

And showing a more recent experience without having the dates go back too far would help mask age. Also. Leaving dates off of your degrees would help mask that too. I would be cautious. I think that is completely fair. I mean, they’re going to figure it out eventually, right? But I think at the moment that you’re in the interview in person, if you’ve made it that far and you’ve already won them over a bit, and it’s easier to dissuade people of their fears or their biases on the basis of age or any other demographic, I think, once you’re in the room. It’s harder if you’re just a blank slate that people can project their stereotypes on.

[00:19:21] Kevin

There are a couple kind of really interesting stories in, I think it’s a later chapter, about unconscious bias. And I’m thinking here, particularly about the obstacles that mothers face and women who are off on maternity leave. And you have an interesting story about you’re actually in the room kind of witnessing that unconscious bias in person. I’m thinking here of the Brittany vs. Connor decision. I was wondering if maybe you could kind of relate that because it sounded like a bit of a, I don’t know if an aha moment is the right way to phrase it for you, but it really clearly left an impression on you.

[00:20:05] Daryl

Yes. So, the story is that I was invited to sit in on the management team’s meeting that determines what level all the employees are. Normally I wouldn’t have been invited in this meeting because I wasn’t managing anybody yet, but I was about to be a manager, so I was invited. And at this moment I was also pregnant, but I hadn’t yet told my coworkers. Maybe they were already onto me, but I hadn’t told anybody yet.

And in the meeting, they’re going around assigning performance levels. There were three levels to all of the members of my team. And when we got to one team, there were two people up for having the highest level. One was a man who was in the office. Another was a woman who had recently gone out on maternity leave.

And although the manager, like, explicitly said, like, I think they both deserve it, they deserve it equally. I can’t choose. When pressed to choose somebody, he chose the man who was in the office and even said it was because he had been performing really well recently. And that was like, oh, well, that was triggering to me because I was pregnant and I was like, well, she wasn’t there. She had just gone out on maternity leave. So, she wasn’t there to prove herself. So, she was going to miss this opportunity to get leveled up, at least from my perspective.

Maybe it changed, maybe HR changed the designation, but in that meeting it seemed like she was being downgraded. And then to like cement the idea even further in my head, it moved on to who was going to get the lowest level. And the person who this manager didn’t want to assign lowest level, he ended up caving on and assigning her the lowest level performance because she had been underperforming before she had gone out on medical leave. Which, again, it seemed really unfair because of course somebody who is on the verge of going on medical leave is going to be having problems performing. And that was being seemingly held against her.

So, what it taught me was that, as I was about to go out on leave, that I really shouldn’t expect anyone to stick their neck out for me to get a higher performance level.

[00:22:05] Kevin

Yeah, those were really, I think, just salient examples to me anyway of how it’s just something like recency bias. And in the end the guy was forced to make a decision. It’s like, well, okay, who do I have most experience with recently and is doing well? And that’s who gets the choice.

And if those sort of decisions accumulate up over time, they can have a big meaningful macro effect. Is there anything, if you were designing a system, what would you do to combat that?

[00:22:41] Daryl

Well, one thing that this company did, so I’ll give them credit for, is that they did have checks and balances where at the end of the day they would go through and see if, you know, women were disproportionately getting lesser designations than the male employees or any group was.

So, I think that is important to do, but it’s not going to be perfect because sometimes things are within the margin of error, don’t get detected, when there probably maybe is some slight bias going on. So, I don’t think you can combat it, you know, fully, but I definitely commend efforts to put those checks in place.

And then another thing that can be done, I think, is to have a culture that values people who go out on leave and come back and perform well. You don’t want, as a company culture, for people once they go out and leave to feel like, well, this is it, I’m out on leave and when I come back things are going to be worse so I better start looking for my next job. I think an employer who cares about having long term employees should build a culture that doesn’t downgrade people when they go out on leave.

[00:23:47] Kevin

I think that’s pretty much what you end up doing. Right? You were like, hey, I’m probably going to need to move on when I come back.

[00:23:56] Daryl

Yes, yes. There were, you know, a couple of reasons for that. Like, my team had been changing quite a lot. I had lost a manager and a director and a lot of my team members had left by the time I had come back from leave, which I think is just also reflective of the company culture from the place I was at.

But yeah, from just a practical perspective, like had I come back and I felt like I was coming back to a better situation, or as good of a situation, I probably wouldn’t have been as quick to seek out a different employer who really wasn’t going to be downgrading me for having gone out on leave.

When you start fresh with a new employer they don’t care if you had just taken leave at your last company, that’s not anything of their concern.

[00:24:40] Kevin

You talk also about, I guess this was earlier in your career with the tech, so, you were with this consulting company in San Diego, then you moved to Seattle to work for a tech company and you were thinking about, okay, how do I get promoted within this organization? And I had to kind of chuckle because, you know, you sort of described the promotion process and there are multiple layers, and people with different grades, they can chime in on everyone. And it seemed kind of like an exceptionally complex process.

But in the end, you, I thought, had a quite clear and clever way to simplify that. And through what you call backward induction, you know, I wonder if you could maybe kind of explain how you thought about that, trying to work your way through who actually matters in this promotion process.

[00:25:32] Daryl

Sure, so, backward induction is a technique in game theory where you start at the very last stage of a game to understand what decisions are made at that last stage and then go one step backwards to see like, what decisions would get you to that previous stage and you keep going back, and backward. So, the way this applies, in terms of the promotion process, is that I knew the steps that it would take to get me promoted.

I would need first my manager’s approval, then approval from all of the directors (that’s like one level above my manager). And then, once all the directors decide on who’s getting promoted amongst themselves, the list gets passed on to the vice president who gives the final okay. So, zooming in on that last step of the vice president giving the final okay, I put myself in the shoes of the vice president. Like, what does he care about?

And from observing him, it seemed like the thing that he cared most about was knowing whether his directors were being truthful with him, whether they were bullshitting him or not about what was really going on. Like, that seemed to be the focus of almost every meeting that I was in on with him. So, I knew that’s what he’d be looking for. And this list of promotions was like, is there anything suspicious in this list?

So, then my focus began to be just making myself impressive enough to the vice president where he would be suspicious if I wasn’t on the promotion list. And I had to do that publicly so that all the directors would know that, because the directors are going to be trying to please the vice president. It doesn’t do me any good if the vice president really likes me but the directors don’t know about it. They need to know in order to list in the first place. So, yeah, working backwards to that, I really focused in on publicly impressing the vice president in front of the directors in order to make sure that I was definitely going to get my promotion. And it was successful.

[00:27:22] Kevin

So, did you have to kind of seek out opportunities to do the public impressing? That must have been… You relayed a couple of those stories in the book, but it must have been pretty stressful.

[00:27:36] Daryl

Yes. So, I mean, there were these weekly meetings where somebody on our team had to volunteer to give a recap of what happened. And they would get pummeled with questions by the people in the room, including the vice president. And nobody ever really wanted to do that because it was quite stressful. But I volunteered to do it because I knew that it would be a way to publicly impress upon the vice president and these directors.

And yeah, I knew it was high stakes because, obviously, failure is pretty embarrassing in front of that large group of people, our entire department. But the reward was also really high. And I was pretty fixated on getting promoted. So, I saw it just as a necessary step to get promoted and the failure didn’t matter so much to me. It was more about getting the opportunity that mattered.

[00:28:24] Kevin

So that’s just, I guess, you know, what’s the general lesson that you would try to communicate to people listening out there when they’re faced with, you know, how do I get ahead in my job? How do I get promoted? How do I get a higher salary?

[00:28:40] Daryl

Learning economics and learning about game theory, I think, helps. Like what we talked about before – kind of detach from all these decisions. I think people get hung up on… You know, the decision to publicly present during a meeting, I think people can get wrapped up in just that piece of it. Like, this is going to be embarrassing. I might fail. Am I prepared? And I think zooming out on the entire game, and seeing the whole system, and understanding this is like a necessary step to get to the next step can make it feel less daunting. At least that’s how it feels for me.

Like, if I understand that it’s just a game and I’m just going to play these moves, then it’s, I think, a lot more straightforward than getting all the emotions tied up into it. And it makes me a little bit less afraid of making those big decisions. So that’s what I would impress upon people, is that if you empower yourself with economics, these big decisions will hopefully feel less scary and more doable.

[00:29:39] Kevin

So, then you eventually left the tech company and there was another kind of fascinating section in the book about how you negotiated your salary, I think, with your current employer.

[00:29:53] Daryl

Yes.

[00:29:54] Kevin

Since you put it in the book, I’m going to talk about it. But that, I thought, was something really, really practical for people because that’s something that most of us go through in our career. And you ended up negotiating quite a substantial increase. And I was just wondering if you could kind of talk us through how you thought about approaching that problem, what game theory ideas you used and how people can take that away in their own lives.

[00:30:25] Daryl

Yeah. So, the thing to understand in that chapter is the concept of anchoring in negotiations. You know, when you’re, when you’re applying for a job, there are a range of salaries that the employer would be happy to give you, assuming that you make it through the recruitment process and you’re chosen. And what you want, as the prospective employee, is to get the top of that range, but your employer wants the bottom of the range.

So oftentimes the employer will try to set a reference point close to the bottom of the range. And the way they do that is by asking you, what do you currently make? Because that seems like a pretty reasonable anchor to them of what is the absolute lowest I can offer you where you’d still be willing to take this job. It’s probably what you currently make.

So, when asked that question, I just didn’t answer, or I didn’t answer it the way they wanted me to answer. When asked, how much do you currently make? I said, I’m going to tell you what I want to make – what is the minimum for me to even take this interview? Like, if you’re not going to give me this number, then don’t bother. Like, I’m not going to spend my resume.

So, phrasing it in that way, I mean, they still had to take the number. The recruiter just wants to put a number in their spreadsheet. But by doing it early, it was advantageous to me because at this point, I wasn’t even really interested in looking for a new job. I was satisfied where I was. I wasn’t really seeking anything out. So, it was going to take more than my current salary to get me to leave. And also, I was a bit afraid of leaving.

So, I would need a buffer just to cover the risk of leaving something that was pretty comfortable for something that could potentially, you know, have a downside because it’s uncertain. So, sometimes being afraid, you can use that to your advantage and make it so that you’re setting an even higher reference point. Like, I need, you know, 50% more (that’s pretty high), but I need this much more to even get me to consider leaving.

I think framing it that way, at the very beginning, can really set you up. That anchor, it might not be what you end up ultimately getting, but you’ll probably get something closer to that if you set that reference point, that anchor early on.

[00:32:21] Kevin

How did you go about figuring out what your anchor was in that situation?

[00:32:26] Daryl

I honestly just took an educated guess, which is the advice I often give. I mean, it was a chief economist, chief economist position. So, it’s not like I could just Google what chief economists make. There aren’t that many chief economists, but I estimated about, like, what the level would be equivalent to if I had that same job at my current company, like a director level.

And I knew what directors at my company made, so I took that and I knew that it was probably really high. But I also figured that as long as I’m within like 10% of the maximum, that they are willing to give me. Then they’re going to let me do this interview because they figure they can negotiate down. So again, it’s like seeing it from their perspective.

Even if I say a number that’s a bit too high for them, they’re either going to tell me it’s way too high and then I can kind of back down if I really care about getting the interview, or they’re going to say like, oh, okay, fine, and then put it down their spreadsheet. And maybe they’re angling to still negotiate later on. But regardless, it sets a high reference point. So, I think it’s worth doing.

[00:33:23] Kevin

Is there also kind of, do you think, a signaling effect in that setting where it’s like, hey, she’s really confident, so she must be good.

[00:33:33] Daryl

I think it definitely signals that I was happy where I was, that that it was going to take a lot to get me to move, which is what you want. Like in a negotiation it’s about inside options and outside options and you want your opponent to think you have a really strong outside option to get them to give you an even better inside option within negotiation. So yeah, you do want to signal that you have great outside options.

[00:33:55] Kevin

Just generally, with anchoring and reference points in negotiation, I guess I have been always thinking, well, in all negotiations you want to be the person setting the reference point, setting the frame. Because once a number is out there, then that tends to anchor all the discussions. But you say that’s not necessarily the case.

So. I’m kind of curious, like, how do you think about when you want to be setting the reference point, when you want to be the one throwing out the first number and when you don’t want that to happen, when you want the other party to be doing it?

[00:34:32] Daryl

Yeah, I feel like because of the way I look: my race, my gender, my age or my period age, all those three together, people often assume that I make less money than I actually do. And so, if I go into something like a borrowing situation, like I’m trying to, I don’t know, buy something at a market… The example I give in the book is that I’m trying to buy something in a market in Beijing. And I know that the shop owner thinks that I’m just a student, she doesn’t think that I’m a high paid tech worker. So, I just let her give me the price. I say, oh, how much do these pajamas cost? And she says, around $10 or whatever the equivalent is in yuan. I knew that she assumed that I didn’t have money, so I let her go first.

If I had set the reference point, I probably would have set one too high because I would have underestimated how little she thought I actually made. So sometimes you want to let people’s biases just do the talking for them and then you don’t have to do any work at all.

[00:35:35] Kevin

So that’s, again, the first step there is putting yourself in that other person’s shoes.

[00:35:42] Daryl

Yes, yes.

And sometimes it’s a little bit uncomfortable if the person you’re putting the shoes on of maybe doesn’t think that much of you, but I think being aware of that can be powerful.

[00:35:54] Kevin

Yeah.

I was going to say, is that kind of, I don’t know, kind of weirdly empowering, in some sense, to look at yourself through their eyes and see kind of like understanding their weaknesses?

[00:36:07] Daryl

Yes, yes. And I think that goes to the overall theme of the book. That is, if you understand, like the rules of the game, like how their motivations are, then you can actually succeed. Like, those disadvantages can turn into advantages.

Like, if I know somebody’s underestimating me, then that can make it easier for me to, you know, make moves without getting noticed. Whereas, if I have all the attention on me because people are worried about me becoming successful, then maybe it’s not so doable.

So, I think it’s just understanding what your advantages and disadvantages are in any specific context. And the context can vary depending on who you’re interacting with.

[00:36:45] Kevin

I have one more kind of workplace related question. You talk about there’s research. You talk about, in the book, and I’ve read elsewhere, that if women act aggressively, that’s attributed to their character, and if men act aggressively, it’s their environment. So, if I’m mean to you, it’s, hey, Kevin’s having a bad day. But if you’re aggressive to me, it’s like, Daryl’s a volatile person.

Would you give different advice to men versus women when they’re in a situation of workplace? I mean, you talked about workplace bullies, but just general workplace conflicts. Do men and women need to approach those situations differently?

[00:37:23] Daryl

Yeah, I think they do. I think that women are punished differently for acting out in anger. They’re punishing more than men are. So, that alone just tells you that the payoffs are different for women versus men. The marginal benefit of acting angry is different for women versus men. And I think that anger isn’t necessarily always a bad thing. I think sometimes it can be very effective when it’s controlled, when it’s purposeful. I think sometimes men maybe get themselves into trouble because maybe they’re allowed to be angry so often they let it lose a little bit too much, a little bit uncontrolled, and that can be embarrassing. At least from my perspective, it can be a bit cringe worthy.

But yeah, when controlled, I think it can be very powerful. So, if you have that tool in your toolbox, I wouldn’t say don’t use it. I think this question is really interesting because as a woman of color, a black woman, I feel like I’m allowed to get angry a bit more than white women are. And I’m conscious of that. I understand that the expectations of me getting angry are different than it would be for my white colleagues. So, I think that makes our… The decisions we make, they’re going to vary just based on that stereotype.

[00:38:34] Kevin

So, you’re saying that, to some extent men, and maybe black women get more latitude with being angry so that they could selectively use that from time to time.

[00:38:50] Daryl

Well, I think the gender difference is a bit different. Like with men, I think that their anger is more often excused or not seen as a problem, whereas with black women, I think it is seen as a problem, but it’s assumed anyway. If people are already assuming that I’m going to get angry, then there really isn’t that much of a cost to me being angry because people are going to assume that no matter what.

And maybe that’s true for men to a certain extent too, but, I think the gender and both the race elements are pretty interesting and not identical.

[00:39:25] Kevin

Your day job is Chief Economist at Redfin. And you study the housing market. So, I wonder maybe, if we could just ask a couple questions about the housing market.

You do talk, in the book, that there are these kind of structural reasons why house prices have gone up and then the social costs of that. And I’m just curious, you know, if you were the housing czar or whatever, you know, what would you try to put in place to correct this?

Can we correct it?

[00:40:02] Daryl

Yeah. First thing I would do is I would eliminate single family zoning just pretty much blanketly, because I don’t think there’s a real need for it to exist anymore. And it holds back the supply of housing. When you can only build one house on a single plot of land, then you know you’re necessarily going to have less housing than if you could build, you know, four housing units or even more on that plot of land.

And in places like cities, where there really is a shortage of housing close to jobs, having single family zoning can really hold back the housing supply. And we have a housing deficit of about 4 million homes, according to Freddie Mac. So, we need all the homes built that we can get.

And then the second thing I would do is I would get rid of property taxes and replace them with land value taxes because property taxes discourage development. They punish people who build more housing by charging them higher taxes. Whereas a land value tax doesn’t do that. It’s just only taxed on the land. And so, there’s no incentive or disincentive. There’s no distortion in the economy when you shift the taxes that way so you can get more housing built and more tax revenue.

[00:41:08] Kevin

Sorry, explain that again. So right now, you did talk about that in the book. I think it’s an important idea.

So, we have taxes based on, well, it depends on where you are. But say in California, it’s the market value of the house at the time you purchased it, and then it can go up by a small percentage each year. So, you are suggesting replacing that with a tax based not on the market value of the total package, but on just the underlying land, is that right?

[00:41:40] Daryl

Yeah. California’s taxes are especially bad because they limit how much the land value can be taxed by having this cap on how much they can go up every year. So, let’s say you bought a home in California in 1978, when this law went into effect, and you only paid like $50,000 for it. Your current tax is going to be pegged to that value.

And even if the house hasn’t changed at all, it’s still the same house. Over the decades the land underneath that house has gone up tremendously in value. And even if you only have a structure on top of it that’s worth $50,000, the land underneath it might be worth millions of dollars, now, if it’s in a high value part of California.

So, there’s this perversion in the economy where people are incentivized to stay in their homes for much longer than they otherwise would because if they moved, then their tax would reset and they’d be charged a much higher tax. If they built on the land, their tax would be reset because the property would increase and they’d reassess the property values at that point.

But if you shifted to a system where people are taxed on the value of the land, then people would be incentivized to build more and make the best use of the high value land or to sell it. If they couldn’t pay the tax bill, they didn’t want to, then they could sell it to somebody who was going to develop it.

And California has a lot of tax problems. It has one of the highest income taxes because it doesn’t tax its property or its land at the rates that other states do. And I think it’s really distorted California’s economy and its housing market, its tax structure.

[00:43:06] Kevin

Okay, I see. So, really what you’re suggesting then is kind of a tax structure that also tries to disincentivize single family homes, in some sense, right?

[00:43:17] Daryl

Yes. Right.

[00:43:19] Kevin

I don’t know how closely, I assume you follow some of the rules we’ve got in California now, new rules. And I think this is of general interest to all the listeners because, you know, the sort of problems that California’s facing with property values are not unique to California. It may be extreme in California, but we see them… I’m here in New Zealand right now. We see it here in New Zealand, in the UK, pretty much everywhere in the western world.

And so, in the last couple of years we’ve got some rules that have been put in place that say to each city in the state, basically, hey, based on your population and its projected growth, you need to be building X number of units over the next… I’m not sure what the time frame is, I think multiple years, but you know, you need to be building 70,000 new units.

And if you don’t do that, if you don’t permit those number of units, then we’re basically going to waive, if not all, most of the planning requirements. We’re going to allow developers to sort of fast track and do what they want.

So, the stuff’s going to get built and you can either kind of control it, to some extent, or not. Do you have an opinion on those sort of rules? Do you think that’s likely to make an impact? Is it something that could be applied elsewhere?

[00:44:38] Daryl

I think that the laws California has passed so far have been great. I worry that, because of its property tax structure, they might not be as effective as they otherwise would be. Because if homeowners are still financially benefiting from a system where not enough housing is built, where their land values continue to go up, their home values continue to go up without them having to, you know, contribute to the economy, then they’re still going to do everything they can to block housing.

And yes, California, as a state, is very powerful and is using all of its power to clamp down on that local opposition. But there is still a ton of local opposition. And homeowners can just get together also and form HOAs that restrict how much housing can get built. You can still have those private agreements.

So, I think there’s still going to be a lot of local opposition because the financial incentive is there to speculate on rising land value. So, as long as that still exists, I think that these zoning measures are going to be somewhat limited. I think they’re still great, and they’re going to make a big difference, but not as big of a difference as maybe needs to happen in California.

[00:45:53] Kevin

Yeah, it’s an interesting kind of generational, I guess, power struggle. My son’s involved in the YIMBY movement. So, there’s the NIMBY, Not In My Backyard, and now there’s YIMBY, which is Yes, In My Backyard. And he’s 27 or whatever, and kind of like a lot of 27 year olds is like, hey, I’m never going to be able to buy a house. And it’s because of a lot of these zoning restrictions. So, it’ll be interesting to see if that movement kind of spreads more widely.

I don’t know if you see it in, in the Midwest at all.

[00:46:26] Daryl

It has, it has been spreading and yeah, there have been successes in Minneapolis and Florida. It’s actually bipartisan, which I think is pretty encouraging. There are people, both on the left and right, who are for and against housing. It doesn’t seem to line up with traditional party alignments.

So, in a sense that means there’s a lot of compromise that can be made. And I think leaders across the political spectrum are coming together on housing. But I think the thing that makes it really politically challenging is that there’s no immediate win for politicians. And politicians often only care about what gets done during their term that they can brag about when they go up for re-election. So, I think there are still challenges to getting the legislation through.

[00:47:08] Kevin

So, you know, as we kind of wrap up here, I want to maybe just circle back to the book and ask you, was there a favorite chapter for you to write? And was there a chapter or topic that you kind of thought about writing but decided not to?

[00:47:26] Daryl

The first chapter I wrote was the one about workplace conflict, and I.

I still think that’s like, the most compelling chapter, the one that I was most excited to write that kind of sums up the themes of the book or, I don’t know, I really like that one. It was the one that really inspired me to get to work. So, yeah, that’s the one I pick.

[00:47:48] Kevin

And is there something that you were like, well, I could write about it, but it doesn’t fit in or decided not to do it?

[00:47:57] Daryl

Yeah, I mean, I have definitely notes and notes, research papers and topics that just didn’t fit in. I tried to be really disciplined about the pace of the book and making sure that I was never really going off on tangents that could lose a reader. So, some of those tangents just didn’t make it in. But that’s okay. They’re probably better for standalone essays or something like that. Instead.

[00:48:22] Kevin

What reader did you have in mind as you were writing this?

[00:48:26] Daryl

I really wrote for, like, a younger version of me. There’s actually a friend of mine who is a couple years younger than me, and we have monthly zoom meetings where we just talk about life, and a lot of times our career comes up. So, when I sat down to write, I kind of imagined myself just writing an email to her because that’s the tone I wanted to set. Like, I’m just talking to a slightly younger friend. So, yeah, that was the reader I had in mind.

But I’ve been really touched by how many people, who are outside that demographic, have told me that they love the book. So, I think it does have some universal appeal there. At least I hope it does.

[00:49:00] Kevin

It definitely does. And I mean, I have to say, I wish I would have had something like this when I was, you know, also early in my career.

[00:49:08] Daryl

That’s great.

[00:49:09] Kevin

Yeah. Yeah, I think I wouldn’t have…

[00:49:11] Daryl

Share it with your son.

[00:49:12] Kevin

Exactly.

[00:49:13] Daryl

He’ll like it.

[00:49:15] Kevin

Yeah. I kind of felt like I should call a couple of my old bosses and apologize to them. You know, I could have manipulated them better had I had your book.

Okay, well, one last question, which is, so I’m reading the book and pretty much the whole time I’m reading it, I’m thinking, why did she call it Hate the Game? Because it really feels like it comes through that you love economics, that you love game theory. And so, I’m thinking that ‘the game’ is game theory. But at the end, you explain why you called it that. And I was wrong. The game isn’t game theory. It’s something different. So, I thought maybe we could end with you kind of explaining why you chose that title.

[00:50:00] Daryl

Yeah. So, to me, the game is like, is the economic system that we exist in. You can call it capitalism, you can call it American capitalism. But I think that a lot of young people, they become aware of how capitalism or the economy is unfair, but then they… Instead of…. I think they stop there and they get down on themselves and feel like things are rigged against me, why should I even try?

And my answer to them is that they should learn the ways in which the economy is unfair so they can navigate that, and that they can navigate it. Even though it’s unfair, you can still win. You can win games where you have disadvantages. I really do believe that. So that’s the Hate the Game.

The old saying is, ‘don’t hate the player, hate the game’. I really don’t want people to hate themselves just for having just sort of trying to succeed in our economic system. It’s not their fault that it’s unfair. You can play without hating yourself. You can just channel that into wanting to make things better.

[00:51:00] Kevin

Cool. Well, thanks for that. Thanks for the explanation and thanks for taking the time to join us today.

[00:51:06] Daryl

Yeah, thank you for having me. This is actually my first interview with somebody who has read the book, so I’m excited for that.

[00:51:14] Kevin

So, just to remind you, Daryl’s book is called Hate the Game. It’s practical, it’s fun, and it makes you think. So, I don’t know if you can ask for more than that.

So, please make sure to follow her work because I think, as you can tell from today’s conversations, that some of these ideas are not being discussed enough on mainstream media.

So, for all of us here at Top Traders Unplugged, thanks for listening and we’ll see you soon.

[00:51:43] Ending

Thanks for listening to Top Traders Unplugged. If you feel you learned something of value from today’s episode, the best way to stay updated is to go on over to iTunes and subscribe to the show so that you’ll be sure to get all the new episodes as they’re released. We have some amazing guests lined up for you. And to ensure our show continues to grow, please leave us an honest rating and review in iTunes. It only takes a minute, and it’s the best way to show us you love the podcast. We’ll see you next time on Top Traders Unplugged.