Headcount optimizing your social life
Or: How I learned to Stop Worrying and Love Tradeoffs
Introduction
I am very bad at math. This is pretty embarrassing! Because I am an Indian man who wears glasses, people assume that I have a genetic affinity for abstraction and squiggles. Once, I had a personal trainer try to explain how to bench press via a calculus analogy. It may have been a good metaphor! I have no idea: I don’t understand calculus.
Being bad at math has had many negative impacts on my life. I am a disappointment to my Asian parents because I’m way too bad at math to pass the MCAT and become a doctor. I’ve lost count of my hilariously bad romances. Despite having majored in finance, my credit card bills are formidable. On balance, I’d recommend being good at math.
Another bad trait of mine is ranting. I frequently rant, particularly when I’m inebriated. Unfortunately, I don’t rant about fun, lighthearted things like football, my taste in music, or cool trips I’ve taken. I rant about economics. Economics is known to be boring, and thus, I am not fun at parties. No one wants hot takes on monetary policy!
In life, you must make choices. Economics is the study of good choices.
At this point, you may be confused. You, like most people, probably believe economics pretty much is math. “Arun,” you’re probably thinking, “is bad at both logic and math.” While I may be illogical — I was nicknamed “The Intern Who Chose Violence” — I think your premise is wrong. Economics isn’t math. It’s a way of thinking. That’s why I’m such a big fan.
By leveraging economic thinking, you can more intentionally consider the trade-offs, helping you to make better decisions about life, money, and your relationships. In life, you must make choices. Economics is the study of good choices.
What is Economic Thinking?
Economics — by which I really mean “thick” rational choice theory — is a worldview predicated on very few assumptions.
- People have (endogenous) preferences
- They will try to achieve these preferences to the best of their ability
- In order to achieve their desired outcomes, they’ll perform cost-benefit analysis (or something close to it) to figure out the best strategy
This is not a great theory! Thinking is hard and cost-benefit analysis is harder. Nobody thinks through a complex utility function when they’re deciding where they’re gonna have dinner. Homo Economicus, the theory that people’s behaviors are perfectly rational, is quite obviously false.
But we don’t have to be irrational. We can be better! We can rage against the dying of the (Friedmanite) light. By introducing a couple of these economic principles into your day-to-day thinking you can make better choices, more easily, all the time. Seems like a good deal.
How to Think About Trade-Offs
The Pareto Frontier, or Pareto Efficiency, is one of the most important concepts in economics and operations management. It was invented by Vilfredo Pareto, an Italian guy with an incredible beard. Unfortunately, he was also a fascist.
Nonetheless! Pareto was among the most important economists ever. He introduced mathematics and formal models into economics, transforming the field from a branch of political philosophy (The Wealth of Nations is by no means an empirical book) into the first modern social science.
One of Pareto’s key insights is the concept of what I’ll call “dynamic” efficiency — a country or firm making full use of its people and resources has many efficient combinations of goods and services to provide. There is no single optimum — any point along the Pareto Frontier is an optimum. Look at the graph above. Producing at Point B is as efficient as producing at Point C, though both are superior to producing at Point K.
The core concept which Pareto’s model formalizes is “trade-offs.” You can’t maximize every goal you have at the same time. More simply: “You can have anything you want, just not everything you want.” If you can understand and conceptualize trade-offs, you’ll make good decisions.
The Pareto frontier is generally used in introductory macroeconomics and international trade classes to illustrate how countries ought to choose to specialize in producing certain goods according to their “comparative advantage.” Essentially, countries should specialize in producing goods for which they have the lowest opportunity cost. But this logic is generalizable! One of my favorite books, How to Win in a Winner-Take-All World uses this logic to talk about how in today’s hypercompetitive marketplace, effective professionals should seek to be “Pareto-optimal.”
You’re unlikely to be the absolute best at coding or marketing because there’s such a huge, globalized, and well-trained workforce. So if you want to be optimal you need to develop multiple skills, pushing yourself from Point Dave to Point Damien. Damien isn’t much better at marketing! But the fact that he’s better at coding and marketing makes him much more valuable than Dave.
I use the same logic when thinking about my relationships — I conceptualize my relationships along two axes: Growth, and Enjoyment, and try to invest in relationships which are “optimal.” The size of the circles represents the degree of “Trust” — essentially a third axis.
Naturally, certain social groups tend to cluster together: My relationships with friends from the consulting club and class tend to be more academic, while people I met in the dorms, who generally didn’t study the same things as me, are more about fun than shared professional interests. Some of my relationships — those of them which fall within the frontier — are probably not great, and I should reevaluate my approach to those friendships.
But I’m not a shitty friend because I think about trade-offs! I’m a shitty friend because I’m incredibly vain, perpetually sleep-deprived, and extremely petty. Pareto frontiers help me understand that. And hopefully, they’ll help me be better. That is the power of economics.
This seems vaguely psychotic! People are human beings, not points on a curve. But the point isn’t that you should do a Jack Welch style forced ranking of all your relationships. It’s that life is about tradeoffs. You should be intentional — and honest — about why you’re investing your time, money, and energy in the people you do. This is a tool for being honest with yourself.
Life is about choices. If you had the opportunity to make better choices all the time, wouldn’t you take it?
