Principal Agent

The standard principal-agent model usually involves two principals in real world situations. I can’t think of such a situation in which I was involved, but I know that my mother encounters this daily, since she works as a real estate agent. Because of the way the real estate market works, sometimes there may be two agents involved (one for the buyer and one for the seller). However, most deals involve only one agent meaning she is usually the agent for both the buyer and seller. Since I don’t know any particular case regarding this, I will instead talk about how real estate agents generally operate.

Real estate markets function in a very similar way to what is described in the Excel homework on Bargaining. There is a seller and buyer who are looking for the best outcome in their favour (seller looks for higher price, buyer looks for lower price). However, who the outcome will favour depends significantly on the agent. Consider an example where an agent decides to work in favour of the seller and the seller wants at least x dollars and the buyer is looking for a price under y dollars (the agent usually has an idea of the max/min price for a seller or buyer unless they intentionally lie about it to gain an advantage). The agent will then try and convince the buyer that the seller wants more than x dollars (even though it isn’t true) to convince the buyer that they will need to raise their offer. This relates to the Excel homework on bargaining where we realized that the agent can affect the deal based on who he favours, by claiming that the seller valuates the product more than they actually did or by claiming a lower valuation by the buyer than the actual valuation.

Usually the agent will work in favour of the seller because of two reasons: Firstly, they usually have first contact with the seller who is trying to sell their property (and then try and find suitable buyers). Secondly and more importantly, their income from the deal is a percentage of the value of the deal so they earn more if the property is sold for more. An agent will usually only work in favour of the buyer if there is an incentive, for example personally knowing the buyer, a high possibility of being in future deals with the buyer, or even if the buyer offers the agent a financial incentive to lower the price. Therefore, what is considered as a good performance by both parties are completely different. For the seller it is selling their property for higher than their valuation and for the buyer it is buying it for lower than their valuation.

Broadly speaking, in a situation where the agent does not favour a particular principal, the agent will act with their self-interest in mind. In the case of real estate agents, that means indirectly favouring the seller since the agent will look for a higher price to increase the commission they earn. Taking this into consideration, it would not be fair to say that an agent would fail if they satisfied only one principal but not the other unless that was not their aim. Also, I think because of the way that real estate agents work, this model is not the same as other principal-agent models, since real estate agent nearly always works in their personal self-interest, since neither principal pay them based on how good their performance is but they are instead paid a percentage of the deal.

Group Conflicts

Being in a conflict is something hard to deal with for both sides. If it is a manager-subordinate situation, the manager needs to decide what sort of action to take, which is based on what type of relationship he wants to have with his subordinates in the future and how effective it will be. It is also important to understand where the conflict originated from. It could have been caused by several things, for example lack of communication, disagreements or power dynamics.

While I have not experienced any major personal conflicts in a work context, there is one that comes to mind which I had brought up in one of my earlier blog posts. Last summer, I interned as an automated tester at an IT company that provides tech consulting and business process services. When I joined the automated testing team, there did not seem to be any conflicts at all. I was going through training for the first week and during that time I noticed that everyone was working hard since there was a backlog of uncompleted assignments. However, this was cleared up quite quickly and within 3 to 4 weeks, the office and everyone seemed much less rushed.

After the backlog was completed and they were waiting to receive assignments is when I was assigned to groups with full-time employees. I quickly noticed that everyone felt tired out after the last couple weeks. Sometimes they would come to the office on Saturday or would work from home if they could not make it, and because of this everyone felt exhausted. However, the manager did not give them any time off (I found this out while talking to two other people in my group who were full-time employees) which irritated some people. I think this is where the problem may have originated from, since this could have created a bit of animosity between the manager and his subordinates. Although I did not think at the time that it was nothing for the manager to worry about since it was not a serious situation, I noticed that most people in the office were not completely understanding the manager’s point of view. From the manager’s point of view, it would be hard to give his subordinates a longer break during the day for completing work they should have completed before. Also, since they were not ahead on their assignments, if they took a longer break and did not work at an effective pace, it could lead to another backlog. At the same time, maybe giving a longer break would have helped not only avoid conflict but also relieve the group of pressure which would have helped them to work harder after the break.

A couple days later, during a meeting in the morning where everyone plans for the day, one of the more experienced employees suddenly told the manager that he felt under-appreciated and felt like his work was not being recognized. Then another person said the same thing but since she was outspoken, this came off on the manager the wrong way and he started to defend himself by saying that he should not have to recognize their work all the time since he also has his own work and that they had not been working effectively. He picked out a few people he had noticed were slacking off over the last few days. This immediately got a bad reaction and this time a few more people started to get angry at him. It became clear at this point that the conflict had reached its boiling point.

After a minute of argument in front of everyone, he said that anyone having a problem with him should go with him to the meeting room to discuss it. He was in the meeting room for over an hour and every now and then, one person would leave the room and would be crying or upset, sometimes even angry to the point that they would storm out of the office. The resulting reactions by the rest of the office was generally unfriendly and unreceptive towards the manager for a short period of time. Over the next couple of days everything seemed back to normal and there were no serious conflicts after that.

I think that the problem could have been avoided had the employees been more understanding of the manager’s point of view and vice-versa. While I am not sure, I doubt the manager explained why he could not give them a long break, since otherwise I think everyone would have been more understanding of his decision. That being said, the problem was only in part caused by this and another reason that caused this problem is the manager’s behaviour to some specific employees (again I do not know what caused this, but I think it was related to the having to work for longer hours due to the backlog). Maybe having such a conflict was necessary for everyone to clear things up and relieve the tension and animosity held against the manager.

Discipline in the Workplace

Looking at this new perspective wherein past performance was determined to be poor and there has to be a form of discipline, initially no particular example came to my mind. I think one of the main reasons for this is that most of the time I work in a group in university, it is for an assignment and is only a one-time setup (we won’t have to be in the same group again). Therefore, usually, once the assignment is over, there is no need to consider using a form of discipline for anyone who performed poorly or barely participated. Other times, if there are multiple group assignments in a class, if there is a particular person (or people) who did not perform well when I was in a group with them, I ensure to choose a group of new people who I feel will perform decently. Therefore, in this case also, there is a lack of incentives to discipline team members since it is just a short-term arrangement.

After giving it more thought, I realized that most instances of discipline vary largely. For example, in my internship during the summer of 2018, I recall that when the manager/head of the office would discipline someone, it usually would not be one person in usual but rather the group that person is a part of. I think this is a much better way to discipline someone than do so individually, because this ensures that no one feels targeted. I noticed that after he would talk to any specific group, they would have a discussion amongst themselves for a few minutes about how they can improve. Disciplining in this fashion ensures that the group works more productively since they feel more responsible about how effectively the rest of their group works. This also meant that he had close personal relationships with everyone in that office.

Another example is my internship I went for last summer and went to the same company but worked on a different project and with a different team. The manager/head of this office would discipline his subordinates in a completely different way: He would specify a few people who he felt were not doing their fair share of the work delegated to their group in front of everyone and give them feedback. While he would give them constructive criticism, I feel like those who were singled out would often feel embarrassed and/or upset that he did not have a personal conversation with them instead. On rare occasions, some people would get really upset about this and others would have to comfort them which resulted in lower productivity.

In fact, in one specific situation, he mentioned two people who were two of the most experienced employees in that office, which lead them to get angry at him later in the day and caused a huge argument in the office. This led to a lot of time being wasted during the day since the manager and a few other people went into the conference room to talk it out in private. While I did not directly speak to anyone who was upset, that day everyone was irritated at the manager because they felt that he was trying to divert blame and did not manage the situation well. This could have just been out of bias to support their personal relationships with their friends though. In my opinion, I do not think he was too bothered about sustaining personal relationships, maybe because he did not think that doing so was in the best interest of him or them in terms of productivity. However, despite him perhaps not disciplining his subordinates in the best way, all the groups in this office were extremely productive and rarely missed their deadlines (perhaps his form of disciplining may have hardened them and encouraged them to work more productively to prove him wrong). In comparison, in the first example, the groups were not as productive and often missed deadlines due to poor planning and time management which I think was partially to do with the manager looking to sustain personal relationships and did not give the most critical feedback.

That being said, had I been in either managers’ position, I would not single out anyone in front of everyone else but rather have a private conversation with everyone in a group (if they are not working productively) to understand the cause and then have a conversation with the group as a whole to help provide constructive criticism to them as a group and provide some ways that could help them work more effectively (but eventually leave it up to them to figure out the best course of action). I think that while it is important for a manager to have a good relationship with all their subordinates, it should not get in the way of providing the most useful feedback, which is why finding the best mode of discipline is of the utmost importance.

Team Production and Gift Exchange

In my opinion, the three articles are trying to explain human tendencies when it comes to gift exchange. The first article talks about an observational experiment carried out on three-year-olds that identifies and attempts to explain situations in which they decide to or not to distribute their combined wealth (marbles) amongst themselves equally. The second article explains why people, specifically children, often feel that life is unfair if and when others get advantages. The third article considers the change in human behaviours when a moral obligation becomes an economic transaction. I think these articles try to prove that human beings act in selfless ways generally but when there are economic incentives to gain, such as increased competition, we tend to act in selfish ways.

An example that I have experienced that relates to such human behaviour is when I was working in a group for a group project, but each student was still graded individually, meaning even though we are in the same group, we have nothing to lose or gain by helping our other group members. This was for a gen-ed class, and our assignment was to write an essay about anything we have learnt since the beginning of the class. We would be given time during discussion sections to discuss each other’s essay topics and provide feedback to each other, but we were also meant to meet outside class since the time allotted in discussion sections was never enough.

However, since everyone just wanted to get feedback on their own work but no one was really bothered whether other people got feedback on their work, their would often be conflicts. For example, everyone would want to display their own work and get feedback on it first. What would then happen is that anyone who has already received feedback would not be involved in giving feedback later on, yet the people who were yet to receive feedback were always involved. I think a large reason for this is that if they provide good feedback to someone, they expect that person to do the same for them. While this is usually what would happen, the people who received feedback would for the most part not even pay attention to the discussion. Also, the people who received feedback would not bother showing up when we met again to give everyone else feedback. This happened right at the start, and when everyone else realized that others were doing this, they decided to do the same thing and by the end of the semester, most people were not even willing to give adequate feedback since they just wanted to get feedback themselves (and not ‘waste’ time in class by giving feedback to others). I think this shows that at the start there was competition (for time since there was a limited amount of time) but few realized it, but as people started to realize it, everyone started to act in selfish ways.

A more positive example that relates to the first example is when I was an intern this summer working as an automated tester at an IT company that provides tech consulting and business process services. I noticed that despite some members of my team being more efficient than others, nearly everyone seemed to be putting in roughly equal amounts of effort into their individual work. Despite having individual work, all assignments were group projects since nearly all assignments were too large to be done by solely one person. I noticed that everyone in my team would act in selfless ways and would consider all team members important and all team members would be applauded. An example of a selfless act in this specific team was some members who were more experienced in using the software would take time out of doing their own work to help other less experienced members, and would still motivate them. Looking back, this example is a good display of the altruistic nature of humans.

These articles display how humans can behave differently in different scenarios, sometimes using their altruistic instincts they gain from a young age and other times not. I noticed instances of each which I had personally experienced in life, specifically the first example, which helped me to understand how gift exchange works in teams and how humans may react under competitive circumstances.