Why we need Rhett Butler as a hiring authority

Rhett_Butler_by_khinson

Image by Khinson

Hiring authorities are taking longer than ever to fill vacancies, the New York Times recently reported.  Candidates interview five or six times and leave empty-handed. Sometimes the jobs never seem to get filled. I know that on LinkedIn I have seen a number of  ads for the same journalism jobs  pop up again and again — for more than year. In case you haven’t heard, there are plenty of unemployed journos dying for full-time work. What’s up with that?

Blame it on the glut of candidates. The more choices we have in life, the harder it is to choose. “We don’t know our preferences that well, says behavioral economist Dan Ariely in a TED Talk back in 2009. This is why we need Rhett Butler. He’s a guy who finally figures out what he wants and acts  on it. Ariely explains:

We have an irrational compulsion to keep doors open. It’s just the way we’re wired. But that doesn’t mean we shouldn’t try to close them. Think about a fictional episode: Rhett Butler leaving Scarlett O’Hara in Gone with the Wind, in the scene when Scarlett clings to him and begs him, “Where shall I go? What shall I do?” Rhett, after enduring too much from Scarlett, and finally having his fill of it, says, “Frankly, my dear, I don’t give a damn.” It’s not by chance that this line has been voted the most memorable in cinematographic history. It’s the emphatic closing of a door that gives it widespread appeal. And it should be a reminder to all of us that we have doors—little and big ones—which we ought to shut.

Dan Ariely, Predictably Irrational

So, dear, Hiring Authorities, choose a candidate. Close the door on the others.

Just for fun, here’s Ariel’s hilarious TED talk on how we let outside forces control our decision-making, largely because we just don’t know what we want or we get too vermischt when presented with more than two choices. Word to the wise: Before agreeing to surgery, demand your doctor present all the other choices he is rejecting!

 

Nantucket auction property also marketed on Craigslist goes for $5.2 million

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The scene for the $5.2 million auction

Was it auction fever or media madness? A property put up for auction in the ailing Nantucket market today — no minimum bid, no reserve — sold for $5.2 million.

The vacation home, known as the Second Glance, had been just another wall flower in the ailing Nantucket real estate market until Grand Estates Auction turned it into the belle of the ball with a marketing blitz that struck a balance between desperation and devil-may-care confidence: The seller doesn’t really need to sell, but really, he’d just rather not carry two vacation homes on the island. If it goes for one million dollars, so be it, Paul C. Steinfurth told the Nantucket Independent newspaper.

Yeah, right. The normally private Steinfurth suddenly materialized in the New York Times “Living with Less” series and the property popped up on websites everywhere — even Craigslist. No minimum! Absolute Auction! The Times made the situation sound so dire that my family and I considered putting in a bid for the property until the auctioneer convinced me that no one was giving away anything. Henry Blodget weighed in on his blog, predicting a crash for high-end vacation properties on the island known as the Gray Lady for the fog that comes rolling in from the coastline. As for the no-minimum bid sale, Blodget sarcastically says: “THAT should be interesting!

The fog machine today was Grand Estates Auction, which one real estate agent said was rumored to have spent $200,000 on marketing. The auction company didn’t respond to my email asking about this eyebrow-raising number. It seems unlikely but the point is clear: The success of this sale was about as spontaneous as a Broadway show.

According to the Nantucket Independent, about 30 people couldn’t even get inside the place.

Inside, Stacy Kirk, Grand Estates president, described the scene at the Second Glance to me as “electric”: about 50 to 60 people gathered in the living room (spacious enough to seat everyone!), with a few others peering from the entryway and kitchen. The auctioneer stood before the fireplace, beginning the sale at $1.5 million. Twenty pre-qualified bidders vied for the property along with three on the telephone. The price quickly jumped in $500,000 increments until it got in to the three-plus million zone. Then the number of bidders thinned. At $4.5 million, the bids began to jump in $50,000 increments, until the gavel came down on $4.85 million. In addition, the buyer paid a fee of 7.5%.

I asked Brian Sullivan of Sotheby’s International Realty just what this meant: Sullivan’s a long-time Nantucket man who was unsurprisingly pleased with the outcome. He also thinks it’s a bit early to be writing the obituary for Nantucket. The market is soft, to be sure. At the moment, he counted a total of 473 single home properties for sale, 22 in the $5-$7 million price range and another nine with a $10 million-plus price tag. Dead? On July 2, he reports, a home closed for $13 million, nearly 19% below the $15.99 million asking price. The day before, another home closed for $5.25 million, about 21% below the ask of $6.65 million. Foreclosures are up, but on “B” and “C” grade properties that mostly johnny-come-latelys bought at the height of the real estate bubble.

The Second Glance price was 25% below Paul C. Steinfurth’s original asking price of $6.95 million. But he didn’t have any takers. He also never paid anywhere near that price for the property: In 2004, at the height of the bubble, he paid $5.4 million plus renovations including custom floor coverings and window treatments. In addition, Stacy Kirk says as a “surprise” the auctioneer threw in all the furniture in the house as a bonus. The buyer, reported to be a Florida businessman by the name of  David Sherrill, drove off by himself at the end in a rental car. Kirk says the he told her “I came with the intention of being the winning bidder.” Veni, vidi, vici.

How did Steinfurth go from being the poster child of the NYTimes Living with Less series, to successful seller of the 5-bedroom home with harbor views?

Kirk gives a studied, savvy explanation: An auction focuses the buyer. When you shop with brokers, you go through a list of properties. Right now, that list can be pretty long in Nantucket. “They can’t focus attention on any one property. An auction brings the focus to one specific property.”

This fits in with a new trend in marketing to present fewer options to buyers. I always think of the scene from “Moscow on the Hudson,” the film starring Robin Williams. A recent immigrant from Russia, he hyperventilates when trying to choose from the dozens of coffee available at a local supermarket. “Coffee, coffee!” he repeats over and over again. Too many choices, we can’t choose. We do nothing. Behavioral economist Dan Ariely says social experiments show that even medical professions can simply fail to make new choices if there are too many available.

By doing something bold and unusual, Grand Estates differentiated a property from a dozen others. The auctioneer made it easy for the buyer to pretend that no other estate existed. The fog came in and rolled over all the other choices leaving the sun shining on just 6 Juniper Hill Lane for one afternoon.

The Second Glance also benefited from what Ariely calls “anchoring.” In talking with me a few days before the sale Kirk suggested that the home would go for $3 million to $3.5 million. I would be surprised if I were the only other person she told that to. (Sullivan said he expected a price of $4 million.) When the auctioneer got in that range, interest waned. For the others, either auction fever took over or they took a second glance at the property and decided price-be-damned — the recession-be-damned — I want it.

Laws to thwart Madoff may only encourage his ilk

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Bernie Madoff

We like to think of justice as blind and revenge as a sentiment for the weak-minded and morally-challenged. But it turns out that justice is often stumbling around in the dark to no good purpose, while revenge is an eye-opening tool that promotes a more harmonious society. And this is at the heart of the story of Bernie Madoff and his moral black hole.

After the Enron debacle, Congress went to war on white-collar crime, passing two laws to make it less attractive. But a recent note in the Harvard Law Review argues that the legislation has boomeranged, and that white-collar crime is alive and well, in part because judges have too much discretion in meting out justice: They can be mercurially merciful and viciously vengeful. Bernie and other cheats were not fearful of the consequences of their actions. Natural gamblers, they were willing to play the odds on not getting caught and, if caught, getting off with a slap.

That’s also  why the story ‘Bernie Madoff Awaits Sentencing’ was so suspenseful: Anybody who could fog a mirror knew Madoff deserved to suffer and that prison is the civilized proxy for suffering. But would Judge Denny Chin be merciful? Could Bernie’s high-priced lawyers make the justice dance to their client’s tune? The tension between what we “know” to be right and what could actually happen provided a bubbling pot of emotion and anticipation.

Now the Enron legislative babies known as the Sarbanes-Oxley Act and the White-Collar Crime Penalty Enhancement Act of 2002 (WCCPA) have made it possible for judges to hand out severe sentences to white-collar criminals,  more severe than federal sentencing guidelines allow. The result? According to the Harvard Law Review note, many white collar criminals are playing the system like a fiddle.  Randomness rules. Some get off light and others not. Bernie got 150 years. Sholam  Weiss, who made $450 million disappear in an insurance fraud, got 845 years in prison. Dennis Kozlowski, the Tyco exec who also stole nine-figure sums (including cash for a $6,000 shower curtain), got 8 1/3 to 25 years. Don’t even look for any rhyme or reason.

Sophisticated criminals have taken note, praying on the naive with the full understanding that if caught, the penalty might not be so bad. In fact, the Harvard Law Review states that the most sophisticated plan their escape route with their lawyers by using the system to trap less sophisticated collaborators — allowing the “most” guilty to suffer the least. The author explains:

Unfortunately, both the Act and the WCCPA have proven overly rushed and insufficiently prescient to deal with the changing face of business crimes in America.6 This Note argues that a major reason for this result is that judges have reacted to the harsher WCCPA sentences by increasingly departing from the Federal Sentencing Guidelines. For this reason, WCCPA-enhanced sentences have become at least as disparate and unreliable as white collar sentences were in the past. Instead of deterring crime, the WCCPA has made criminal punishment less of a fear for those who would commit fraud. In order to remedy the damage caused by the last seven years of unpredictable sentences, either Congress or the United States Sentencing Commission must take steps to stabilize and rationalize the white collar sentencing system.

In other words, not only is a system of uneven sentencing unfair it encourages more bad behavior and thwarts our taste for revenge.

Revenge is an important sentiment to feed, according to behavioral economist Dan Ariely in an update to his bestseller, Predictably Irrational. Revenge, which may seem like a base motive, can be very effective in deterring uncivilized behavior. Ariely postulates:

Imagine that you and I are living 2,000 years ago in an ancient desert land and I have a mango that you want. You might say to yourself: “Dan Ariely is a perfectly rational person. It took him 20 minutes to find this mango. If I steal it and hide so that Dan will need more time to find me than go and get a new mango, he will do the correct cost-benefit analysis and set off on his way to find a new mango.” But what if you know that I am not rational, and that instead I’m a dark-souled, vengeful type who would chase you to the end of the world, take back not only my mango but also all of your bananas? Would you still go ahead and steal my mango? My guess is that you would not. In a bizarre way, revenge can be an enforcement mechanism, supporting social cooperation and order.”

And revenge is truly sweet. Ariely reports that studies show that revenge excites the striatum, ” a part of the brain associated with the way we experience reward.”

Many of of us who watched the drama unfold in the courtroom today may have felt a slight rush when Madoff was shown that vengeance belonged to the people — even to those of us who were never sent a penny his way. But as a society we were all hurt by someone who played the system like a fiddle; there were no innocent bystanders in this story. But for revenge to be complete it must also be effective. It is time to take a good hard look at the laws that were hastily slapped together after the Enron scandal and to plug its holes.

Image via Flickr

The news can make our glasses feel half full (or empty)

Dow Jones & Company Inc.

Image via Wikipedia

Dow Jones has discovered something rather nifty: you can recycle yesterday’s news to tell us about shifts in the economy. It’s nice to know that old pixels have value. I’ve written a lengthy story about if for The Big Money, but I want to share with True/Slant some of the details and what makes it interesting to me — the intersection of news and behavior. Can what we write influence the way people act?

First, a brief summary of the Economic Sentiment Index, which scans a set of 15 newspapers from cover to cover to establish the tone of the news — are we feeling good about the economy or not? DJ ranks the sentiment from 0 to 100 and gives it a number. The higher the number, the better we’re feeling. After back-testing the search algorithm to 1990, DJ has declared the indicator ready for prime time. The April number released Thursday was 27.6 — up from the November low of 22.2, but still scraping the bottom. What’s noteworthy is that the ESI, known internally as the Optimism Index, seems to have bottomed before the more established surveys — Consumer Confidence and Consumer Sentiment.

Why does it work?

Here’s what Robert Shiller, author of Irrational Exuberance, has to say: “Although the news media – newspapers, magazines, and broadcast media, along with their new outlets on the Internet – present themselves as detached observers of market events, they are themselves an integral part of these events.” But the media are not prime movers in the market – and by extension I would add the economy – but amplifiers. The media operate in a way that creates a feedback loop – a self-fulfilling prophecy. And the media create a communal reality that may be very different from the private lives of news consumers. That communal reality can act on the way readers behave in both marginal and critical ways.

Take the coverage of the recession. If I write recession, how many readers at this moment automatically think to themselves on some level: “The worst since the Great Depression”? The power of that phrase – the Great Depression – prompts everyone to look over their shoulders, even people who haven’t been hurt — “the worried well.”

The recession meme as crafted in the press – worst since the Great Depression – conjures an image like a hurricane indiscriminately washing over the entire country. But in fact it may really be a demon twister that flattened vast areas of the country – Detroit, California, Southern Florida – but left many other areas barely touched. As a nation, though, we are all battening the hatches and wearing our rain boots.

Best-selling author Dan Ariely confides to me that he and his wife felt as if they needed to make amends for taking a vacation last October when the economic storm was cresting. They have been fortunate during this crisis to remain largely unscathed (well, if they don’t look at their retirement account statements). They hesitated to publicize the difference between their private reality and the shared national story, even to friends who were equally well off. Many other people I know aren’t buying clothes or going out to eat because they are feeling uneasy — although that may be shifting a bit now.

In my story for The Big Money I also note that the media were an unnamed player in the Bank of America drama at the end of last year. The feds reportedly squashed any attempts by BoA to undo its purchase of Merrill Lynch because it feared for the consequences. In other words, the feds feared that if the news outlets began writing about just how awful things were at Merrill, there could have been a run on the financial system. I think the feds were wrong — but the concerns are clear.

Shiller summarizes the power of the press this way in his book: “The history of speculative bubbles begins roughly with the advent of newspapers.”

It’s something to think about.

Citi profits don't signal big payday ahead

Capital markets trading helped to push Citigroup into unfamiliar territory in the first quarter — the land of profitability. Well, profitability for a firm that has taken $45 billion from the government and now owes so much money on preferred shares dividends that per share earnings swung to a loss.

So on the conference call with CFO Ned Kelly, one analyst asked: What about those bonuses for those traders and investment bankers? Actually, he didn’t use the word bonuses, because no one uses the word bonus in mixed company anymore. He asked about “incentive compensation.”

Kelly snapped back pretty quickly: “We don’t pay based on one quarter.”

The ailing banking giant attributed the big trading gains to “widening spreads” in various instruments, including interest rate products, currencies, and fixed income. In January the markets were turbulent, making for a profitable month for many. Does this mean that the company was raising its risk profile with taxpayer money? “There was no rise in value at risk,” a Citi spokesman said, referring to a controversial measure of risk known simply as VaR. VaR has been blamed in this crisis for making managements across Wall Street too complacent about their risk exposure to the mortgage market and their levels of leverage. VAR provides a snapshot in the moment of risk; but doesn’t reveal weak points in the system in the event of major market disruptions — to wit, Bear Stearns, sub-prime mortgages and Lehman Brothers. I was surprised that the spokesman so casually dropped the VaR as the sine qua non as risk-taking.

For the record, Citi posted $1.59 billion in net income in the first quarter, compared to a $5 billion loss a year earlier and a $17.5 billion loss in the fourth quarter. But per share earnings showed an 18-cent loss because the company needs to pay $1.3 billion  (24 cents/share) in dividends to preferred shareholders. In addition, the company took $1.3 billion in cash flow for the anticipated conversion of preferred to common stock. A spokesman said it was too complicated to tease out what the per share “impact” of the conversion price reset would be. Shareholders know, however, to expect dilution to leave them with one-fourth the size of their original stakes.

Citigroup and the other bankers should also offer incentive compensation to the accountants who changed a rule in 2007 that enabled Citicorp to post a $2.5 billion gain because the value of its debt has dropped so dramatically. Bloomberg reports: “Under the rule, companies are allowed to record any declines in the market value of their own debt as an unrealized gain. The rule reflects the possibility that a company could buy back its own debt at a discount, which under traditional accounting methods would result in a profit.”

Sentiment on Wall Street has shifted: Most investors are increasingly willing to find the silver lining in earnings and economic data. But today, after a trio of “good” earnings reports this week from TARP recipients Goldman Sachs, JPMorgan and Citicorp, investors are pausing. They wonder if the profits are fleeting. The bailout firms did a good job trading and Citicorp and JPMorgan each benefited from a quirk in accounting. But  Marketplace reports that some have concluded that the “consumer remains strapped.” And with unemployment still high it could be some time before anyone will see profits based on fundamentals.