Efficient Markets in Love and Work

September 19, 2019

What do entrepreneurs and people who suck at Tinder have in common?

They are both undervalued by the markets they participate in.

A few months ago I read an interesting paper about entrepreneurship. It explains that people become entrepreneurs when the labour market undervalues their real abilities. In this post I want to dive into the main idea behind this paper and see if it has any application beyond the world of work.

Before we begin, a quick definition: a market is efficient if the prices in that market reflect all available information. The public stock market is held up as an efficient market. When news about a publicly traded company is released, the market responds instantly; a flurry of buying and selling embeds the new information into the share price. Conversely, an antiques roadshow is an inefficient market. Similar goods can sell for wildly different prices depending on the information of buyers and sellers. If you know something, it is easy to pick up bargains. If not, it is easy to get ripped off.

The labour market isn’t as efficient as the stock market, but far more efficient than an antiques roadshow. You can gauge the market value of a would-be employee pretty accurately based on their credentials and references. Because real skill in most jobs is hard to capture on a CV, credentials serve as a proxy. For now, they’re still the best we can do.

We all know people who chase credentials at the expense of earning real skills. People who, for example, hire freelancers to ghostwrite their university essays, partying their way to an unearned First. Let’s call them Sneaks. These people are overvalued by the labour market, and their best chance of success is to continue deceiving their future employers.

There is a spectrum of sneakiness. Most Sneaks are sheepish, and only slightly favour acquiring credentials over learning skills. These are people who see individual aptitude tests as a collaborative activity. Or sometimes falsify their lab data. There is no shame in occasionally sneaking. Acquiring credentials is part of the labour-market game, and doing it efficiently is smart. When your credentials become decoupled from your real skills though, it can spell trouble.

Sneaking is a strategy with short-term success and long-term failure. You can blag your way into an internship or two to begin with, but in order to succeed sustainably, you have to eventually learn some skills.

The opposite of a Sneak is a Maverick. Mavericks, for whatever reasons, don’t really care about qualifications at all. Maybe these people spent all their time volunteering, writing for publications, or working on code. These activities aren’t baked into any particular credential. Unless adequate references for them are provided, they are unlikely to contribute to labour market value at all. Yet they are all examples of real skill.

Mavericks are future entrepreneurs. Their credentials consistently underrate their true skills. Unlike the job market, Mavericks know their real worth, and so are in a prime position to capitalise on their additional value. If you could trade people in the labour market like you can trade stocks, entrepreneurs are insider-trading themselves. They are betting the market has them mis-priced.

Mis-pricings in the labour market are getting harder to find. A generation ago, a 2:1 degree virtually guaranteed a cushy grad job, but today degree classifications matter less. Leadership positions, like being president of a society, have become more desirable as employers realise that a degree alone is not a good predictor of success in the workplace. Some companies require internships before offering fulltime positions so they can better evaluate your skills. These hurdles are hard to sneak past.

This analogy of Sneaks and Mavericks can be extended to another, less efficient market: the dating market. For most of human history, courtship was insular, mainly occurring within villages or between a few related tribes. Because primitive humans were constrained to a small geographic area, everyone knew each other, and there were limited potential partners. This led to pockets of quite efficient dating markets — information spread via gossip, and individual actions quickly became common knowledge. You had a pretty accurate idea of what your neighbours were like.

Living in cities marked a step change. Once groups of people grew way past Dunbar’s number, the market became inefficient — it became impossible to keep track of all possible mates. Until the arrival of the internet.

With the advent of online dating, and apps such as Tinder and Bumble, information about a bachelor(ette)’s desirability began being priced into the market. These apps construct a market value from your profession, degree, and of course, some choice photos. They also take into account the number of swipes you receive, which is kind of like being bought or sold in a real market. Apps like Hinge go further, taking into account more detailed personal information which further refines the accuracy of your dating market value.

What is the analogy to the job market? Who are our Sneaks and Mavericks?

Sneaks are overvalued in the online dating market. They are the classic he seemed fun online but as soon as we met up he bored me to tears”. They are long on pithy one-liners and filtered, scantily-clad photos, but short on substance. I knew a guy who used a photo of his more muscular brother on his own Tinder profile. He was a Sneak.

As with the job market, there is a spectrum of sneakiness, and most people are slightly sneaky — putting in the occasional over-edited photo here, posting a selfie with someone else’s dog there. Most people know not to trust photos which look edited on Tinder. Over time the dating market adapts to sneakiness.

Mavericks, in contrast, are undervalued. Perhaps they have some characteristic, like being a good listener, which is desirable in a partner but difficult to capture in their Tinder market value. Or maybe they’re just un-photogenic.

If Tinder dates often remark that they’re surprised by how attractive you are, it’s a sign you are undervalued by the market. In this case, either get a friend to help you with your profile, or eschew Tinder altogether. You’re more likely to find a good match” in your social circle, where gossip still travels and your real dating value is known. Like an entrepreneur, leave the existing system and strike out on your own.

As technology intrudes further into our private lives, both the labour and dating markets will become more efficient. More personal information will become structured data, and algorithms will get better at determining our market values in love and work. In such a transparent future, Sneaks will eventually get caught, and the stock of Mavericks will rise. I’m betting on them.

Thanks to Katie Hollands and Ned Davies for helpful comments.