The Futility of Utility
A personal essay
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So...I wrote something weird. Usually when I write it is because I have an opinion I want to share. This week I sat down and these words just poured out. They're a reflection on utility, my time as a Mormon missionary, and how we deploy our capital. It is new and I'm nervous. I hope you enjoy this little freebie from me to you.
Perhaps the most important piece of analysis I ever performed was done while I resided in a stupidly hot apartment in the hills of Oakland. In a bedroom with no TV, one window, and absolutely zero forms of entertainment, I laid back and noodled on the highest ROI use of my free time. My largest constraint was that I had absolutely no money. Zero, zilch, nada. Going to In-n-Out was a special treat and I used to eat the free cereal at work for nearly all my meals.
As I sat alone in this little room, sweating and miserable, I sketched out a formula for how I could most effectively use what little money I had to entertain myself. It came out like this:
Hours of Entertainment / Total Cost = Unique Distraction Units (UDU)
Using this formula you can get a rough approximation of how much value you get per dollar spent. A videogame that costs 60 bucks and takes 60 hours to complete gives you a Distraction Value score of 1. A movie in theaters is a much worse deal. It costs $20 bucks and gives 2 hours of entertainment, yielding a UDU score of 0.1. However, there is a next step in the formula—connecting the UDU to the utility gained. Not all hours of entertainment are created equal.
UDU x Total Utility Gained = Total Entertainment Value (TEV).
An audiobook that was 60 hours long, cost 12 dollars, and gave me a personal level 30 utility units resulted in a total entertainment value of 150. It seemed fairly simple! I just had to run the algorithm over and over again, comparing TEV scores, and then pick the activity with the highest score that I could afford.
However I quickly ran into a problem—my scores kept shifting. Some days when I was motivated and alert, the gym would pull a 100+ TEV. On other days, when my body felt composed purely of mashed potatoes, the gym might have a TEV of 5. The issue was the last variable, Total Utility Gained kept changing on me.
In neoclassical economics, the definition of utility is roughly, “the value or enjoyment gained by consuming a good or service.” The core assumption at the heart of that definition is that consumers are rational and maximize their available utility. And abstractly, perhaps proudly, our inner intellectual may want to agree with this definition. Of course, the aggregated human population would act in a manner both rational and self-interested!
Well, I didn’t. I spent most of those months just watching reruns of the Office which may be so bad for me that it ends up having a negative TEV. Why? Why couldn’t I be better? This frustrated the rational analyst in me to no end. My formula and logic were sound, why couldn’t I force myself to follow it? Why couldn’t I behave like a rational, utility-maximizing individual?
Why people make stupid, self-destructive choices is something that nearly every philosopher since Aristotle has wrestled with. So far, there hasn’t been a convincing answer. Our own, ultra-modern, highly-scientific institutions have also failed.
- The sociologists who love the work of Weber would say that humans are unable to behave rationally because of social structures.
- Psychologists may blame individual temperament or mental barriers.
- Neoclassical economists would completely ignore me, write some abstract mathematics to confuse the laymen, and tell me to pull myself up by my bootstraps.
- Behavioral economics would support me in my failure by saying that I have “bounded self-control.”
The reason why that formula, created so long ago, has become so important to me is that it was the starkest framing of the futility of utility. Despite how desperately I wished it, no matter how much I prayed for it, I could never make myself truly utility-maximizing. There was always something that got in the way of making the right choice.
In the pursuit of utility maximization, I ended up making my life more miserable.
When I had this realization that the pursuit of perfect utility was folly, it became a sort of intellectual earworm for me. I kept seeing it all over the place. The more I looked, the more I saw this same phenomenon occurring. Rather than being confined to my own social habits, I saw similar choices being made at work. Exalted executives and proletariat peasants, the whole organization from top to bottom, made sub-optimal utility choices constantly.
Good people, bad managers
I kicked off a recent essay on Spotify with this anecdote,
“Within 24 hours of employment at Pandora Radio, I knew the company was destined for doom. It was my first internship in 2016 in the Bay Area, with a role on the corporate strategy team. At the time, executives would stride around the office, lauding Pandora’s superior music recommendation capabilities and long-time leadership in the space. There was some panic over Spotify, but Pandora felt it could respond well. However, as Evan walked over to his desk he saw a C-suite executive happily bopping his head, Spotify’s desktop app open on his computer. When Evan later asked that executive why he was on Spotify, he responded simply, “It is more convenient.”
Obviously, the Spotify threat should’ve been taken more seriously when Pandora’s own executives preferred the service. And to be fair, there were lots of serious, big discussions about how to respond. The highest utility choice for the company was to respond appropriately and crush the Swedish upstart. However, the highest utility choice for the company is not the same as the highest utility choice for the individuals. There were many people whose lives would be significantly worse if we made the switch to becoming a streamer. Even though they were equity holders! Even though the long-term fiscal and utility-maximizing choice was to go head-on with Spotify, some employees dragged their feet. There was some kind of mismatch between what they wanted (to protect their jobs/lifestyles) and what the company wanted (to do anything but be acquired by SiriusXM).
This pattern of employees helping themselves over helping the company is a fairly understood one (and is something I’m actually in favor of in some circumstances). However, I’ve also seen good ideas dismissed because of a founder’s pride, managers fired because their talent threatened the person above them, and employees self-sabotage their careers with sexual harassment. There still seem to be poor choices made and utility not maximized.
In the field of employee productivity, just like in academia, there are dozens of frameworks and theories to explain and remove this problem. Objective, Key Result. Key Performance Indicators. Directly Accountable Individual. Good to Great. The list goes on and on. All of these methods hold some measure of truth. I’ve seen them work well and I’ve also seen them destroy companies.
Note: Just as there are theories to explain why individuals don’t do the right thing, similar theories exist for companies. Disruptive Innovation from Clayton Christensen, Porter’s Five Forces, the list goes on. If you become a student of business history you’ll note that various theories of corporate governance rise and fall. In the 90s, GE made conglomerates good. Then in the 2000s, Google proved that theory wrong. Conglomerates were out, focused companies were in. Then suddenly, conglomerates were back! Amazon’s relentless appetite for uncorrelated businesses was suddenly wisdom instead of folly. In my opinion, the chattering class will just say that whatever is the current thing is the “right way to do business.”
So yet, again I’m left wondering why don’t people act rationally and maximize their utility.
Some of the hardest lessons of my life occurred when I was a missionary.
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