« MarginalRevolution book forum | Main | How to avoid Harry Potter spoilers »
The wisdom of Hal Varian
For decades, many of the brightest graduates in economics sought their fortune in finance. In coming years, they will seek it in marketing, as the Internet gives all companies the information-rich environment once available only in financial markets.
There is much more here; Varian of course is now working full-time for Google. Thanks to Chris F. Masse for the pointer.
Posted by Tyler Cowen on July 20, 2007 at 09:30 AM in Web/Tech | Permalink
Comments
I very much doubt that marketing will ever take the top graduates since the money involved is nowhere near that available in corporate finance. By money, I am of course referring to both money at risk and wages. Whilst well paid by marketing standards, economists in marketing are not paid anywhere near their counterparts in corporate finance.
Posted by: John Dawson at Jul 20, 2007 10:06:59 AM
Forecasting future prospects for econ grads is probably no easier or harder than other similar forecasts. In the comment above, John Dawson uses past trends and predicts that the future will remain like the past. Hal Varian is probably relying on his interpretation of his (perhaps very atypical) recent experiences to forecast that the future will be different from the past. Maybe some of those Google quants have examined data on the topic?
Are there other forecasts out there that students can use to prepare for the employment markets of the future? Perhaps there needs to be a prediction market for future economist wages by industry segment.
Posted by: Mike KP at Jul 20, 2007 10:48:09 AM
Maybe in the future, but as of now, our numerous marketing
grads at JMU get the lowest starting salaries except for the
hospitality management folks. Of course, it may be that econ
grads going into marketing will do better than the marketing
grads themselves.
Posted by: Barkley Rosser at Jul 20, 2007 11:11:09 AM
Why doesn't anyone tell you when you are a teenager how much finance people make? This isn't fair.
Posted by: Dirk at Jul 20, 2007 1:12:28 PM
Dirk - because teenagers don't listen. And from their perspective not without reason. Like cicadas, financiers disappear into cubicles after undergrad, where they languish as pasty little creatures until their mid-thirties. At which point they generally turn out to be either responsible upper middle class parents or the slightly skeevy types that act like 22-year-olds-with-15-years-practice. All of which tends not to look too attractive
from the perspective of a teenager.
Which is why lines like "I've wanted to be an investment banker since I was a child" tend to be a sure way not to get the job.
Posted by: mkl at Jul 20, 2007 1:31:54 PM
All the data crunching and financial model building quants I have ever worked with had engineering and/or computer science degrees. I will concede that a business person needs to drive the quants, but they can have any kind of background.
As far as paying them more...doubt it. Typically, these types of systems are investments made after you have positive earnings or at least some momentum no matter what the industry. Unless you go to work for a well established tech firm with consistent cash flow, my guess is that you can make a really great wage (probably with better stock compenstation), but just not a Wall Street wage (with untouchable bonus potential).
Posted by: Patinator at Jul 20, 2007 3:10:09 PM
Barkley Rosser writes "our numerous marketing grads at JMU get the lowest starting salaries except for the hospitality management folks."
Statisticians, economists, and programmers who do data mining for online transaction security (e.g., for credit cards, or for similar issues at places like Paypal and Ebay) seem to be cagey and closedmouthed about everything including their salaries.:-| My general impression, though, is that they are on a rather different payscale than people who get degrees in law enforcement.
Posted by: William Newman at Jul 20, 2007 3:14:16 PM
Half-Sigma thinks Cowen should be paying more attention to his blog. He has been writing about the market economy transformation for some time. Here is one of his posts on the topic.
Posted by: tommy at Jul 20, 2007 3:40:50 PM
Regarding the majors issue, actually finance this past year
replaced marketing as the top major for our graduating seniors
in the JMU College of Business. However, I know that their
starting salaries are not all that impressive (econ majors
beat them), not that much better than the marketing ones.
There have been lots of layoffs in the investment banking
industry, although things seem to be picking up again.
What does do well is our very small quantitative finance
program. They have the top starting salaries of our majors.
They take lots of math and econ, and skip the "business core."
So, yes, it is the quants, with many having backgrounds in
physics (including the very high powered "econophysicists"),
engineering, computer science, and math, generally at the
top of the compensation pile in the actual finance field.
Posted by: Barkley Rosser at Jul 20, 2007 4:06:34 PM
For me the key is to think of marketing as a two way street. It's not: we have this widget, how do we sell it? With manufacturing and information costs dropping, the question is, what kind of widget will the customer want? The marketer is like a market maker in the stock market, helping both the customer and the manufacturer create a product that enables both to gain. Just as financial intermediaries take on risk or mitigate risk, marketers will play a similar role. Think of a really long long-tail. Think of Playstation 3 failing to sell and Nintendo Wii unable to meet demand. Companies won't have marketing departments anymore, because marketing information will be too valuable and too broad. Why keep that information to make one product, when you will be able to use it to design every product a customer could want? The marketers will be the kingmakers. Apple may already be there with the iPod and iPhone production totally farmed out. I assume that's what he's talking about, otherwise I don't see how the marketers earn more than financeers.
Posted by: 8 at Jul 20, 2007 4:15:45 PM
The subsegments of the marketing data industry have a strong tendency toward winner-take-all monopoly -- e.g., the Nielsen TV ratings.
I worked for the first company to use supermarket scanner data in marketing research, and for its one competitor. But in the scanner data business, the DOJ prevented the two leaders from merging in 1987 and the pugnacity of the two competitors caused a subsequent price war that went on for over a decade, with disastrous effects on the stock price.
Posted by: Steve Sailer at Jul 20, 2007 5:32:12 PM
The subsegments of the marketing data industry have a strong tendency toward winner-take-all monopoly -- e.g., the Nielsen TV ratings.
I worked for the first company to use supermarket scanner data in marketing research, and for its one competitor. But in the scanner data business, the DOJ prevented the two leaders from merging in 1987 and the pugnacity of the two competitors caused a subsequent price war that went on for over a decade, with disastrous effects on the stock price.
Posted by: Steve Sailer at Jul 20, 2007 5:32:44 PM
Varian claims, "I think marketing is the new finance. In the 1960s and 1970s [we] got interesting data, and a lot of analytic fire power focused on that data; Bob Merton and Fischer Black, the whole team of people that developed modern finance. So we saw huge gains in understanding performance in the finance industry. I think marketing is in the same place: now we’re getting a lot of really good data, we have tools, we have methods, we have smart people working on it. So my view is the quants are going to move from Wall Street to Madison Avenue."
I would strongly advise young people to take Prof. Varian's advice with a truckload of salt. Two decades ago, my firm had nearly real-time scanner data on every single product sold in a highly representative national sample of 3,000 supermarkets. We had outstanding quantitative analysts. And, what happened? We and our competitor both bled red ink for years because the industry was only big enough for a monopolist.
If you can get in with the next monopolist in marketing data, fine, but, otherwise, there is simply so vastly more money sloshing around on Wall St. than in marketing that you would be a fool not to go to Wall St.
Posted by: Steve Sailer at Jul 20, 2007 5:41:49 PM
To Steve,
Wall Street is a very tight ship and unless you are a grad from the "top schools" fuggedabout it. As for
waht you say it seems typical of anecdotal data--confirmation bias and then some. Is data mining growing-yes
Is there a lot of opportunity and money in it--yes. Yes, I am an economist, I teach at a top 20 school and I do data mining. Confirmation bias sure. Look at the number of books in data mining, the jobs being offered to MS
economists who can do SAS enterprise miner. So, use some data and and derive some valid conclusions
Varian is right.
Posted by: Robert C at Jul 21, 2007 2:22:19 AM
Anecdotal evidence beats no evidence!
And where is your evidence that quants make comparable amounts of money in marketing as they would on Wall St.
Posted by: Steve Sailer at Jul 21, 2007 5:54:40 AM
Anecdotal evidence beats no evidence!
And where is your evidence that quants make comparable amounts of money in marketing as they would on Wall St.
Posted by: Steve Sailer at Jul 21, 2007 5:55:02 AM
The reason why Wall Street makes so much money:
The Wall Street industry makes huge amounts of money because they engage in cartel-like behavior to limit competition and limit the number of people coming into the industry. It's impossible to get a job in the best Wall Street career tracks unless you have stellar grades from a top graduate business school like Harvard (Wharton and Columbia are also good) and/or you have some sort of inside connections. And without a job in the right career track, you can never acquire the knowledge capital necessary to compete in the industry.
Posted by: Half Sigma at Jul 21, 2007 11:03:08 AM
Goodness Steve,
Evidence: Titles of books on data mining. HBS Press-Competing on Analytics. The well known case studies of Capital One, Harrahs, Amazon, Lands End and infinitum using data mining, KD, AI to inform strategy and increase profitability. The exploding number of people teaching data mining at leading universities in IT, Stats depts, Marketing and some of us economists are making good coin at it as well. No enough for you, since you are not a tuition paying student I will provide you some abbreviated hints--Enter Data Mining in Google, enter data mining in Monster.Com and Washington Post.Com. Its there if you want to see it. Of course, I do not discount the fact that some firms and individuals discount the value of data mining and rely on 20 year old anecdotes to base their decisions. The evidence is there, but again, confirmation bias is a bear. Moreover, if you are a bright graduate of a place like GMU, Maryland, Texas, Wash U you can forget getting into the really fun and lucrative finance careers. Data mining and marketing is wide open and geographcially decentralized--look at the cool stuff they are doing at Cap One in D.C. ......
Posted by: Robert C at Jul 22, 2007 1:15:35 AM
Economists are good at aritmetic, not marketing.
Posted by: Kent Guida at Jul 22, 2007 12:40:15 PM
My prediction is that ultra mathematical theorizing that leads
to NO operational propositions will pay less and less. Compare the
Journal of Economic Theory to the Journal of Finance; where are
operational propositions being generated AND tested? Is it a surprise that
graduate degrees in finance tend to pay more? Again, my prediction
is that the worm is turning and will continue to turn against the
current premium being paid in economics for the producers of so
called "pure theory" (the kind that is so complex that it ceases to
qualify as science). I have no idea how long it will take the worm
to turn; there is lots of path dependency to contend with.
Posted by: indianajim at Jul 25, 2007 9:30:44 AM
Please note: I didn't say "For decades, many of the brightest graduates in economics sought their fortune in finance..." That quote is from the WSJ reporter, Greg Ip.
When he asked:
WSJ: Will economists earn the money in marketing that they do in finance?
I replied:
Varian: There’s this old line about Wall Street, this magic moment in a transaction when the money leaves one person’s hands, and goes to another, if you are there to catch a little as it drops off, you can do very well. I’m not sure if marketing has that same characteristic.
-----------------
That being said, I do think that finance is getting overcrowded and there are very attractive opportunities for quants in marketing.
Posted by: Hal Varian at Jul 29, 2007 5:39:12 PM
Please note: I didn't say "For decades, many of the brightest graduates in economics sought their fortune in finance..." That quote is from the WSJ reporter, Greg Ip.
When he asked:
WSJ: Will economists earn the money in marketing that they do in finance?
I replied:
Varian: There’s this old line about Wall Street, this magic moment in a transaction when the money leaves one person’s hands, and goes to another, if you are there to catch a little as it drops off, you can do very well. I’m not sure if marketing has that same characteristic.
-----------------
That being said, I do think that finance is getting overcrowded and there are very attractive opportunities for quants in marketing.
Posted by: Hal Varian at Jul 29, 2007 5:40:13 PM
I come from asia, injoy 室內設計,work in a 搬家公司,other enjoy isecosway和科士威,good see U。
Thanks.
Posted by: jack at Jan 6, 2008 9:38:07 PM
Posted by: 鑽石 at Apr 2, 2008 9:22:48 PM
