FYI(News): Amazon gets an edge with its secret squad of PhD economists

[Arcadia]

From CNN, very long article https://www.cnn.com/2019/03/13/tech/amazon-economists/index.html

“Estimating inflation is a tricky and complex task. In the United States, the government's Bureau of Labor Statistics sends testers to stores to record the price of everything from cheese to tires, and surveys consumers over the phone about what they spent on gas and funeral services.

Amazon thinks it could do it better. 

With help from outside researchers, the company's economists are working on a wayto measure inflation using thousands of transactions across its own platform. Automatically analyzing product descriptions allows them to better assess the quality of a dress or a juicer or a bathmat, theoretically creating a more accurate, up-to-date index of how much things cost. 

That's just one way Amazon is using the squad of economists it has recruited in recent years. The company has turned so many businesses, from retailing to cloud computing, inside out. Now Amazon is upending the traditional role of economists within companies, as well as the field of economics. 

Amazon is now a large draw from the relatively small talent pool of PhD economists, which in the United States grows by about only 1,000 new graduates every year. Although the definition of "economist" is fuzzy, the discipline is generally understoodas the study of how people use resources and respond to incentives.

In the past few years, Amazon has hired more than 150 PhD economists, making it probably the largest employer in the field behind institutions like the Federal Reserve, which has hundreds of economists on staff. It was the only company with a recruiting booth at the American Economics Association's annual conference in January, handing out free pens and logoed stress balls.

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Amazon's economists game out real estate decisions, set the lowest prices that will deliver a profit, precisely determine what customers care about and whether advertisements are working — all using machine-learning algorithms that automate decisionmaking on a massive scale. It's the kind of asset that smaller companies can't always pay for, allowing Amazon to pull further and further away from the competition.

Other tech companies that also make effective use of economists — like Uber, which has a 30-person team — speak with frank admiration of the apparatus Amazon has built. "Amazon is the only firm that has hired a lot of economists, let alone done it successfully," Uber's chief economist, Jonathan Hall, said in a speech to the American Economics Association in January. While many companies have hired economists as public-facing spokespeople or to guide general corporate strategy, Hall explained, both he and Amazon try to integrate them as key advisers on nearly every business decision, using enormous amounts of data to replace intuition with science.

And in the meantime, Amazon is reshaping the economics field in its own image. 

"The folks at Amazon and Uber are not doing the same sort of traditional chief economist's role," said Tom Beers, executive director of the National Association of Business Economics. "They're doing something completely different."

 

The rise of tech economists 

 

Economists are not new to private companies, where they've long helped forecast macroeconomic conditions to guide strategic decisions about what to produce, which markets to enter and where to source raw materials. 

They're not even new to the tech industry: Companies like IBM, Intel and Microsoft have had them for decades. Google's chief economist, Hal Varian, helped design the novel auction model for the company's IPO and also helped make the case that Google wasn't violating antitrust laws. Google now says it has about 300 economists and statisticians on staff, though it wouldn't give a more detailed breakdown. It is believed in the field that Amazon employs more PhD economists than any other tech company.

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Two years ago, the National Association of Business Economics started an annual conference just for tech economists, featuring remarks by four different Amazon economists and a reception sponsored by the company. 

The number of tech companies advertising for economists in the American Economics Association's job listings database has risen from 15 in the 2014 to 2015 academic year to 21 in 2017 to 2018, according to a recent paper from Harvard Business School professor Michael Luca and Stanford Graduate Business School professor Susan Athey — a former economist at Microsoft. So far, the current year is on track to beat that number. And it's probably an undercount, given that not all tech companies advertise their economist postings there. 

In all of those places, the transformative element has been data, and the ability to analyze it using the tools of software engineers combined with the economist's expertise in asking questions about what causes what. 

"Imagine if you're a very large retailer that has a large number of locations," said Martin Fleming, chief economist at IBM. "We could typically predict with about 30% to 40% accuracy what the likely performance is of that retail location. With the current capabilities with machine learning and artificial intelligence, we can get close to 90% accuracy in forecasting business at a particular location." 

That capability is perhaps most important to a company like Amazon, which has possibly more data than any other company — as well as a variety of lines of business that need data to operate, from lending to web services to last-mile delivery.”

[Frances]

It’s interesting they are only hiring PhD economists. At least among the ones I know, they only difference between those and ones with a Master’s is the dissertation. And the best ones are not the ones with PhDs.

[Tree Frog]

My DD is studying economics and had decided to get only a master's instead of a doctorate, because economists with doctorates usually taught and she wasn't interested in teaching. She was wanting to be hired at the federal reserve, but this year, they changed their requirements from a master's to a doctorate. I wonder if she'll be changing her mind.

I haven't

read the entire article, but it's certainly an interesting topic! Thanks for posting it.