Human behavior trove lures economists to US tech titans

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Google Inc. headquarters in Mountain View, California

Wooing this year's best graduate students in economics will be familiar faces from Harvard, Princeton and other U.S. universities seeking assistant professors -- and EBay Inc. (EBAY)'s not yet three-year-old economic research team.

The American Economic Association's annual meeting kicks off today and EBay won't be the only technology company aiming to tap more brainpower at what doubles as the discipline's premier job fair. In the past few years, Google Inc. (GOOG), Inc. (AMZN) and Microsoft Corp. (MSFT) have amassed teams of in-house economists to make sense of the oceans of data they're collecting.

The trend has also been a boon for researchers handed some of the world's richest and largely unexamined treasure troves of human behavior.

"It used to be that if you got a Ph.D. in economics, you went to government, you went to academics, you went to a consulting firm, or you went to Wall Street," said Greg Rosston, deputy director of the Stanford Institute for Economic Policy Research and a lecturer at the university near Palo Alto, California. "Now there's another option."

About 11,000 scholars will take over a corner of downtown Philadelphia to present research, attend discussions and grab a beer with old friends. As a 520-session schedule unfolds over three days, including appearances by Federal Reserve Chairman Ben S. Bernanke and at least half a dozen Nobel laureates, much of the action will be taking place in the job interviews held in nearby hotel suites and conference rooms.

First meetings

This is where soon-to-be-minted Ph.D.s and mid-career economists will be shuttling -- sometimes sprinting -- between their first meetings with prospective employers. About 2,500 full-time students are registered this year. Those who make good impressions will be flown out to the institutions for another round of meetings.

Along with Twitter Inc. (TWTR), Facebook Inc. (FB) and Amazon, EBay is among the technology companies that advertised openings on the AEA's website over the fall. The world's largest online marketplace is hiring a one-year postdoctoral associate to work with its four full-time economists at its San Jose, California, headquarters.

The team's mission: top-notch analysis offering new peeks into human behavior that may also reveal ways to improve the company's service for buyers and sellers.

"˜Fantastic data'

"It's fantastic data for research and it's a fantastic area of study for economists," said Steven Tadelis, a professor at the University of California at Berkeley who took two years of leave starting in 2011 to build EBay's economic research team from scratch. "A fair amount of the work we've done has led to insights guiding the direction of certain products, or in a couple of cases have influenced a product quite dramatically."

It's this real-world impact that drew economist Michael Bailey to Menlo Park, California-based Facebook in 2012. Managers across the social-networking company come to his team of data scientists with various problems, and Bailey's group runs experiments to find solutions.

Their goal is to have the findings be used to make the social-networking site a better platform for both advertisers and the now more than 1 billion users worldwide, he said.

Bailey said he didn't even consider a career outside academia until Facebook asked him to join full-time after a stint there as a research intern. Even then, he was unsure: the point of enduring five grueling years of graduate school was to become a professor. Only after he returned to Stanford to complete his dissertation did he realize life in Silicon Valley was the better choice for him.

Faster pace

"The pace is just so much faster here and I'm much happier solving a lot of different problems than focusing on one problem for seven years," said Bailey, 30.

Besides, he says, "the data's just so awesome. It's an economist's dream."

The rise of the Internet company economist can be traced to Hal Varian, who started consulting with Google in 2002 as a UC Berkeley professor. He became the company's chief economist in 2007 and has helped hone the design of the company's search advertising auctions, central to the $50 billion business.

Other experts in microeconomics have since made similar moves. Preston McAfee joined Yahoo! Inc.'s research arm in 2007 and left for Google in 2012. Susan Athey, then a professor at Harvard and now at Stanford, started consulting for Microsoft in 2007. Patrick Bajari has led Amazon's team of economists since 2010.

Create positions

Those pioneers helped create positions for the newer economists. Technology companies first started recruiting at the AEA four or five years ago, according to Tadelis.

"Many large businesses of the past, be it automobile companies or large retailers, would have benefited from deep economic analysis and careful rigorous frameworks that help make decisions," said Tadelis, who continues to consult for EBay. "It's just that until very recently, it's fair to say that most of those businesses, if not the vast majority, were really run by managers making quick decisions based on experience and gut."

At technology companies that were already built on data-based algorithms, "data was king" and "that naturally brought in the use of economists," he said.

Recent paper

A recent Tadelis paper that will be presented at the AEA conference examines the effectiveness of paid Internet-search advertising. Companies that spent almost $32 billion on online ads in 2011 "seem to overspend on Internet marketing," Tadelis wrote in an Oct. 30 article with Thomas Blake of EBay Research Labs and Chris Nosko of the University of Chicago. Nosko, an assistant professor of marketing at the Booth School of Business, will present the findings.

The opportunities came just at the right time for the profession, with state schools shrinking their budgets and the financial services sector still hobbled from the 2008 crisis.

The pay is also surely more lucrative at these Internet titans than in academia. Economists working for U.S. employers in computer systems design and related services had an average annual income of $122,930 in 2012, according to data compiled by the Bureau of Labor Statistics.

That's 24 percent higher than the $99,480 average for the nation's 15,760 economists, according to the BLS -- and 40 percent greater than the $88,000 that entry-level assistant economics professors in the U.S. and Canada earn, as reflected in a 2013 survey by Inomics, an industry website.

Tiny minority

Even so, technology company economists are still a tiny minority both at their engineer-dominated companies as well as their academia-oriented profession. UC Berkeley's Tadelis says that universities are still the preferred destination for even his own students so close to the heart of Silicon Valley.

"Most students are thinking of the more traditional academic or think-tank routes, but I think this is a consequence of the rather young stage at which this endeavor seems to be," said Tadelis, who points to EBay's own group that has grown from zero to four full-time economists, which he notes is a rate of infinity. "If things continue in this way, I'm sure the team will grow even more."

The trend isn't limited to those with doctorates or Internet giants with thousands of employees. Bryan Balin is now a data scientist at UncommonGoods LLC in Brooklyn, New York. After completing his master's in international economics, he initially worked at the U.S. Treasury and then at Citigroup Inc.

Economic modeling

He still uses his expertise in economic modeling at the online retailer today, except with a twist. Instead of estimating a country's quarterly gross domestic product, he's now forecasting the company's sales down to the hour to help it allocate resources to the right place at the right time. He's also designing programs that comb through a customer's purchasing history and predict what they might want to buy next.

"At the Treasury Department, I was taught to write with a lot of cans and mights and maybes," said Balin, 28, who has retired his suits and ties in favor of jeans. "Here, I have a daily accuracy I'm accountable to" because "if I under-forecast, that means it's going to take longer to ship out our products."

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