Incentivizing Collaboration

I had lunch with my friend Eric Boles in Kansas City last week.  Although we both grew up as midwesterners, we spent a couple of fun years together in New Haven before Eric moved back to Kansas City.

Eric tends to find interesting work.  He worked as a barista at a funky little coffee shop downtown.  The cafe turns into a bar during the evening.  One night, late, several patrons began comparing tattoos.  The show and tell culminated with an immodest gentleman revealing his “dragon” tattoo.

Eric also worked as an assistant to the aging, bulging, and brilliant literary professor Harold Bloom.  Bloom is a rotund, slovenly, post-jewish, gnostic, rapier smart, lover and criticizer of all things literary.  He has plied his trade at Yale and NYU for many years.  If you haven’t read him, give him a try.  Eric drove him around, checked on his house while he was away, and ran errands for him.  Bloom lives on a respectable little residential side street near the university.  Once, when Bloom was away, Eric and I hung out at his house for an evening.  We perused his endless shelves of books.  We sat in his worn out recliner, hoping to be inspired by his muse.  But it didn’t work.  We just came away thinking how few books we’d read compared to him.

Eric’s most recent employer is a trading company called Tradebot Systems, Inc.  It’s a trading floor housed in a nondescript storefront in North Kansas City.  Their founder basically figured out a way to write software that can trade stocks faster and smarter than humans.  These trading robots - “tradebots” - are configured to make automatic trades all day, and all they need is a little supervision from human traders.  They’re kind of like digital pets, except they make you lots of money all day.  Eric tried to explain how all the software works.  I followed some of it.  One of my favorite pastimes is exploring the work that all my friends do.  Eric, thanks for the tour and for a decent lunch at the sports bar across the street.

At first, Eric’s traders were paid based on their individual performance.  Each tried to learn some basic training techniques, then bent them in new directions as they matured as traders.  There was no incentive to share any discoveries with others.  Eric unhitched pay from individual performance in order to tie it to overall performance.  This policy shift in how people are rewarded for their work spurred sharing and innovation.  When traders found strategies that worked, they passed them on to their new colleagues and then set off exploring other investing strategies.  Everyone agrees collaboration is a good thing.  Eric figured out how to incentivize it.  I’m for more of that.