Should Your Tech Firm Have an Economist?

I get asked this often by companies thinking about hiring an economist – especially around this time of year, as firms are putting together annual hiring plans and as economists are doing their annual job-market dance. Tech companies that posted openings this year on the main job board for new Ph.D. economists include Airbnb, Amazon, AOL, eBay, Facebook, iCIMS, Pandora, Uber, and Wealthfront. Many other tech firms, most prominently Google and Microsoft, also have economists.

My answer comes in two parts. First: what do economists actually do in tech firms? And, second, do tech firms really need economists to do these things? My answers come from my own experience and that of my economist friends and peers. (Two good recent takes by others on why tech firms have economists are here and here.) Some of this applies to firms outside of the tech world, too, though that’s not my focus; and my answers surely don’t apply to all tech firms or to all types of economists.

Economists in tech firms tend to do four things:

  1. Advise on strategy. Economists often help firms plan and make investments by analyzing and forecasting economic trends, while thinking about how those trends will affect the business. They might help size a market; estimate prices for something the firm is selling; or estimate prices for something the firm is buying, like employees, office space, or even other firms. Economists might run the corporate analytics or business intelligence team and work closely with the CEO and the finance team.
  2. Build or improve the core product. Economists often work directly on the core product, especially in firms developing new advertising models or new transactions platforms. Economists are naturally drawn to the challenges that these firms wrestle with, and cutting-edge economics research can be valuable to these businesses. Which firms are these? Some evidence: at the just-completed annual economists’ conference, the companies most often named in academic paper titles were Uber and Amazon. Plus, economists from those firms as well as from eBay, Facebook, Google, Microsoft, and Pandora presented at the conference.
  3. Evaluate economic impact. Firms often want to understand or trumpet their economic impact. They might do this as part of an antitrust or competitiveness-practices case; to lobby for particular regulatory or legal actions; to build goodwill; or – believe or not – as part of a genuine effort to make a positive social contribution. Key internal partners for economists evaluating economic impact might be the legal, government relations, or PR teams.
  4. Build brand awareness, credibility, and thought leadership. Economists often do research, typically using a firm’s own data, to develop new insights about the sector or market that the firm operates in. Their output might be research reports, blog posts, tweets, or presentations. The audience for this research might include consumers, industry customers, investors, policymakers, or the media. The economist might be the company’s public-facing spokesperson on these topics, or work primarily behind the scenes. At sites that help consumers do important, complicated things — like finding a job (Glassdoor, Indeed), finding a home (Trulia, Zillow, Redfin), and finding a professional (Thumbtack) — chief economists create content that helps build the brand and boost site traffic.

It’s rare that one economist will do all of these things at a tech firm. A firm doesn’t necessarily need all of the things that economists could do, and even if it did, economists come in many flavors. Just as you wouldn’t want a dermatologist to deliver your baby, you probably wouldn’t put your in-house pricing-algorithm expert on CNBC to talk about market trends.

Most tech firms get by without economists. By the time a firm starts thinking about bringing on an economist, it might already have a team of data scientists and analysts with excellent quantitative intuition, strong coding skills, and model-building experience. The best data scientists are comfortable with a wider range of analytical and statistical methods, as well as general-purpose coding languages, than most economists are, though economists are increasingly learning these tools.

But economists come with a differentiated set of skills, training, and temperament that can be hugely valuable. (To be clear, I’m thinking about the flavor of economists I personally know best — applied microeconomists with Ph.D.’s from “saltwater” departments.) Economists’ comparative advantages include:

  1. Knowledge of economics frameworks. Many of the concepts that are second nature to economists are essential for making sense of markets, prices, and behaviors. Economists interpret almost everything that happens through the lenses of both supply and demand. We think carefully about how incentives affect behavior. We think not only about how actions affect prices, but also how prices, in turn, affect other actions. And we don’t believe there’s such thing as a free lunch (tech firms’ catered lunches notwithstanding). Economists consider these frameworks so essential that we’re easy to caricature: years ago, many of us joked that a particular famous economist with newborn twin daughters might name them Supply and Demand.
  2. Data detective and mash-up skills. Much of the data used at tech firms are those created or harvested internally, and often the challenge is how to manage overwhelming amounts of data. In contrast, economists often have to go out and find data for their research. Many economists develop strong detective skills for sniffing out new or overlooked datasets; know how to find and use Census and other established, benchmark data; and have a sense for how to combine multiple datasets in new and unexpected ways.
  3. Hypothesis-driven statistical modeling. Economists tend not to let data “speak for themselves” – they (and many statisticians and other quantitative social scientists) try to develop theoretical models or hypotheses before unleashing statistical tools, while making assumptions (sometimes reasonable, sometimes not) about the data. These methods are designed to infer cause-and-effect relationships between variables. In contrast, commonly used data science methods are more geared toward making predictions; these often involve black-box models that offer superior predictive accuracy but less transparency about the relationships between variables. This post nicely summarizes the differences between how economists and data scientists traditionally approach statistical modeling.
  4. Cleverness about experimentation. Economists sometimes conduct proper randomized, controlled experiments, but for many questions that’s not possible (like estimating the economic value of an additional year of education). Instead, economists come up with clever ways to construct “natural experiments” by seeking out random events, arbitrary rules, or beyond-human-control conditions that arguably resemble a randomized, controlled experiment. As a result, many economists are sophisticated about experimental design, keenly aware of statistical bias, and often able to squeeze lemonade insights out of lemon data.
  5. Culture of internalized data scrutiny. Economists typically make damn sure their numbers are right. Anyone who has written an economics dissertation has seen someone – perhaps themselves – get ripped to shreds at an academic seminar. Economists gossip about their peers’ data errors. Economics is a culture of anticipating objections; finding your own mistakes; and getting it right before you present your work. This methodical training can admittedly be a liability in a fast-paced start-up, but you want that kind of self-scrutiny and caution before your data are presented to the judge, the regulator, or the Wall Street Journal reporter.

Economists do not have a monopoly on these advantages. Many other quantitative social scientists, statisticians, and researchers share these qualities, as do many data scientists and analysts, some of whom have solid economics training themselves.

So should your tech firm have an economist? Forgive the classic two-handed economist response, but: it depends. On one hand, economists don’t come cheap; you might not urgently need what economists can do; and you might already have others on staff who are close enough substitutes for economists. On the other hand, economists can have a profound impact on strategy, product, impact-evaluation, and brand-building, using powerful tools and a unique approach. And if you’re still not sure whether the benefits outweigh the cost, that’s another thing that economists can probably help figure out.

Thanks to Selvin Akkus, Roy Bahat, Nikesh Parekh, and Eric Rice for thoughtful feedback on previous versions, and to several other investors, executives, and economists with whom I’ve had this conversation over the years. This post is based on my presentation at an April 2015 meeting of the San Francisco chapter of the National Association of Business Economics. Apologies to any companies I missed in my lists of those posting jobs and presenting at the annual meetings – let me know and I’ll make updates.