After a few interviews, I’ve decided to begin writing for myself an interview memorandum to reflect upon improvements and strategies for the next ones. This one I feel like laying out a framework for approaching case interviews.

1. Start off by clarifying goals and results. The most important part for a case is understanding what the desired result is. Whether I’m designing a data system, formulating a solution, or estimating effects, I should understand what the overarching goal is before I even start to walk through my thinking. Who is my interviewer supposed to be? What information can they provide?

2. I tend to work in a iterative fashion as I walk through cases which lends itself to train of thought syndrome. Framework. I should lay out and notate a framework. Start from the beginning. List assumptions, available resources. List the goal and sub-goals that can be derived from that goal. Do not begin to talk about a solution before laying down this framework. My initial solution tends to change as I work through a problem and to mitigate that I can work through the problem on paper and the first solution I explain can at least be a fourth or fifth draft in my mind.

3. Immediately consider these questions as I’m working:

1. What are the advantages to this system? How can it be extended? How generalized is it?
2. What are the disadvantages to this system? What can it not measure?
3. How can this system work with extensions? Other systems?
4. If data-based, what do I track and measure and what do I not know? Can I get the information I don't know? Does it fit into the current scheme?
5. Think about the goal. Does this solve that problem? Does it scale to this problem? Are there any tangential goals that might be in question?
6. What company am I interviewing for and what does this question have to do with the company? What are the parallels and what should I focus on as I explain my solution?

4. Breathe. Take time and slow down. I’ve always had a habit on essay tests to just start writing. In class I never take notes and I work from memory. While this approach serves me well internally, I need to highlight my strengths in problem solving in a way that can be followed by the interviewer. Go back to the outline. Go back to the notes. Go back to the goal and review it again. I need to slow down and keep reviewing, move at a deliberate but more coherent and complete pace.

5. When working with data, lay out the specifics. Write down the tables, the relationships and the storage. This might not need to be conveyed during to the interviewer depending on position, but having this laid out provides the organization for explaining what data can be derived from the system.

6. Define the results and capabilities of the system that you’ve designed. Understand its flaws and think through its implementation. Important aspects: scaling, use case, expandability, applications, edge cases, any missing information? Always think about edge cases and the world view of the problem, don’t fall into the trap of assuming the topic, whether a store, business, or other, reflect the first example that comes to mind. Think of other environmental or confounding factors that may change the optimal design.

I may come back and add and edit this as I learn more. It’s important in all circumstance to always keep learning from any situation. Until the next one!

In its simplest form, prospect theory, originally pioneered by Kahneman and Tversky, explains why people make decisions to minimize loss rather than to achieve the highest expected value.

In a classic example consider two problems:

You are given $1000 and asked to pick one of two gambles:
A) 50% chance of winning $1000
B) $500 for sure

You are given $2000 and asked again to pick one of two gambles:
A) 50% chance to lose nothing
B) Losing $500 for sure

For the majority of survey respondents, in the first event they chose to gain $500 for sure, but when the event is framed as a loss, they chose to gamble. This is because of loss-aversion that is exhibited once you have a set reference point. The chance to avoid a loss becomes more tempting because we are so averse to losing once we have the $2000 in our possession even though the expected values of the gambles are identical.

Some day-to-day observations regarding leadership decisions while working in a public company seem to be neatly explained with prospect theory. Of these observations is the cultish obsession with revenue and EBITDA at my company. While financials reflect some measure of success, upper management has come to worship them as harbingers of life and death. One of the challenges that I have faced is the battle against upper management on whether to prioritize long-term goals vs short-term gains. In the losing battle I wage, I have seen time and time again a shift in prioritization from long-term progress to short-term goals. The idea of reference points and loss-aversion within prospect theory provide a possible explanation for these sub-optimal decisions.

Prior to an IPO, a company is often in a mode where they may be pre-revenue or unprofitable. A monetary loss may not be important and can be offset by a more intangible resource gain within the company.  Without public reporting, the reference point for the company is more fluid and changes with the needs of the company. The challenge of an IPO is that once a monetary reference point is set, these intangibles which may help the company in the future may become undervalued as they are not counted in the bottom line. The correct time for an IPO often comes when companies are growing the fastest and striving to become more profitable, exacerbating the possibility of missing projections and entering the realm of “loss”. In a public company, the focus is completely different with forecasting and quarterly announcements of targets. These promises become reference points set in stone for leadership and, when faced with the danger of missing the numbers, loss-aversion pushes decisions that will sacrifice anything to avoid losses. These initiatives tend to be ones that prioritize short-term revenue and padding while ignoring long-term impacts.

A second symptom of this creates an obsession with quantifying initiatives with a revenue/margin impact. This focus often de-prioritizes long-term initiatives because they often do not have immediate revenue boosts and are more resource intensive. Thus, by avoiding the losses based on a public reference point in a public company, leadership will trade the long-term gains for short-term value.

I believe that strong leadership is able to avoid these pitfalls, whether by understanding the economic concepts that drive their decisions, or by having a broader sense of what is good and bad for the company. As of yet I am still on the lowest rung of the corporate ladder; however, I do wonder if understanding these models can make us immune to their pitfalls. Perhaps that would be an interesting experiment to conduct!

I was told in high school the shower is the best place to think of ideas. As I mulled over my ideas about the GW2 market, an idea popped up…

Guild Wars 2 introduced an interesting new type of guild system. The ability to join and stay in multiple guilds while selectively representing guilds has some great aspects. I’ve always found in MMOs that I enjoy having a few of my alts be in different guilds to interact in different player communities. The interaction between players is always one of the central aspects of the game and is personally one of the largest staying powers for online gaming. Having multiple guilds gives great ease to joining different communities just as you would have different friend groups in real life. It also opens the door for more specialized types of communities. PvP, WvW, and PvE are all vastly different experiences in GW2 and the option to have specialized communities will greatly improve the experience for all players.

One caveat for this new system is the relative lack of anonymity with your alt characters. The fact that you can always be seen in guild screens and friend lists on different characters makes it so that you are always visible to the players you are connected with. While this is a great convenience most of the time, with accounts locked to purchases, it isn’t easy to get another account to play privately in contrast to F2P MMOs. However, overall my experience with the guild and party system keeping you connected to your party across characters and play sessions has been very positive.

This new guild system brings me to my new idea. With the ability to switch and participate in many guilds on the same account, an interesting possibility opens up for my market escapades. I haven’t examined the new guild system closely enough, but the great flexibility with guild ranks allows for a very fine control of the actions in a guild. Combined with the functionality of the guild warehouse and bank, it is very possible to open a type of banking system. Managing a shell guild (The Bank of TopGun!) to act as a central depository hub and actively managing the deposits in the game could become a great way to establish a more complex and robust player-run economic system. I’m sure that I’ll be forming a bank for members of my guild to deposit and withdraw from. The money in the fund could then be leveraged to trade and participate in the market.

A deposit only format for depositors of the bank would be necessary to manage the books and keep track of “share” purchases in the bank. The books would have to be kept clean and ownership of the fund adjusted as deposits are made, however this can all be done with relatively simple bookkeeping. The traders would be granted withdraw permissions and be allowed to manage the fund. A transaction log would make this process complete with the ability to track performance and finely tune the deposit and withdrawal times to reflect proper trades in the fund. With the free market system in GW2, being able to leverage a depository institution would likely grant much more market power to the traders and result in the ability to maximize returns. Working out a withdrawal system that is monitored but available while traders aren’t online is another task to think about.

Pending the release of the game I’m already excited about my first plans. Mapping out the guild system and trying to create possibly the first GW2 bank will be exciting!

The end of BWE3! Guild Wars 2 has been one of the most exciting new releases this year and the only milestone left now is release! This weekend I finally got around to testing out the market system in GW2. Having played a lot of MMOs with needlessly complicated or tedious markets, I was greatly refreshed with the simple market system in GW2, very reminiscent of the futures market. I quickly got drawn into the market as my day-trading experiences reincarnated within me.

The market operated on a simple bid/ask market platform. Players could place bids or set items up for sale or place market orders at will. Probably by combination of the fact that this was the Sunday of the last BWE event and the relative infancy of the game, I found the market in GW2 to be amazingly inefficient. In almost all high volume commodities the spread between bids and asks were almost always 5 copper. With a base price of 20 copper and a listing fee of only 5%, the opportunity for arbitrage was ripe and I instinctively began trading copper ores.

The liquidity in the market was impressive for such a young economy. My bids and asks were filled within seconds and I turned around my savings multiple times within the span of 10 minutes. In the short hour that I played with the market I gained a return of almost 200% and a trade profitability rate of 100%. If only I had those odds in the real world.

What struck me about the system is that the ease with which I participated in arbitraging opportunities indicated that not many were yet acting in the markets. Furthermore I began to wonder if the construction of the system and the slight lag that it imposed upon placing orders created this artificial 5 copper spread. The game limits buying goods to a single stacks and, although this may not hold true for others, I found the typing of orders to be relatively fickle and my typos often delayed my orders. I wonder if given the relatively small amount of traders, the inability to insert orders fast enough caused the spread in the bid and ask. I know that before the days of HFT and electronic trading became the norm, arbitrage definitely existed in real-world markets. Today the markets are extremely tight and any slight opportunity is immediately acted upon by some server in New York.

It would be quite interesting to study the shift in the GW2 market as more and more traders come in to close these gaps. The real market doesn’t provide the stability and ease that a more unsophisticated market such as GW2 provides because the volatility and spread of contracts is so small which magnifies risk and increases the amount of leverage needed to gain a small profit.

My short foray into GW2 trading has ignited a spark within me that I intent to fan into flames once the game is released. I plan on forming a trading fund with guild members and create some for of banking/fund management system within the confines of the game. Perhaps there is even room for a third-party to step in and become a broker-house. If the market becomes large enough and one becomes reputable enough, it could be conceivable that an entity could step up to act as a mediator and issue complex securities such as options.

Either way, I’m sure that a large enough crop of sophisticated traders will participate in the GW2 markets to greatly increase the skill required to stay profitable in the market. I plan to stay on the top and I look forward to trading with you all… May the best man win. 🙂