The Sciences

Physical engineers vs. financial engineers

Gene ExpressionBy Razib KhanMar 21, 2009 9:44 PM

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Needed for AIG and the TARP: Silicon Valley Compensation Schemes:

The engineers of Silicon Valley startups are significantly smarter and work a lot harder than do the traders of Wall Street.

Some of the engineers of Silicon Valley make fortunes: they are compensated with relatively low salaries and large restricted equity stakes in the startup businesses they work for, and so if the businesses do well they do very well indeed--in the long run, in the five to ten years it takes to assess whether the business is in fact going to be a viable and profitable going concern. And the engineers of Silicon Valley have every incentive to use all their brains and all their hours to make their firm viable and successful: they get their cash only at the end of the process. They don't get big retention bonuses if they stick around until the end of a calendar year. They don't get big payouts if they report huge profits on a mark-to-market basis.

First, is the assertion about differences in intelligence and work load even true? Second, I wonder if the issue here is less about differences in intelligence as opposed to the tractability of the technical systems which the two sets of workers are focused on. After all a Ph.D. economic modeler may be mathematically far more sophisticated than someone with an undergraduate degree in mechanical engineering, but the nature of the technical problems in the latter case means that the concrete marginal returns on technical wizardry are far greater.Note: I hope my previous posts have made it clear I'm a little concerned when people make apples-to-apples comparisons between bankers & traders as opposed to entrepreneurs & engineers. By analogy I think one of the problems that often crops up in discussions is the conflation of corporatism with capitalism, or the skills necessary to be a CEO of a large organization as opposed to an owner or partner in a smaller firm.

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