Stanford GSB, Entry 6, Microeconomics: What we Learned in Pre-Term

In the Sloan program at Stanford, we don’t have to buy textbooks. Why not? They’re provided as part of the program – it’s one of the many perks of paying beaucoup bucks to Stanford.

As I left my dorm room on the first day of class, I was in a rush. I took a cursory glance at the various textbooks that we’d been given, and grabbed the only one I saw that had economics prominently written on it. I didn’t notice until I pulled it out during econ class that it was for the wrong class; the book was for Macroeconomics rather than the class we actually had that day, Microeconomics. (OK, perceptive ones will notice that this obviously means either I didn’t do the reading we were supposed to do before the first day of class, or I read the wrong book; I'm not saying which one is true).

Since I’ve already given you an overview of our Strategy class, let’s talk about Microeconomics. This brings us (not because it is a sequitor, but because this is where the class actually began) to two questions:

Question #1: What’s the difference between Micro and Macro?
Question #2: Why is it that Economists can never agree on anything?

Read More...

On the first day of class, Professor Flanagan was introduced as our Microeconomics teacher (incidentally he’s also going to be teaching us Macro in the real-term so we’re going to get to know him well). He was an older, skinny gentleman, with angular features and a commanding but friendly demeanor and a soft voice. He used no projection equipment, but wrote everything on the whiteboard.

On the second question, he told us about a large number of famous quips about economists and their inability to agree on, well, anything, really. At least that’s the public perception. As a member of the public, I am inclined to agree.

I remember Rudi Dornbusch, who was a famous economist that taught at the Sloan School (MIT, not Stanford), telling us about a president (may have been Truman too, can't remember) who complained that he never seemed to be able to find a “one-handed” economist.

This was a problem only because all the economists he did find would begin with “On the one hand, blah blah blah”, and then after some time, they would inevitably continue with: “But, on the other hand, blah blah.”

Professor Flanagan gave us what may be an actual Truman quote, who once complained that if you lined up all the economists in the world end-to-end, they would never reach a conclusion!

But them’s just jokes, right?

Economists aren’t really like that, are they? Actually, Professor Flanagan pointed out to us, that there was surprisingly little disagreement between economists about Microeconomics – the disagreements tended to be about Macro-economic issues, which affect the economy as a whole: unemployment, monetary policy, economic growth, etc.

Our class during the pre-term, Microeconomics, was concerned with markets at the level of a firm selling products or services (called the supply side) and an individual or household as a buyer of these products or services (the demand side).

In general, we are concerned with three questions in Micro: How much should a firm or industry produce? How should it be produced? And for whom to produce it?

Since economists generally agree on these, the class should have been fairly non-controversial, right? Not exactly. Professor Flanagan explained to us that politicians will make it look like there’s disagreement on issues where most economists tend to agree.

Economics and public policy is a broad subject, of course. But Flanagan told us that when studied with economics, the policies that governments follow to affect the market almost always end up creating unintended consequences. These consequences often reduce (or even remove) whatever benefits the policy was intended to produce. These examples, such as the “War On Drugs” (more on this example later in this post), provided much of the more colorful moments in this class.

The disagreements usually come up because of the difference between what economists call normative vs. positive economics.

On the one hand, Normative economics is about making judgmental statements and calls. You can identify a normative statement about economics when someone uses the word “should”. As in “We should raise the minimum wage”, or “We should cut taxes”.

On the other hand, Positive economics refers to evidentiary statements and deals strictly with the facts, or at least with standard, agreed upon economic theories. "At a higher price, consumers will buy less of X" would be a positive statement, at least as far as economists are concerned (if it is true and can be domenstrated). They don’t mean it as in positive in the sense, which is the opposite of negative.

Words and Words: If Shakespeare were an Economist
As you may have noticed, economists tend to have their own definitions for words that we think we already know the meaning of. We learned this very quickly.

For example here are just a few terms which mean one thing in everyday terms, and mean something else or very specific to economists. Here are just some examples:

Short term.

The short term has a specific meaning in economics: is when one element of supply (capacity) is usually fixed.

Elasticity.

Elasticity in econ specifically means the percentage change of one thing in response to a percentage change in another thing. More commonly, this commonly means elasticity of demand, which means the percentage at which quantity changes when there is an effective change in price.

Rent.

I still don’t know what the economic definition of this is, but trust me, it’s different from what you and I think of as rent.
Positive. This, as mentioned above, has nothing to do with positive vs. negative. It’s positive vs. normative. Confused? Reread above.

Perfect Competition.

Again, another term with a very specific meaning in econ. It means when a market has many competitors with no differentiated products, such that no one single player has the ability to set the price.

Profit.

We usually think of profit as sales minus expenses. In economics it means total sales minus total economic cost. What’s total economic cost? I’ll give you a hint: it includes more than just what we think of as cost. It includes the normal rate of return (and maybe even opportunity cost).

Normal Rate of Return.

We might “normally” think of this as the interest rate, which is the return you can get on your money by putting in the bank (theoretically). Not exactly in econ. In economics it means the normal rate of return for capital in a given industry. It’s another kind of abstract term among many abstract economic terms.

Opportunity Cost.

We usually think of this as something else we could be doing. Again, econ has a more specific definition: the cost of the next best alternative.

Marginal.

In everyday speak we might think of something as “marginal” if it is small and not enough to make a difference. Marginal in econ means “extra”. Marginal cost is the cost of adding one additional unit of production. Marginal revenue is the revenue that comes from selling an additional product.

Average Cost.

We usually think of average cost as: take the total costs of producing products and dividing by the number of units. That is actually “average total cost” in economics. There is average variable cost, average marginal cost, average marginal variable expialadocious costs. Actually, I made that last one up, but you get the idea.

Should I go on? The point is that I could go on, perhaps even ad infinitum. If it’s Saturday night and you have nothing better to do, you can start reading your econ book and find all kinds of different definitions for words we use in everyday language. It’s called economics.

Which bring us to perhaps the most important question related to Economics.

What do economists know, really?
Professor Flanagan insisted to us that there were only two things economists really know. I suspect he meant this in non-literal sense; if this was literally true, perhaps the class could have been a lot shorter. Nevertheless, he was quite adamant about this point. The two things are:

• That Supply and Demand are equal
  

• That Marginal Revenue equals Marginal Cost
  

We spent a lot of time talking about demand curves and supply curves. Where they meet, the so-called equilibrium is the point where supply equals demand. This is the price and quantity set by the market.

The arguments that they use for both points are variations of the original, well known “invisible hand” argument put forward by the Scotsman Adam Smith some 230 years ago.

Let’s suppose you start at a point where supply and demand aren’t equal. There will be either a shortfall or a surplus of supply, affecting the price of the product. If there is a shortfall, then the price will go up, increasing profit. More firms come in to the market, eventually pulling the price back to equilibrium.

Similarly if there is too much supply, the price will come down, increasing demand for the product, and the market reaches equilibrium again (eventually!).

This argument has been part of the public understanding of economics long enough that it's not too controversial. What about the second point, that marginal revenue equals marginal cost?

Well this point is a little more “subtle”. Flanagan says that “subtle” is what academics say when something is actually difficult.

I’m an engineer by training, (“A Quant”, as they call it in business school, vs. a “Poet”, someone whose undergrad degree was in liberal arts), and we usually say something is “non-trivial” when it’s difficult.

Why don’t we just say that it’s difficult? Beats me.

The Marginal Way
As for the second point, Marginal Revenue = Marginal Cost, we had a case study about Continental Airlines related to this point. The team presenting it did a good job with supply and demand and marginal cost and marginal revenue curves. The question was whether Continental airlines should continue certain routes if these routes were not profitable?

The trick is how you define the word “profitable”.

The Marginal Revenue (I’m sure you remember what this means from the definitions above) is the additional revenue from selling one more product. The marginal cost is the additional cost of adding/producing one more product (or providing one more unit of service, like a flight).

The Average Total Cost tells you if you have made a profit on all the units sold thus far.

The Average Variable Cost tells you if you are making a profit on the next unit (if it’s less than Marginal Revenue).

The Marginal Cost tells you the cost of the next incremental unit. Professor Flanagan explained that if Marginal Cost is less than Marginal Revenue, then adding another unit will add some contribution to your overall profit. If Marginal Cost is less than Marginal Revenue, then you will be adding a loss onto your overall profit by producing and selling the next unit.

The subtle point is that it’s possible that by selling another unit, you will still be unprofitable because the Average Total Cost may still be less than the average sales price. However, if MR > MC (Marginal Revenue is greater than Marginal Cost) then you are contributing to the total profitability, even if it means you are only helping the company reduce its loss.

Back to the Scotsman’s invisible hand: If MR <> MC, then you’ll want to keep producing units, because you will be contributing to your profit. How many more should you produce?

Up to the point just before MR < MC.

What point is that? You guessed it, the point where Marginal Revenue is equal to Marginal Cost, and that’s why the economists “know” that this is true.

Does that make sense? If not, pay a hundred grand to attend Stanford Business School, and Professor Flanagan will explain it quite well, I assure you.

Real Economists Draw Curves
The way we reached some of these conclusions is by drawing Supply and Demand curves. Economists love to draw Supply and Demand curves, and after many days of sitting still watching our professor draw them, I have to say, they are quite useful, though it’s still a bit of a mystery how such a simple drawing can convey so much information.

Economists draw a simple graph with a horizontal and a vertical axes. Then they draw one line which slopes downward, say the red line. And the draw one line which slopes upward, say the blue line. Where the red line and the blue line meet is called the equilibrium point.

If you look closely you’ll notice that the curves aren’t curved at all. They are just lines sloping upwards and downwards. This means that you could just draw a big X on the board and refer to its two lines as being the “supply" and "demand" curves, and you'd generally be correct.

What does a simple picture like this, which even a five year old could draw, reveal about the markets?

Plenty, if you’re an economist.

Take a graph with only a single line sloping downwards (the “red line” above). Economists might say that this to represents the demand curve of an individual. Why does it slope downwards? Because of the principle of diminishing marginal utility. When the professor asked us this, one of our classmates answered without hesitating: “You eat one In-and-Out Burger, it tastes really good. The next one doesn’t taste quite so good. By the sixth burger, you’re sick of them and don’t want any more.”

This is because quantity is on the horizontal axis and price is on the vertical axis. A downward sloping curve shows a lower price as the quantity increase. According to this principle, an individual is willing to pay less for each additional unit of something – whatever that something is. The proper economic term is “widgets and gidgets”.

Turns out this same principle applies not only for individual, but to aggregate market level supply and demand curves.

It also turns out that the same graph can be applied to the labor market if you change the vertical axis to be “wages” and the horizontal axis to be “employment”. I’m pretty sure as we get into macroeconomics the same X will represent something entirely different, but still prove equally useful.

Vouchers, Price Controls, and Heroin, Oh My!
Professor Flanagan, who won an award from the previous Sloan class for his teaching, has plenty of experience with public policy. His discussions of what an economist think of certain government or political policies provided part of the “fun” of this class. The other “fun” was usually provided by the study groups doing their cases.

It turns out that Professor Flanagan was on the President’s Council for Economic Advisors a long time ago. One of our classmates commented: “Wow, I didn’t realize this guy was so famous and well known. And here is teaching us basic freshman economics – I wonder how he puts up with that?” The answer is probably that he likes what he does, which is a good thing for us.

As for policy discussions, to illustrate the point of “unintended consequences” I mentioned earlier, he presented us the example of The War on Drugs:

In fighting this “War”, the US government is focused intensively on the supply side of the equation - in fact, our efforts are almost exclusively focused at getting the “bad guys” - drug dealers. We do very little, comparatively on the demand side of the equation – in reducing the demand for drugs.

If we follow this scenario out logically using supply and demand curves, as the government gets some heroin dealers, then supply goes down in the short term. Once supply is restricted, and if demand doesn’t change, this only led to an increase in the price of heroin. (Same number of people want it, less of it to go around). And since the number of people who are addicted to heroin hasn’t changed, how do they go about getting the extra money for it? Any ideas?

Increased crime, says Professor Flanagan, is one of many unintended consequences of the government’s policies in the War on Drugs. This was an eye-opener for me. Perhaps the politicians need to not just hire, but actually listen to economists like Bob Flanagan.

He had many more examples of government policies, including the gas tax or a vice tax, and the unintended consequences of these policies, from an economic point of view.

The rest of the color came from each of our study groups, who were required to present on one of the cases using the tools of microeconomics to understand what happens to supply and demand. The issues were (from what I can remember off-hand) things like Vouchers for Education, Price Controls, Food Shortages, Mergers, Monopolies, the Congestion Tax in London, and so on.

The case presentations started out as very simple PowerPoint slides, accompanied with drawings of Supply and Demand curves on the whiteboard. But each group learned from the last one, and presentation quality steadily increased throughout the pre-term. By the end, we had professional looking supply-and-demand curves in the PowerPoints, and some groups started to use skits to illustrate the ideas to make them more interactive. Pretty soon, YouTube videos started to be appear in the presentations to make them more fun and interesting (which they did).

For example, in the case about Mergers, the XM / Sirius satellite merger was discussed, and a YouTube clip was used to show the news reports of when the merger was finally approved. To top it off, we actually had someone in our class who was working for XM at that time.

On the case about monopolies, they actually showed the trailer from the Hollywood movie, “There will be Blood”, about a Texas oilman, to show how a malevolent monopolist acts. On the case involving the congestion tax in the city of London, actual video clips of news reports about the results of the tax were shown.

This is one of the things that’s pretty interesting about going to b-school today rather than 10 years ago. The availability of these video clips makes it much more fun to be in class. Especially since economics can be a little dry on its own, except of course when Professor Flanagan brings up what he now affectionately calls “Our Old Friend” (because it keeps coming up again and again, and again): the Elasticity of Demand.

Let’s play Monopoly
Many of the principles of Micro we learned seem to apply only to markets where there was perfect competition (again, see the definition above). A perfect market relies not only on competitors not being able to do anything to affect the price of their product; they aren’t even able to differentiate their products in any way. It also relies on perfect information in the market (an unlikely scenario in any market).

Commodities are as close to a perfect market as we get, but it’s not clear to me that’s even a perfect market. Does a perfect market really exit? Maybe not.

But towards the end of the pre-term, Professor Flanagan began to relax the restrictions on the markets we were learning about and moved to “imperfect competition". A market with imperfect competition market is one where products have differentiation, have some influence over how much they sell their products for, and can respond to the competition.

I could be wrong, but it seems to me there’s a simpler name for “imperfect competition”: it’s what we call the real world.

Surprisingly, when this restriction was reduced, the basic principles we’d learned - supply and demand, marginal this and average that - continued to apply reasonably well even in imperfect markets.

To illustrate this, we went to an extreme example: Monopolies. The monopolist also faces a demand curve - which means that fewer consumers will buy their product at higher prices, and more will buy at lower prices. Ignoring our old friend, the Elasticity of Demand for the moment, where will the monopolist set his price?

The morning of this lecture, I was very tired, having stayed up late the night before (must have been doing the readings for econ, though it’s more likely I was blogging or playing on Second Life). I was on the verge of dozing when Professor Flanagan began to talk about monopolies. Of the many reasons why monopolies arise, one is that governments mandate that only one firm is allowed to serve an area, as in utilities.

I don’t know how or why but in my half asleep state, I began to see images of nuclear power plants, and this brought me to images of the The Simpsons. Those of you who have watched the Simpsons at some point (which practically includes the entire population of the US, I think, since it’s one of the longest running prime-time TV shows), will know that Homer Simpson, the lovable clown, works at a nuclear power plant just outside Springfield, USA.

I don’t know why, but an image of Homer’s boss, the unscrupulous monopolist, Mr. Burns, flashed into my mind as Professor Flanagan talked on about monopolists. Mr. Burns is an older gentleman, very skinny with angular features. I opened my eyes and for an instant (only or an instant mind you), our professor (if he took off his glasses) was the spitting image of Mr. Burns! I jolted awake, half expecting our professor to tap his fingertips together and say in the very measured soft voice of Mr. Burns, “Now we have a monopoly. Excellent!”

Now, in reality Professor Flanagan’s personality (who is a nice, friendly guy quick to smile and laugh) is nothing like Mr. Burns (who is a ruthless monopolist trying to make money by squeezing the residents of Springfield). Maybe it was my half-dazed state, but the physical resemblance was uncanny, if only for that moment. If nothing else, it kept me awake during the rest of the discussion about Monopolies!

Which brings us back to the earlier question, where will the monopolist set his price and how much will he produce?

The answer, surprisingly to me (but not to economists) is the same as before: he will produce up to the profit-maximization point where Marginal Revenue equals Marginal Cost, and will stop there. Whatever quantity is equated with that price is the amount that the monopoly will produce.

What the bleep do we know, really?
This is all nice, in theory, but does this actually happen in the real world? Does Supply=Demand and does Marginal Revenue=Marginal Cost, or are these more concepts and principles which help to guide the market?

Do perfect markets exist? Perfect information, I’m pretty sure, doesn’t exist. Entry or Exiting a market requires a significant amount of resources and rarely happens easily, as we know from our Strategic Management class, because of barriers to entry. And is there really such a thing as a “normal rate of return” which is different in each industry?

These questions started nagging at me early on in our economics class, as I struggled to try to apply the material we were learning to business (at least apply it in my head). No doubt everything we learned will apply in a general sense about how consumers buy from producers. But would it apply specifically to a situation any of our companies are likely to come up with?

It seems to me that in the real world, companies are entering and exiting markets and adjusting supply and trying to figure out what the heck demand really is for a product. It seems to me that the only way to figure this out is through trial and error, since there is no way to know exactly how many people will buy car X at price Y. If General Motors could have figured out the demand for hybrid cars, perhaps they would have reduced the supply of SUV’s and increased the production timeframes of their hybrid cars years ago and not have lost more money than anyone else over the last year.

Similarly, if “Marginal Revenue = Marginal Cost” is the profit maximization point then firms should stop producing there. I don’t know of any public companies who choose to not to produce any more products. Which means that they must not be at this point yet, or if they’ve crossed it, then they’re reducing supply.

Maybe the two things that economists know should come with an asterisk and two additional comments:

1. Supply and Demand, while theoretically equal, are rarely actually equal. Rather, the market is in constant motion trying to get to that equilibrium point.
2. Marginal Revenue rarely equals Marginal Cost. But firms are in constant motion trying to get to (or get back to) this profit-maximizing point.

Those are my two cents worth of contribution to the field of Microeconomics. But then, what the hell do I know? I’ve only had 12 days of Microeconomics class, and it wasn’t even graded!

Excellent!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.

Stanford Business School, Sloan Program, Entry 3: The First Week of Class

We just ended our first week of classes at the Stanford Graduate School of Business (GSB) in the Sloan Master’s program. The Sloan program, as I mentioned in my first post about arriving here, is a one year, full-time Master’s program that is kind of an “accelerated” MBA for people who have significantly more experience in the real work world.

Although it’s only been a week since classes started, it feels much longer – that’s because during this “pre-term” we have the same three classes each day, every day, for three weeks before the fall quarter “officially begins” at the end of September.

The three classes during this pre-term aren't graded. Professor Flanagan, our econ prof, told us on the first day of class that there are three distinct languages he could teach the class in – words, graphs, or mathematics.
Read more!

I would actually say that’s a pretty good way to describe the three classes that we’re taking during this pre-term:

• Managerial Accounting – mostly math (budgets, income statements, balance sheets – the math itself isn’t that difficult but knowing which number to plug in where can be tricky)
  




• Microeconomics – mostly graphs (demand curves & supply curves – they look pretty simple – two lines on a graph, but reveal much more than meets the eye)
  




• Strategic Management – mostly words (in-class discussion about real-world company case studies on what made them successful).
  

I’ll say a lot more about each of these classes below, including what we’ve learned (which is quite a bit, especially for only one week!), what our professors are like, and what I think of the material. But first, some general observations about the first week of class:
What’s it like to take classes at Stanford Business School?

It’s actually very unlike any of my undergraduate classes. For one thing, the classrooms aren’t big lecture halls, nor are they little breakout rooms. They’re more like a mixture of a trader’s pit in a stock exchange, and a movie theater that has stadium seating.

There are rows of tables and chairs, each one slightly higher than the last one, with the professor standing in the middle of the room. It’s also a lot more high tech than I remember undergrad classrooms being - instead of blackboards, there are white-boards, and there is a built-in projector and screens for showing slides and videos from a laptop.

Moreover, we have very nice plush green chairs, and the tables on each row have slots in the very front for our name-tags (Nice, no worrying about my butt getting sore after sitting in those old wooden chairs we had in undergrad for an hour and a half).

Taking classes is a little bit like a cross between high school (“Suzy, you sit here, next to Johnnie, that’s your assigned seat”) and the United Nations Security Council, with our nametags very prominently displaying who we are and what delegation (er, I mean company) we are representing. In fact, this last bit about the UN is doubly true in the Sloan Fellows program since almost half of our classmates are international, so we can get a pretty good perspective on an issue from around the world.

What is a Case Study Anyways and Why Are They So Important?

In Business School, much of the curriculum centers around Case Studies. WhenI first heard this term, I thought it sounded a little mysterious, since during undergrad, we only had “problem sets”, “exams”, and “group projects”, but never "cases". There are, as far as I can tell from the first week, two kinds of “case studies” in business school:

· A problem set disguised as a “case”. In much of our classes, including accounting, microeconomics, and our modeling with excel class, what biz schoolers (er, I mean, GSB’ers) like to call a “case” is really just a problem scenario followed by a set of questions about it.

Think of those old wacky groups of SAT questions that start with some kind of introduction: “Suppose Tom is in Denver and Fred is in Houston. Suppose also that Tom starts jogging east at 20 miles per hour, and Fred starts jogging west at 20 km per hour.” After the introduction there is a group of questions associated with the scenario: “When, if ever, will Tom and Fred collide with each other?” and “If so, which city will it be in?”.

OK…OK, maybe SAT questions weren’t quite that outlandish, but you get the idea. Now think of pretty much the same thing but with a company as the subject of the scenario and not dorky guys named Tom or Fred. Simply making the case about a company makes it seem like we’re studying “real business” and handling “cases”, not just really learning arithmetic, graphs and spreadsheets. One Example is our Davis Kitchen Supply Case that we got this week in our managerial accounting class, which started with a company that makes ovens. In fact, it makes 6,000 of them per month (with the recent housing slump, not sure exactly how they stay in business, but that’s beside the point). The costs associated with making these ovens (actually, they weren’t ovens at all, they were stoves; oops!) range from $50 for variable labor, $60 for fixed overhead, to $95 in marketing costs, including variable and fixed costs. That’s the “setup”.

Once the scenario is set up, we are supposed to answer a group of questions about them. Suppose some slimy mafia guy came to Davis Kitchen Supply and said that he could “take over” making their stoves for them, at a cost of only $215 per stove. Should Davis Kitchen let this guy (ok it wasn’t really a slimy mafia guy in the case, I made that part up) take over manufacturing of those stoves?

I think you get the idea. Basically you have to add up all the variable costs, and fixed costs, and figure out at which price it makes sense to outsource stove-making vs. doing it yourself. The econ “cases” involve a little less math and a little more graphing of supply and demand curves– for example there was one this week about US farming associations telling their members to dump (or simply destroy their wheat or rice or corn or fruit crop) in order to get the price of that item to stay high. We had to figure out whether this was a good idea or not, and under what circumstances it would make sense to do these.

The only real complications in these cases is 1) figuring out the right answer, and 2) making a presentation to the class (using powerpoint or excel) as a group (“study group”) about the answer that you found. We’ve had some pretty creative ones already.

· A full case study of a real-world company. The second group of cases are more like the “case studies” that I had been told about by my buddies who had already gotten their MBAs. Before I got here, I thought it odd that you could learn much by sitting in a room where the students all opined with each other about what they think a company should or shouldn’t do. But this has actually become the dominant form of teaching in the best Business Schools today.

These case studies are usually put together by Harvard Business School, or by Stanford GSB, range from 10 to 15 pages, and include the fully history of a company and some of the challenges facing the CEO of the company. In the first week alone, in our strategy class, we did cases related to Wal-mart, Capital One and a few others. It turns out that talking about the strategy of real life companies is actually quite fun. In fact, it hardly feels like we’re in school at all … so Case Studies like this give us a level of engagement that other subjects don’t.

What is a Study Group and How Late Do You Study?

So I finally figured out what a study group is – a pre-assigned list of “friends” that you have to work with during each term that cuts across all classes in that term.

In fact, I’m beginning to think that working in study groups is not just about the classes themselves, but about learning how to work with diverse groups of people that we had no choice in being involved with. This must be a common case in the business world; but as an entrepreneur, I have almost no experience at working so closely with people that I have no control over, so this has been an interesting experience.

Part of the reason for a study group is so that you can all help each other get through the term – by preparing for class together, sharing notes, and doing group assignments. However, thus far I have to say that the study groups seem to be as much of a source of stress as the classes themselves – almost no one I’ve talked to is really happy with the way that their study group has decided to do everything, though everyone (including me) likes some aspect of what their study group is doing.

One fundamental question each study group had to answer was how often it’s going to meet and when. For our group, which was larger than other groups, this little question, which should be easy to answer, has been the hardest one to answer.

A few of us in the group, like me, are not morning people. As an engineer and a writer, I tend to go to sleep well after midnight every night, so I would prefer evening meetings. In one of my software companies, I even had an explicit rule: “no meetings before 10 am”.

But, many of the members of our study group are morning people, so they would prefer to meet before our first class in the morning, which is at 9:15 am. So something like 8:15am. Ouch!

We decided on what seemed like a good compromise, our first meeting would be in the afternoon, after the first day of class, which was the Tuesday after Labor Day. After all, the pre-term wasn’t being graded, so we could afford to take it easy in the mornings, right?

Wrong! Before I knew it, while I was wandering around the San Jose Art Festival on Labor Day (Yes, this would mean I was enjoying myself and relaxing before we started our high pressure classes with no grades), my iphone started buzzing with emails from study group members about how they’re worried about all the reading over the weekend, and want to meet at 8:30 am to discuss it (Yes, this would mean we were doing study group meetings before classes had even started; I guess we were really worried about not being prepared for our classes with no grades).

The next day, because the group didn’t have enough time to argue every point in the reading from every angle, the time was moved even earlier, to 8:15 am. The next day, we had suddenly somehow decided that we were going to meet even earlier, at 7:45 am every single day! Double-Ouch!

I came to business school with memories of my undergrad days - staying up late, ordering pizza, discussing problems and working collaboratively with my classmates, with more than an occasional philosophical discussion thrown in each night.

I had heard that the Bill Clinton White House was kind of like that – with all night policy study session and lots of creativity and free flow of ideas. When George W. Bush came into office, this changed, since Bush rarely stayed up past 10 pm.

I suddenly felt like I had shown up for work thinking I was going to work for Bill Clinton, but when I met my boss on the very first day, it turned out to be George W. Bush instead! Triple-Ouch!

Let's just say I missed more than my fair share of early morning study group meetings in the first week; in the real world I wouldn’t show up at 7:45 am even if I was being paid good bucks to do so – and in this case I’m paying Stanford, not the other way around.

Well not to belabor this point, but I get the sense that our class is really taking this pre-term a little too seriously. I was speaking with one of the Sloans from last year and he said that we’ll have plenty of pressure in the fall – we should be enjoying the pre-term, perhaps enjoying the world famous Stanford Golf Course.

Actually, that is exactly what a few of our classmates did on the Saturday after our first full week. See, at least some of our classmates in Business School know how to relax: Sleep in, play a few holes, enjoy the California sunshine. Right?

Wrong. it turns out that their tee time was set for 6:30 am on Saturday (Yes this means that they had to get up even earlier on the weekend than on the weekdays!).Quadruple-Ouch!

Anyways, after a little bit of early heart-burn our study group has now settled into a rhythm. Now that some of our meetings are in the morning and some of our meetings are in the evening, I’m relatively happy with our study group. We’re also finding ways to be more efficient in our overly high reading burden.

What Have You Read for me Lately?

For someone with an engineering background (we’re called “Quants” in B-school, as opposed to the “Poets”), Business School isn’t really that difficult, though it can be hard. I mean hard in the sense that adding up 10,000 numbers isn’t conceptually very difficult. It just takes a lot of tedious work no matter what path you take – whether you type in 10,000 numbers into a spreadsheet, into a calculator, or calculate them by hand.

In the same way, we are required to read several chapters of our textbooks, do some problems, read and review cases, and be prepared for the next class, every single day. In querying the Sloan administration, I was told that the program is designed so that it’s really not possible to read every single thing we are supposed to read by the time we need to read it, while still having a life.

So, the reading can be a great source of stress, if you let it be. But that’s what the study groups are for. In our group, one guy had gotten an MBA before and told us that it might be helpful if we break up the reading, assigning different chapters to different folks, who would prepare summaries for the rest of the team of their assigned chapters.

I think the reason they designed it this way was that they wanted us to find ways to juggle the reading by prioritizing what is essential to study, and what can just be read casually. I actually think that this one of the keys to business school success.

What we learned.

OK enough of my general observations. Let’s get to what we actually learned this week. Wow, this post has already gotten long – and I haven’t even started on my reading for this weekend. I’ll have to tell you what we learned in the next post...stay tuned.

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.