Leaky Delegation: You are not a Commodity

post by Darmani · 2021-01-25T02:04:55.942Z · LW · GW · 32 comments

Contents

  Different Product
    Preferences
    and Insurance
    and Production Technique
  Principal/Agent Problems
    Costs
    Benefits
    Pattern: Expertise Overkill
  Value of Learning
    
    10 Questions to Ask Before Delegating or Buying
None
32 comments

Epistemic status: The accumulation of several insights over the years. Reasonably confident that everything mentioned here is an informative factor in decision-making.

Carl is furiously slicing and skinning peaches. His hands move like lightning as slice after slice fills his tray. His freezer has been freshly cleared. Within a day, he will have a new bag of frozen fruit, and can enjoy smoothies for another month.

Stan stands in the kitchen of his college dorm. His hands are carefully placing ingredients on pizza dough: homemade tomato sauce, spiced pork, and mozzarella cheese from a nearby farmer's market. "I don't know why people will pay a restaurant for this," he muses. "So much cheaper to do it yourself."

Michelle is on her way to her job as a software engineer. She tosses a pile of clothes into a bag, and presses a few buttons on her phone. Later that day, someone will come by to pick them up, wash and fold them at a nearby laundromat, and return them the next morning. Less time doing laundry means more time writing code. Her roommate calls her lazy.

An alert flashes on Bruce's screen: "us-east-prod-1 not responding to ping." Almost like a reflex, he pulls up diagnostics on his terminal. The software itself is still running fine, but it looks like his datacenter had a network change. A few more minutes, and everything is functioning again. Hopefully only a few customers noticed the downtime. His mentor keeps asking why he doesn't just run his website on AWS instead of owning his own servers, but Bruce insists it's worth it. His 4-person company has been profitable for 3 years, and keeping server costs low has meant the difference between staying independent and being forced to take outside investment.
 


The four characters above each take a minority position on outsourcing a task. In the past, I saw the decision as simple: if your time is valuable, then be like Michelle and delegate and outsource as much as you can. Not to do so would be an irrational loss. I silently judged the people I met who inspired Carl and Stan.

Years later, I've found myself cooking daily during a pandemic and appreciating the savings, and just finished arguing online in favor of running one's own servers. 

My goal in this post is to share the perspective shift that led to me wholly or partially reverse my position on paying a person or company for a good or service (collectively, "delegating" or "outsourcing") in a number of domains, even as I continue to pay for many things most people do themselves. I've noticed hidden factors which mean that, sometimes, the quality will be better if you do it yourself, even if the alternative is offered by an expert or company with specialized tools. And sometimes, it can be cheaper, even if you value your time very highly and the other person is much faster.

The Internet is full of articles on the generic "buy vs. build" and "DIY vs. build" decisions Though some are written from the corporate boardroom and others from the home kitchen or workshop, the underlying analysis is eerily similar: that it's a choice between spending time (or "in-house resources") or money for a similar value. More sophisticated articles will also consider transaction costs, such as walking to a restaurant or finding your kid a tutor, and costs from principal-agent problems, such as vetting the tutor. In fact, as I've come to realize, the do-or-delegate decision is often not about two alternative ways of getting the same thing, but rather about two options sufficiently different that they're best considered not as replacements for each other, but entirely separate objects with overlapping benefits.

These differences can be obvious for specific examples, as every home baker can give you an earful about why your local supermarket can't compete with homemade bread. My goal is to extract a generalized model describing the hidden ways in which in-sourced and out-sourced versions may differ. By having this gears-level model, you may wind up doing something yourself when everyone around you is paying for it. Or you may wind up doing the reverse.

Different Product

Have a look at Instructables or Etsy or any recipe website, and it's clear that the space of homemade items is vastly larger than the space of storebought items. Something you make yourself is unlikely to match something you could have otherwise acquired. But do these alternatives satisfy the same underlying need?

Naturally, providers do try to fulfill your needs; that's how they get paid, after all. Yet outsourced providers balance the needs of many customers, and face problems you don't. Their offering may be meaningfully different than the homegrown equivalent, sometimes for the worse, even in the face of ruthless competition. And the differences encompass not only the product or service itself, but also the accompanying intangibles.

Specialized Preferences

When my housemates and I walked into the restaurant, we were greeted by an exquisite ambience and jazz music. Our hearts sank."Given its ratings," one explained, "the better the decor, the worse the food."

I found a man whose business is helping descendants of German Jews reclaim their citizenship. The references he gave all spoke glowingly of him. Yet it only took me a few minutes after calling them to decline. "They all said you were invaluable because they didn't speak German. But I do speak German."

You are the only person who wants the exact things you want.

The corollary is that, when you buy something, some of its cost goes into things that you do not want.

Central providers must set their offerings to appeal to a broad base of consumers. When your preferences differ from the median, then you are paying for products not optimized for you.

For instance, on most days, I'd gladly sacrifice the taste of my food for convenience, cost, and health, and so I'd happily pay a local restaurant for a nutritious pile of unappealing glop. But I can't find such a dish nearby too small a market. And unlike most customers, I don't eat bread, yet I don't get a discount when I ask them to remove it. But when I cook for myself, I can aggressively optimize for price and convenience against taste. And thus, in spite of the high value I place on my time, I still cook.

Perhaps this is because my particular takes on health put me well outside the norm, and so I am uniquely dissatisfied with local restaurants. But no-one is close to the median in everything, and plenty more go through phases of unusual preferences. For instance, ever notice that most of the recipes in diet books are things you will never find in a restaurant? 

Outside of arbitrary tastes, your distinct preferences can also come from your position in life. For instance, common market wisdom is that it is nigh-impossible for an individual to beat market index funds. But an index fund is an off-the-shelf product, selling a standard package of risk. And, as Buck explained [LW · GW], what you actually want is a package of risk that anti-correlates with your career. And so, an American software engineer can "beat the market," in terms of maximizing their personal overall future wealth, simply by not buying US tech stocks.

And while the description of a standard product should fit in a line, or at most a webpage, things you build for yourself or coworkers can have boundaries which are quite complicated. For instance, engineers are permitted to build very janky components for internal use, yet must build with a high degree of polish when producing for the outside world. As I'm writing, I am working on a tool for proving small C programs equivalent. For the time being, I only care about running it on a corpus I've been given as part of a larger project. If I were to release the tool tomorrow, I'd either need to extend it to all of C or write documentation detailing the hundreds of tiny things it doesn't support because they don't appear in my corpus. But I am building it for my coauthors (or, realistically, just me), and so I don't need to. Meanwhile, in a different project 9 years ago, I found that the Java standard library comes with a number of options, which, after searching a large corpus, appear to be literally never used. I wonder how much code is written "for completeness" that will never be used, simply to avoid needing to explain its absence.

Off-the-shelf offerings are designed by distilling the preferences of a large group of people into a few simple components. In contrast, you are able to craft a very complicated deal with yourself, containing exactly what you want and no more.

Bundling and Insurance

Accommodating many preferences often comes in the form of bundles. Anyone who's ever dealt with a TV or phone subscription is aware that products often come with many things they may not use. The economic view is that those who use less are paying for those who use more. Or, put more bluntly: does your plan come with unlimited customer support? Then you're subsidizing the most demanding customers. Did you fly Southwest Airlines and not use your free checked bag? You're subsidizing everyone who did.

But lesser known is that there is a version of this in every physical product you buy, because, when you buy a product, you are also paying for the risk of the average user. This comes from the modern doctrine of strict liability: that companies are by default liable for damage caused by their products, even without identified fault. The rationale was given in a  famous concurring opinion in Escola v. Coca-Cola-Bottling Co. (1944) (a.k.a. "the exploding Coke bottle case"): companies are much better able to provide "insurance" to their customers by raising the price tag slightly than customers are able to buy insurance themselves.

In other words, some portion of every mass-market product you buy is paying for potential lawsuits that result from that product. This is generally a good thing and a reason to outsource, as you'll be in much better shape financially if your house gets burnt down by a malfunctioning toaster than by your hand-sculpted wood-burning oven. But that also means that, even if your house is fireproof, you're still paying for the risk because someone else's isn't. If you buy a chair, you're paying for the potential injuries because someone else assembled it incorrectly. In general, if you think you'll be better informed or more careful than the average consumer, then you are losing out.

Thankfully, toasters don't often burn houses down, and so this cost is low (under 1%) for most products. (I'm interested in examples of physical goods for which this is not the case.) But it's alive in your gym membership (over 1%), decisively high in risky physical activities, and also substantial in, of course, actual insurance. When someone with good oral hygiene chooses to forgo dental insurance, they are in essence in-sourcing. On a grander scale, I'm now curious how much a company of health nuts could save by underwriting their own health plan, and whether any have done this.

Several of the other factors here have a common theme: you pay more because of information you don't have about the product or service. This one is the reverse: you pay more because of what the seller doesn't know about you.

Centralization and Production Technique

In physical products, the constraints of centralized production, distribution, and storage may cause specialized producers to use techniques different from the DIYer. In different circumstances, this can result in a superior or inferior product.

For example, Carl in his kitchen has only disadvantages compared to commercial producers of frozen fruit. Commercial producers use blast freezers, which both results in a better tasting product (by virtue of fewer ice crystals) and higher throughput. They peel the fruit cutting with blades not so dissimilar from Carl's knife, and their centralized location gives them access to fresher ingredients than Carl.

In contrast, storebought tomato sauce is also different from the homemade version, but in a negative direction. The tomatoes are peeled either by immersion in a caustic solution (requiring dye to compensate for the loss of color), or by subjecting them to a sequence of scalding and physical trauma until the skin falls off. The long storage times require either preservatives or pasteurization. I cannot presently find a source, but I once read about someone who sampled a batch of factory tomato sauce prepared without the additives: a bland, gray glop.

Centralization means scale, and scale creates its own problems. Compared to Stan, the tomato sauce manufacturer pays for scale by degrading health and flavor. The family farm selling spiced pork pays regulators by building a full parking lot. Even for virtual products, centralization makes a big difference when shared physical resources are used to satisfy many customers. For example, Amazon AWS faces the risk that customers with VMs on the same machine may attempt snoop on each other. They pay for this by degrading performance: by expensive mitigations against information-flow attacks, and by wiping disks each time they're connected to a newly-booted VM. Both might be unnecessary if all such VMs served the same company, as is the case for someone running their own Eucalyptus cluster.

Centralization itself also has a cost, which you pay for in the form of overhead. When you buy frozen fruit, you are also paying for a frozen transport chain, self space, and the cubicles of designers making packaging and advertising and also subsidizing unsold product. When buying enterprise software, you are also helping to pay for the vendor's entire sales, HR, and finance departments, thus creating a pricing deadzone that inflates 4-figure software into the 5-figures.

Differences of production method are likely to be a factor when your homegrown solution is pitted against a centralized provider with expensive capital. It's the reason why Carl's knife-labor is orders of magnitude more expensive than the milliseconds-per-strawberry needed by the frozen fruit factory's machines, and why Bruce's bare-metal machines may be an order of magnitude cheaper than AWS's virtual machines. And the lack of it is why Stan doing cooking and Michelle doing laundry wouldn't be so different from a restaurant or laundromat.

Principal/Agent Problems

Delegation is a coordination problem, and solving it means solving principal/agent problems, of which the main ones are communication and risk. Every manager has stories about hiring an employee or contractor who turned out to suck up more manager time vs. if the manager had simply done it themselves, whether because the hiree couldn't deliver (risk) or required too much help to understand the task (communication). An application to charity is discussed by myself in  Cause Awareness as a Factor against Cause Neutrality [LW · GW].

These costs are widely understood, although often underestimated by the inexperienced. Yet even when buying something well-defined, and even when in-sourcing carries the exact same risk of failure, there are extra costs not often considered. These costs involve information: you pay to learn things about the provider, and (as in the "Insurance" section above) they charge for their uncertainty about you. But when you do it yourself, you and the provider both have perfect information.

Signaling Costs

When I cook a roast for myself, I might toss it in the oven and come back a few hours later, not bothering to set a timer or use a meat thermometer. It might taste worse as a result, but it doesn't give any information about my ability to make a nice steak when I want to, which involves salting it overnight and leaving it in a dry environment.

Now imagine a restaurant that sold both a $5 roast, prepared as cheaply as possible, and a $50 steak. A consumer of the first is less likely to share a judgment "The $5 roast is worth $5," and more likely to say "The food here sucks."

Every provider must invest in signaling mechanisms which are correlated with quality, but do not directly contribute. A modern business needs a sleek website. McKinsey has dedicated PowerPoint "Visual Graphics" teams to design the "million-dollar slide deck" at the end of every project. And personalized-health startup MetaMed found their research would be more trusted with a grey-haired doctor to deliver it.

Similarly, every provider must avoid visibly cutting corners, even when doing so would benefit the customer. If you tell your house cleaners there's a specific area you don't care about, I predict they'll clean it anyway. This happens a lot also in academic work, where a researcher needs to do work of questionable utility to placate a reviewer with illegitimate criticisms. I've faced this myself, and I can think of two colleagues who had to invest in grunt performance engineering for papers about proving software correctness guarantees.

All of these are things that would be useless if the consumer and producer had enough shared knowledge. The upshot of this is that, when buying on the mass market, you are paying for presentation, and the cheapest options might not even be available.

Signaling Benefits

First date: Dress up; make the best first impression possible. Twentieth date: roll out of bed.

But if outsourcing means buying information about the provider, that means there's an extra benefit to outsourcing: the information can be reused in future transactions. While a restaurant still may not sell you a minimal-work $5 roast even after they've proven to you their quality, this is very true of hiring professionals: you are also buying a relationship.

The first time I hired a designer 3 years ago, I wrote a job description and tested a dozen competing candidates. Now, all I do is exchange a couple messages with the winner and get automatically billed a week later. With this low friction, I can outsource tasks as small as sprucing up a single PowerPoint slide.

Dark Pattern: Expertise Overkill

In Deep Work, Cal Newport writes: for every task you do, think about how much training it takes for someone else to do it, and outsource or eliminate it if it's too low.

Well, skilled professionals routinely do tasks beneath their training and charge full price for it. This comes in the form of the unscrupulous auto shop that bills their minimum 1-hour of mechanic time for a tire change, but also in the form of the honest high-end lawyer who needs to do some low-level contract review in the midst of a larger engagement. For an extreme example (albeit as a TV special rather than a normal sale), see a world-famous psychologist doing textbook marriage counseling.

This clearly occurs because of bundling and coordination costs, but it also occurs because high-end sellers have an incentive to convince you that everything they do is worth the markup. This is a "sales dark pattern" akin to the Dark Patterns in UX design, where a company e.g.: makes the "Buy Now" button look like the "Cancel" button. As an example of both: my first time doing taxes, I got upsold on paying for a service that would help me in the case of an audit, with a full refund if I cancelled within the year. I later learned they actually did little more than be a middleman for IRS communications (sales dark pattern), and then needed several phone calls to cancel (UX dark pattern).

For physical products, this takes the form of convincing buyers that some superfluous aspect of their product is highly beneficial, or otherwise implying users are buying more than they actually are. This occurs subtly in the techniques restaurants use to make their portions look larger; explicitly by some sellers of "natural" and organic products and by the entire multivitamin industry; and overtly in the case of Red Lobster, which displays a tank of Maine lobster in the front of every restaurant but sells a lobster bisque made of langostino and rock lobster, cheaper shellfish unrelated to "true lobster."

The apocryphal engineering consultant charges $10,000 for a chalk mark on a malfunctioning coil: $1 for the mark, and $9,999 for knowing where to put it. The apocryphal Picasso charges 5000 francs for a 2-minute sketch, because "It took me my whole life." But the management consultant who forms the butt of jokes will tell you what you want to hear [? · GW], "borrow your watch to tell you what time it is," and sell you on satellite imaging when all you needed was a pair of eyeballs. If you paid for an answer that took either a lifetime of training or an hour of Googling, could you tell the difference? How about a drip marketing channel that was either based on unique insight or copied from HubSpot Academy? If a technology firm talked you into a more expensive solution than you need?

Providers distinguish their offerings from DIY versions and justify the price by bundling added value, be it a cafe's ambience or the confidence of an expert's eye. The sophisticated buyer is one who can see when a component of that bundle isn't pulling its weight, and is prepared to craft their own to compete. A fool and his money are soon parted, but the reverse is also true. Or, as actually happened to a friend: when your income is large, there will always be people willing to sell you $12 avocado toast until it's not, and wealth comes from learning to say no.

Value of Learning

A paradox of outsourcing: the better you can do something yourself, the less valuable it is to do it yourself.

There's a simple reason: when you do something yourself, the value is in both having it done and learning how to do it. Doing laundry may be busywork to the habituated, but doing it for the first time also comes with the security of not being dependent on others, and the ability to not be hoodwinked if the laundromat returns wrinkled clothes, claiming "that's just what happens."

The value of the learning differs greatly between individuals. In my case, my career is in software development, and my business is providing training for software engineers who come from a vast array of specialties. I have a lot to benefit from learning to run my own servers, even if I wind up never doing it again. Yet my ambition in cooking ends at "Be able to impress guests a few times a year," and so I'm not likely to benefit from practice handcrafting pizzas except by handcrafting more pizzas. In contrast, a French chef may learn useful things about his suppliers from growing his own vegetables, or gain insights from branching out into making his own tortillas.

You must also ask: what kind of learning is involved? Some kinds of learning may expand your knowledge in the world, while others may be more like muscle memory, and only let you do specific things faster. That's the main dichotomy, but I'm going to expand on it in the next few paragraphs by with some of my (admittedly scant) knowledge of cognitive science.

My current ability to give precise characterizations of learning comes from my recent study of ACT-R, a cognitive architecture able to, from just a few parameters, reasonably predict millisecond-level timing of human performance on an array of memory and learning tasks.

The ACT-R model offers several mechanisms of learning. Several forms of learning relate to enhancing and growing one's web of concepts, and several more to learning and applying the tiny cognitive operations that act on it. As this web grows, relationships are formed between new and existing concepts, offering enhanced recall of both. These kinds of learning lend themselves to general utility.

Yet there's another form of learning, called "knowledge compilation" or "production compilation," which serves only to specialize knowledge: turning a general operation like "recall the next digit of my phone number and then say it" into a specialized one like "say 'seven.'" I expect that this form of learning provides the most apt modeling of Carl's knifework, refining a general procedure for observing the fruit and choosing a cut with a sequence of preprogrammed motor actions applicable only to peaches. Whereas trying a different food may result in learning new things one can do with a knife, this kind of learning serves but one purpose: cut peaches faster. Knowledge compilation can only take general skills and make one faster at specific applications. Summarizing: there is more value in basic learning of a new concept or skill than in taking a skill and making it automatic.

Conclusion

Simple questions are welcoming. "Should we have Mexican or Chinese" is, from a coarse-grained perspective, a request to select from a fixed set of options, and, from a fine-grained perspective, a complex weighting of several logistical, nutritional, and social preferences. As one moves away from the daily minutiae into choosing the objects and processes that control our lives, it is tempting to continue to apply the comfortable coarse lens. Yet, to the eagle-eyed observer, a posed choice between simple alternatives belies substantial differences. And there is value to be had in spotting them.

Cheatsheet: 10 Questions to Ask Before Delegating or Buying

  1. Are there aspects that I don't care about but providers take great pains to provide?
  2. Do I believe that my preferred set of tradeoffs differs substantially from the median?
  3. Do I have reason to believe I'll be savvier than the average consumer of this product or service?
    1. In particular, is there catastrophic risk associated with this offering, and do I have reason to believe I am much less susceptible than average?
  4. Do providers have access to some kind of specialized capital or technology for which I lack good substitutes?
  5. Do providers have substantial overhead that I would not? This includes regulatory burden and security.
  6. How much of the cost is spent on signaling quality?
    1. Do I hope to have a lot of repeat business with the same provider?
  7. How much of the price is spent on transaction costs?
  8. How do I know whether and when the special expertise claimed by the provider is beneficial?
  9. How much do I value the learning from doing it myself?
    1. Do I expect to use the knowledge gained?
    2. Is the learning involved overly specialized?
  10. Are there other ways in which the thing to be bought is substantially different from what I'd do for myself?
     

32 comments

Comments sorted by top scores.

comment by waveman · 2021-01-25T21:03:21.598Z · LW(p) · GW(p)

An excellent and thoughtful post IMHO.

I would add the dimension of hidden or invisible quality.

Sometimes it is hard to determine or effectively specify the quality of an outsourced product or service. For example, if I go to a restaurant, I don't know if the chef washed his hands or has a cold or other illness. I don't know if they use cheap/semi-rancid seed oils or actually extra-virgin olive oil as claimed. Friends who worked in expensive restaurants claim that such cost-cutting is common, and it is almost invisible. My experience is that often when quality is not immediately visible to the customer, corners are cut.

Another example of this is when buying food and supplements. Often I have bought food that is supposedly free of additives, only to have a bad reaction, due to additives that were in fact present. Minced beef often contains sulfites which is illegal but often done. These preservatives are then used to disguise old product. One vitamin C tablet supposedly contained only natural colors and flavors and affected me quite badly. I later found out that it contained coal tar base dies and cyclamates and saccharine.

[as background I have a defective gene for the breakdown of histamines (defective enzyme is diamine oxidase) so I am sensitive to histamines in diet and also to the very common chemicals that inhibit the breakdown of histamines or that trigger its release from the mast cells].

A friend of mine went to a presentation for a coffee shop chain. They boasted that they could get coffee for $1.50AUD/kg. "How can you get good coffee for that price?" my friend asked. "You can't - and that's the secret!!! - they can't tell the difference, especially if you add some flavours".

Somewhat alluded to is the issue of operational entanglement. Providers will often attempt to "lock you in" so that you end up spending more than you planned because it is difficult to extract yourself. I am in this situation at present where a lawyer has set things up so that he can charge $$$s for work I could do, but it is difficult to get him out of the picture.

Replies from: ChristianKl
comment by ChristianKl · 2021-01-28T13:54:33.172Z · LW(p) · GW(p)

I later found out that it contained coal tar base dies and cyclamates and saccharine.

How did you find out?

comment by Kaj_Sotala · 2021-01-25T19:40:14.111Z · LW(p) · GW(p)

Great post! I was used to hearing "outsource/delegate everything" as the standard wisdom for basically all personal-type things and hadn't really encountered many plausible counterarguments. This post provided quite a few!

comment by Raemon · 2021-01-26T23:50:27.640Z · LW(p) · GW(p)

Curated. I've read a lot of good posts highlighting when to try to outsource, but hadn't read much previously that made a compelling, gears-level case for when to not outsource, and thought this was a good addition to that overall conversation.

comment by digital_carver · 2021-01-25T07:37:09.661Z · LW(p) · GW(p)

"knowledge compilation" or "production compilation," which serves only to specialize knowledge: turning a general operation like "recall the next digit of my phone number and then say it" into a specialized one like "say 'seven.'"

This is a great concept to add to my mental vocabulary, thanks for mentioning it.

(Going off-topic from the main point of the post here.) It helps me understand, for eg., the pattern of success and failure in teaching my dad how to use a smartphone. Originally, I kept trying to directly transfer the general knowledge I had, about what to expect from mobile UIs, the dark patterns websites and apps use, etc., and found very little of it stuck. It turns out that, if I instead give him the compiled knowledge, specific to each instance - which intuitively feels like a bad way to teach things - he's able to reverse engineer a "good enough" part of the general knowledge from that, given enough examples. (Insert comparison to the success of just-give-it-lots-of-samples ML over symbolic top-down AI here.)

This concept of general uncompiled knowledge vs specific compiled action is a good tool for thinking about pedagogy and learning, applicable in many ways.

comment by Unnamed · 2021-01-27T01:37:56.236Z · LW(p) · GW(p)

The parts of this that are about factors that raise the financial cost of delegation seem less relevant than the parts about quality, personalization, learning, etc.

I'd break down the decision of whether to delegate into three levels of model simplicity:

1. Abstraction. A simple back-of-the-envelope calculation on the biggest costs & benefits. Usually just money vs. time [LW · GW], leading to an estimate that delegating will cost $X for each hour freed up.

2. Concreteness. Look at the world, and at what will be different if you delegate or not. This can include more accurate estimates of time & money (maybe actually doing the delegation uses a bunch of time), or maybe the particular minutes you're freeing up are more or less valuable than your typical neutral minute [LW · GW]. And a lot of it is looking at other costs or benefits of delegation that didn't make it into your simple model but are obvious once you look at them, involving things like quality, delay, distraction, reliability, and so on.

3. Subtlety. These are things that aren't necessarily obvious when you look at them, like the value of learning, or the sense of self-sufficiency that comes from being able to do things yourself, or the sense of capability & possibility that comes from being able to find ways to get other people to do things that you want. Or maybe it turns out that you're in a better mood & more engaged with the world on evenings when you've cooked your own dinner, or you're in a worse mood & more withdrawn on days when you had to do a bunch of vacuuming. 

A nice thing about this breakdown is that you don't have to figure out a thing at a higher level if it has already been accounted for at an earlier level. So the specifics of what goes into the price of laundry delivery don't really matter once you know the price - regardless of whether the price is influenced by overqualified workers, perks you don't care about, or whatever, the deal is that you either do your own laundry or you pay $Y for these guys to do it. (Unless you think you can find another laundry service that's better or cheaper.)

This simplifies things. It reduces the number of questions you need to ask yourself, so you can focus on the harder to track things.

comment by Timothy Johnson (timothy-johnson) · 2021-01-27T07:20:22.869Z · LW(p) · GW(p)

Thankfully, toasters don't often burn houses down, and so this cost is low (under 1%) for most products. (I'm interested in examples of physical goods for which this is not the case.) 


The first example that I thought of is the "wedding tax" - that is, anything that's purchased specifically for a wedding is significantly more expensive than the same item purchased for a different event. This includes both services (e.g., photography) and physical items (e.g., a cake).

This site validates that this is a real thing, and provides several reasons: Why are weddings so expensive? [The WEDDING TAX explained] (zoelarkin.com). Of course, it's written by a wedding photographer, so she suggests many benefits of hiring professionals.

But my wife and I both cared very little for most of those things. If we had known better, we wouldn't have hired as many vendors as we did. We concluded after our wedding that most of the money we spent wasn't worth it. 

Of course, I don't mean to judge those who do spend extravagantly on their wedding, if that's what they truly want. But I think part of the reason people spend so much is because of social expectations, not because it actually makes them happy.

Replies from: Darmani
comment by Darmani · 2021-01-27T07:44:21.131Z · LW(p) · GW(p)

To clarify: You're not saying the wedding tax is because of insurance costs, as the article is asking about, right?

Replies from: Ericf
comment by Ericf · 2021-01-27T23:43:28.595Z · LW(p) · GW(p)

Wedding tax is, in fact, mostly insurance costs. Not liability insurance, but having to charge more because

  1. Weddings get canceled, or have significant scope changes, much more than, say bar mitzvas.
  2. Equipment failures are way more serious at a wedding than a birthday party.
Replies from: Darmani
comment by Darmani · 2021-01-28T00:01:17.973Z · LW(p) · GW(p)

Thanks! This is good.

It's not a physical good, but I had also been thinking that most of the price of renting a venue on the open market is trust (that you won't mess up their space; whether they can give you the keys vs. needing someone to let you in), followed by coordination. Hence, why having a friend let you use their office's conference room on a weekend to do an event might cost $0, while renting such a space might cost $1000.

comment by AllAmericanBreakfast · 2021-01-26T16:27:55.965Z · LW(p) · GW(p)

Great post, and it can get even trickier. On one of my team projects, I had formerly modeled “insource” vs “outsource” as meaning “someone from our college does it” vs “we hire a contractor to do it.”

After telling my teammate to tell the facilities director to hire a contractor to have his team install some signs, I discovered just how wrong that is. This entailed four levels of outsourcing, not just one. And every layer of outsourcing makes the project riskier.

The sign installers do a bad job because neither we nor they are around. Their boss doesn’t check the work because he already got paid. The facilities director is slow and opaque because he did a bad job and doesn’t want it known. My teammate complains and points the finger because he’s more worried about his job with the college than getting the project done.

This also reminds me of the story where one hitman hires another hitman to do an assassination. That hitman hires another who hires another who turns them in to the police.

https://www.google.com/amp/s/metro.co.uk/2019/10/23/hitman-hires-hitman-hires-hitman-hires-hitman-hires-hitman-tells-police-10971438/amp/

So it's not just a matter of "insourcing" vs. "outsourcing" "a task." Every task has many parts, and when you outsource, there can be many layers.

comment by Dirichlet-to-Neumann · 2021-01-26T13:40:31.068Z · LW(p) · GW(p)

My experience is that for most culinary product home-made is much, much better than anything shops and restaurants can offer, while being on the whole significantly cheaper and healthier (not counting the fact that cooking is a pleasing experience when you do it with someone). But I live in France so it may be different in the USA...

Replies from: mary-chernyshenko
comment by Mary Chernyshenko (mary-chernyshenko) · 2021-01-26T21:05:03.230Z · LW(p) · GW(p)

I just think that people go to restaurants specifically to eat something "strange", to put themselves into a situation where one kind of has to order what's offered. It's not like one can't buy ready-made food in a shop, so restaurants aren't "the" alternative to homemade cooking. (I mean sauces, preserves, cakes all can be found in many places.) Restaurants are just an "uncommon" alternative, a plunge to be taken.

comment by Darmani · 2021-01-28T00:11:49.667Z · LW(p) · GW(p)

Thought I'd share an anecdote that didn't make it into the article: on how doing something yourself can make you a better outsourcer.

About 6 months ago, I went shopping for a logo for one of my projects. It helped greatly that I've spent a lot of time studying visual design myself.

I made a document describing what I wanted, including a mood board of other logos. I showed it to a logo design specialist recommended by a friend. He said "That's the best logo recquisition doc I've seen, and I've seen a lot."

I also showed it to the designer I've been working with on other things (like sprucing up Powerpoint slides). She's not a logo specialist, but quoted half the price.

I had the confidence that I'd be able to give good feedback to my designer even if she was less likely to knock it out of the park on her first try than the specialist. I went with her.

Many rounds of feedback later, I had a design. Showed it to some housemates and my advisor. "Dang, that's a good logo."

 

You can see it live at www.cubix-framework.com .

comment by Steve Thomas (steve-thomas) · 2021-01-27T23:03:04.172Z · LW(p) · GW(p)

I think this article misses something quite important:

The amount of time you save by outsourcing is often much smaller than a nominal analysis of the time spent would suggest. There are a couple of things at play here:

  1. There is an interplay of fixed and variable costs that can make some marginal costs nearly trivial and others quite significant. E.g., I spend about 1.5 hours each weekend shopping for weekly groceries. The amount of time I would save by buying a single day's less food would probably be around a minute. This is less than the time it takes me to complete an order for takeout. The 15 minutes of direct ingredient preparation time is a small fraction of the overall cost of meal preparation. Cooking a meal can also be parallelized with other activities making the marginal cost even smaller.
  2. There are negative externalities to outsourcing that are really significant. E.g., there is a non-trivial cost involved in meal-planning for a family. Integrating take-outs does not generally make this easier, since it complicates ingredient reuse, prevents buying fresh ingredients at economical scale and increases the risk of spoilage by forcing longer storage periods. Takeouts also frequently increase serving and clean-up costs in a non-negligible way, due to the way they are packaged for transport. There is a cost in the uncertainty of delivery time. There is a time cost of reheating the food that has gone cold. There is a cost associated with storing leftovers.
Replies from: Darmani, NormanPerlmutter
comment by Darmani · 2021-01-28T00:07:49.840Z · LW(p) · GW(p)

Oh, on the contrary: I think this article misses several things that are quite important (or were brushed under a single sentence like "[main principal/agent problems] are communication and risk." Reason: emphasis on things fewer readers were likely to consider.

So the costs you're describing are indeed real and brushed off to corner. I think both of these fall under transaction costs, and #2 also under centralization and overhead. For #2, I think you mean something other than what "externality" means to me (a cost specifically born by a non-party to a transaction) --- maybe second-order cost?


 

comment by NormanPerlmutter · 2021-05-22T22:40:21.670Z · LW(p) · GW(p)

How does take-out increase serving and cleanup costs? In my experience, take-out drastically reduces cleanup cost vs cooking. You don't need to clean the baking dish or pan, and those are often hard to clean, whereas plates can just be thrown in the dishwasher, or you can even eat out of the disposable container provided by the restaurant and not have to wash any plates.

comment by korin43 · 2021-01-25T04:41:25.607Z · LW(p) · GW(p)

The tomatoes are peeled either by immersion in a caustic solution (requiring dye to compensate for the loss of color), or by subjecting them to a sequence of scalding and physical trauma until the skin falls off. The long storage times require either preservatives or pasteurization.

I can't speak for the caustic solution, but the rest of this sounds pretty standard for making tomato sauce (blanching, peeling, adding salt, and cooking).

I suspect the biggest problem with industrial tomato sauce is the very first step: Growing tomatoes that are chosen for their durability instead of flavor.

Replies from: Raemon
comment by Raemon · 2021-01-25T06:28:02.493Z · LW(p) · GW(p)

I actually had heard the exact opposite here. If you buy tomatoes from the store (to make sauce out of), they have to be optimized for duration, whereas canned tomatoes can afford to use a breed optimized for taste.

(I might be conflating canned tomatoes and tomato sauce though)

Replies from: korin43
comment by korin43 · 2021-01-25T16:26:37.772Z · LW(p) · GW(p)

I think there's three levels of this. At all levels, you need to optimize for hardiness and pest resistence, but on the flavor/durability scale:

  1. If you grow the tomatoes yourself, you can optimize strongly for flavor, since the tomatoes just need to be durable enough to be hand-picked and then immediately cooked
  2. If you grow tomatoes on an industrial scale for tomato sauce, you need enough durability to survive being picked and processed by machines, but they don't need to survive weeks of transportation
  3. If you grow tomatoes on an industrial scale to be sold in the produce section, you need to go even farther with durability to survive the initial picking step and weeks of sitting around.

So I would expect high quality industrial tomato sauce to taste better than home-made tomato sauce made from standard grocery store tomatoes, but for home-made tomato sauce made from home-grown tomatoes to taste significantly better.

Replies from: Raemon
comment by Raemon · 2021-01-25T19:09:12.880Z · LW(p) · GW(p)

Yeah I’d totally expect the home grown or farmers market tomato sauce to win, but expect most people not to be doing that.

comment by meadComposition · 2021-01-27T06:19:06.797Z · LW(p) · GW(p)

Would you all like to suggest one thing you automate to the community?

comment by Yoav Ravid · 2021-01-26T17:30:27.136Z · LW(p) · GW(p)

Typo:

yet must build with a high degree of polish when producing for the outside world must have a higher level of polish

Replies from: Darmani
comment by Darmani · 2021-01-26T22:13:57.231Z · LW(p) · GW(p)

Thanks; fixed!

comment by Firinn · 2021-02-05T01:03:42.997Z · LW(p) · GW(p)

What does this reasoning look like in cases where all of the above strongly favours doing it yourself, but there's ~no societal norm/support?

The obvious example is phones. I want several features of a flagship phone - I like fast 4G, fingerprint scanners, good cameras, and tapping my phone to pay for things. I also like several features of older phones - I like small phones that work in my small hands, ugly models that don't tempt thieves, plastic materials that don't shatter, and headphone jacks. And I don't need the ability to play motorbike racer games at 60fps! Yet it's very difficult to get a phone which doesn't bundle all of the "high end" features into one package - some of which (nice camera) I want, some of which (shiny glass back) I actively don't want - without getting a low end phone and forgoing all of them. This is for something I use for hours every day!

It's not really feasible for me to design/build my own phone, where I only pay for the high-end features I want and don't pay for what I don't want. But presumably this is a feature of the modern economic landscape, where phones aren't really sold in modular kits and it's much easier to get training in building cars than building phones. Or is it? Is there any possible way to insource things like this? (Building my own computer was very easy!) Can I get together with other people and start a Kickstarter for high end phones that don't have unwanted feature x?

Replies from: gerald-monroe
comment by Gerald Monroe (gerald-monroe) · 2021-03-01T02:04:52.424Z · LW(p) · GW(p)

For high complexity products, the answer is simply that you can't and you will not ever be able to without tools that make high complexity products simple.  (as an example of such a tool, complex plastic molded parts used to be infeasible to create yourself until 3d printers and easy to use 3d modeling software).  

Cars and computer chips and phones are all examples of this.  When you 'build' a computer it would be similar to if you could buy car modules are easy to bolt together sections and thus lego together whatever you wanted.  The "DIY cars" you are thinking of are far inferior in critical ways to their mass produced designs, however.  (handling and safety and weight distribution and efficiency and reliability are all far inferior for DIY vehicles).  Just like you can hack together something that would functionally act like a phone and computer, even if it's done by bodging a raspberry pi to a Nokia brick phone and using an acoustic modem for the internet access.  It just won't be very good.

Your best option for your phone needs is to buy a 1-2 year old used example of the high end model that has every feature you need.

comment by adamShimi · 2021-02-05T00:07:44.089Z · LW(p) · GW(p)

I like this post, especially as I'm more prone to do many things myself, and this gives me a model for evaluating whether it makes sense that doesn't condemn doing anything yourself.

The checklist looks especially useful.

In other words, some portion of every mass-market product you buy is paying for potential lawsuits that result from that product. This is generally a good thing and a reason to outsource, as you'll be in much better shape financially if your house gets burnt down by a malfunctioning toaster than by your hand-sculpted wood-burning oven. But that also means that, even if your house is fireproof, you're still paying for the risk because someone else's isn't. If you buy a chair, you're paying for the potential injuries because someone else assembled it incorrectly. In general, if you think you'll be better informed or more careful than the average consumer, then you are losing out.

This misses out that maybe you actually want to help people that will need to sue, even if it's not you. When the additional cost is not enormous, that seems completely reasonable to me (and is underlying pretty important social institutions like universal healthcare in France where I live).

comment by Luke Allen (luke-allen) · 2021-01-25T20:27:38.028Z · LW(p) · GW(p)

I have a very simple rule of thumb for evaluating the value of products and services: Agency, Resource, Status, and Experience. It reminds me that in everything I buy commercially, I'm paying for ARSE:

  • convenience (better Experience, and I keep more of my time Resource, but I trade away more of my money Resource)
  • customizability (more Agency with Burger King's "Have It Your Way!")
  • reputation in the marketplace by brand name and commercials, or with public or private quality checkers such as "Certified USDA Prime Beef!" "Underwriters Labs" "Consumer Reports Top Pick" (high Status), or buying store brands (lower Status and implied lower quality Resources, but I keep more of my money Resource)
  • higher quality or more versatile products (more useful Resource)

Aside from the pithy mnemonic, it's also helped me categorize when thinking of ways to improve the offerings of businesses or hobby groups I'm involved with, such as my local Toastmasters club. I haven't yet found a fifth category of value that I'd consider as primary as these, but I haven't looked much.

Replies from: waveman
comment by waveman · 2021-01-25T21:05:34.232Z · LW(p) · GW(p)

Certified
 

I found that often certifiers lack teeth and are more of a PR exercise that genuine quality control. Sometimes they are the real thing, sometimes not. 

A recent example would be various forms of "organic" certification which are highly variable in validity. You need to look at each case. One question to ask is how many people were denied certification or had certification withdrawn in the last 12 months? How many lawyers were actually struck off by the bar association and what did they have to do to get struck off? 

Replies from: luke-allen
comment by Luke Allen (luke-allen) · 2021-01-26T16:08:35.157Z · LW(p) · GW(p)

Which, indeed, is why I categorized "certification" as Status or marketing: the product gains standing in the eyes of whoever believes the certification has merit, but gains negative status with whoever distrusts the certifier.

comment by IgorR · 2021-01-27T08:34:53.716Z · LW(p) · GW(p)

Really enjoyed this! Thanks!

comment by Ericf · 2021-01-25T21:59:25.840Z · LW(p) · GW(p)

At a personal (as opposed to corporate) level of making these kind of decisions, an important point is that doing a thing could have inherent value in the pleasure it gives. Peeling your own peaches might be worth it, even if the fresh peaches cost more $, and resulted in lower quality, than buying already frozen, if he prefers the (first hour/month) of peeling sufficiently above the next most pleasurable activity.

Also, too, almost everyone is cash constrained, and cannot arbitrarily exchange time for additional $, so using personal labor for a task is a way to turn time into money. Obviously. But it's still important to touch back to reality after an abstract discussion.