Lessons in Homebuying from a Behavioral Economist

Andrea Caceres-Santamaria: Welcome to the St. Louis Fed’s Women in Economics podcast series where we interview women who are making their mark in the field of economics. I’m Andrea Caceres-Santamaria, your host for this episode. Today we’re speaking with Daryl Fairweather, the chief economist at Redfin. Prior to her role at Redfin, Daryl was a senior economist at Amazon. And since this podcast is from the Federal Reserve Bank of St. Louis, I want to mention that Daryl also worked at the Boston Fed. Daryl earned her PhD in economics from the University of Chicago and her bachelor’s degree at Massachusetts Institute of Technology, and she has a new book that we will discuss.

Daryl, thank you so much for joining us.

Daryl Fairweather: Thank you. I’m so happy to be here.

Caceres-Santamaria: Great. Daryl, once again, you are the chief economist at Redfin. Tell me what the chief economist at a real estate company does. And how did you end up working for Redfin?

Fairweather: It’s my job to study the housing market, and that really means studying the whole economy because the housing market affects the economy, and the economy affects the housing market. My team and I, we keep our pulse on what’s going on in real estate and housing and the economy, and we also try to find interesting stories on what’s going on in the housing market. At Redfin we have a whole treasure trove of data. We have listing data from all over the country, so we compile that data and do research reports to help our customers and our agents better understand how the housing market works and what’s going on in the current moment.

Caceres-Santamaria: I like how you put it together, that in order to be able to understand the housing market, you have to understand the economy as a whole. Now, let’s talk about your education. How did you choose to study economics?

Fairweather: It’s an interesting story. I went to MIT originally to study engineering—MIT is known for engineering—but as soon as I got there, I learned that economics was taught with math, and I really liked the way that economics studies human behavior but with this mathematical lens to it. When I told my dad that I wanted to study economics, he was actually a bit concerned because he thought that I was going to go study engineering, and he was actually concerned that being a woman and being Black that I would face discrimination in economics compared to engineering that’s more objective, but I was just really passionate about it, and I wanted to do it even if it would be challenging.

Caceres-Santamaria: Great. And you mentioned a little bit about behavior, and I’d read someplace “behavioral economist” next to your name, and I have an interest in behavioral economics. Can you expand a little bit on the behavioral economics part of some of the work that you’ve done?

Fairweather: Sure. So, at the University of Chicago, one of my advisors was Richard Thaler, who’s known as like the father of behavioral economics—I TA’d for him—and my research was a little bit related to behavioral economics. I did a lot of research on peer effects, like how your peers impact the decisions that you make. The reason that it ties so well into what I do at Redfin in the housing market is because for a lot of people, buying a home is the biggest financial decision they’ll ever make, and they have very little experience with it, and that’s when a lot of behavioral biases creep in like loss aversion or the sunk cost fallacy or—I don’t know, just getting emotional about it. It’s a very emotional thing to buy a home, so I try to incorporate what I’ve learned about behavioral economics and biases into my advice to home buyers and home sellers so that they can really make a rational economic decision when it comes to buying a home and not let the psychological factors steer them in the wrong direction.

Caceres-Santamaria: Great. I like how you’re doing that. I wish when I purchased my first home that somebody pointed out “Hold on a second. Your emotions tug a little stronger, and it may cloud a little bit of some of those rational decisions or careful thoughts,”…  But it really is looking at that money separately and not emotionally attaching yourself.

Fairweather: Exactly.

Caceres-Santamaria: I like how you’re pointing out that and that you worked with Richard Thaler. That’s really great. Now, you recently presented at our Women in Economics symposium, and in your message to the students and teachers attending, you shared some highlights from your new book titled Hate the Game. Tell us about your book. How did you decide to write that? And why was it important to share that message with the audience? By the way, I love the title.

Fairweather: Thank you so much. So, when I went into the real world into industry, I had this PhD in economics that taught me so much about how people make decisions and how to properly make decisions, and the thing that I found coming up over and over again was game theory, like negotiating pay, for example. There’s a lot of advice that I had read in books like Lean In or Never Split the Difference about how you should always advocate for yourself and ask for a raise, or you should always go in and set the reference point, and I found that that just didn’t apply in certain situations. And knowing things like difference between outside options and inside options and understanding where my negotiating opponent is coming from helped me navigate that better because I think it’s actually misguided to try to ask for a raise all the time. You really have to time it for the right moment. And, hopefully, when people read my book—it will come out sometime next year—they will feel empowered to ask for a raise at the right moment, and they’ll also know how to use other lessons from game theory like backward induction to better navigate their career. I think if you view your career as a game, it becomes a lot more manageable. It’s just about making the right moves as opposed to having so much, I guess, emotion attached to it, the same with buying a home.

Caceres-Santamaria: Can you expand a little bit? You mentioned inside options. What was that inside options and outside options?

Fairweather: Yes. So, when you’re negotiating with somebody, for the negotiation to work, both parties need to want the negotiation to work. They have to believe that they will get something out of the negotiation that is better than what they would get if the negotiation fell apart, and when you’re really early in your career, you’re more replaceable. There’s lots of research that shows that employees who are at the bottom of the hierarchy or who are likely to be laid off are the ones who struggle to negotiate because they’re competing against a lot of other workers, so that’s a situation where it might be harder to negotiate and where you may want to strengthen your outside options instead, which means go and get more skills or apply for more jobs or find something that you’re really passionate about that’s better than what you’re currently doing because I think a lot of people get stuck in situations where they are really not living up to their potential because they have been told by their employer or whoever that they are replaceable, and I think if you get in the mindset that you’re not replaceable, your employer is replaceable, or whoever you’re negotiating against is the replaceable one, then you can feel empowered to get to a better situation.

Caceres-Santamaria: That’s a unique perspective that flips it, that changes it, because you’re right, over time you’re the replaceable one, but it’s like “Hold on a second. I have so many options out there.”

Fairweather: Exactly.

Caceres-Santamaria: And by expanding your knowledge and skills and seeking that out, that’s great. I can’t wait until your book is out so I know how to, I don’t know, hate the game.

Fairweather: Thank you. The reason I called it Hate the Game is because I think, for women in particular, we can get really down on ourselves, especially because the economy is unfair. Sometimes you’re going to get ahead when there are other people who maybe were better for the opportunity, or someone else gets ahead and you were the one who should have been getting ahead, so I think if you can view it more as a game and play it like a game instead of getting down on yourself for the way that you play, then you can succeed better.

Caceres-Santamaria: And expand on that a little bit. I did see that you’ve mentioned—and this term I’ve heard it used more and more—imposter syndrome.  Could you share with us a little bit about your experience with either you experiencing imposter syndrome or others sharing with you that they feel that way in the workplace?

Fairweather: Sure. So I think the time that I felt most like an imposter was my first internship. It was at Morgan Stanley. This was at the height of the financial crisis in 2009, and I remember I competed against like thousands of other applicants to get this job. There were hundreds of other interns at this New York branch of Morgan Stanley, and I felt like they were all better than me, like they were working harder than me, they were working longer hours, they were showing up before me, leaving after, and they seemed just much more dedicated to the job than I was, and I felt like there was something wrong with me that I couldn’t work as hard as them; but then when I started to view it as like a signal instead of something that’s wrong with me, I realized that it really wasn’t the right place for me, that I shouldn’t be going into investment banking and that I did better in an environment like graduate school where I could continue to learn and continue to increase my skills and get to a place where I wasn’t replaceable, where I wasn’t just competing against a hundred other interns from similar schools to me. I had something special to give because I had acquired that knowledge. So I think imposter syndrome, sometimes it’s something that you just feel in your head, but sometimes it’s a signal that maybe you do belong somewhere else and there’s something better for you than where you currently are.

Caceres-Santamaria: That’s a good perspective. Thank you for sharing your experience. Now, we want to lift up and inspire women to know that they should consider studying economics and working in the field. One way we do that is by sharing our challenges. What challenges have you faced, and how have you overcome them?

Fairweather: Well, another challenge that I faced was in graduate school. Again, I was with all these really smart people who were so into academia and wanted a professor job so badly, and when I first got started in graduate school, I was more openminded than that. I wasn’t really sure. Maybe I would go back to working at the Federal Reserve. Maybe I would go into industry. Maybe I would go to academia. But being surrounded by so many people who had this singular goal, who valued it so much and acted like it was the end-all be-all, I started to adopt those values too, and it took me a second to step back and kind of reevaluate what I really value to find a path that was better for me. And it wasn’t an easy path. I still had to go out into industry and work my way up and earn promotions and all of that, but I felt like I was just absorbing other people’s values instead of really figuring out what I wanted. I think economics is actually really useful for putting that into mathematical terms. You have to define your utility function if you’re going to maximize it.

So I think women should definitely get involved in economics not only because it opens up job opportunities but because it helps you frame your decisions and think about the world in like a more, I guess, rational way where it makes it easier to make decisions, and wherever your career takes you, those lessons are going to be really valuable.

Caceres-Santamaria: And in those lessons you’ve put a lot of those lessons into that book. Did you ever think that you would be writing a book one day about all these experiences?

Fairweather: I did. I remember being in graduate school, actually, thinking like, “Man, I’ve really been through it, and I should write a memoir or something one day.”  I mean, the book is mostly about economics. I have some personal stories in there, but the reason that I really wanted to write the book was because I feel like economics, the way that it’s taught, it’s usually taught from a very masculine perspective. Even the examples we get, they’re like usually about sports or they involve men, and I wanted to write something that I would have wanted to read back when I was an undergraduate that was for me, that had examples that resonated with me, so I guess I’m kind of like healing my inner college student by writing the book that I really wish existed.

Caceres-Santamaria: Great. And we thank you for writing it. I can’t wait to read it. Why do you think it’s important for women and underrepresented minorities to enter the field of economics?

Fairweather: Economics is subjective. It has all this math in it, which gives it the guise of being objective, but the interpretation is where this objectivity comes in. Often times economists will have a result that A seems to cause B, and they make up a story about how A causes B, and that story is usually something that is reflective of that person’s experiences. So, for example, if we see that unemployment is low, you might have the conclusion that “Oh, it’s because the job market is really hot.”  I mean, that’s a fine explanation, but maybe there’s something going on in certain communities that isn’t being seen.

Historically, the Black unemployment rate has been overlooked, or people make up stories for why the women’s employment rate is what it is. Maybe women want to enter the workforce or not. And unless you have that perspective and have that life experience, you’re not going to really get the perspective of those people, so I think it’s really important to have a lot of voices in the room who can speak to all the different channels that might be going on instead of only adopting one world view from one point of view.

Caceres-Santamaria: It’s almost there’s layers.

Fairweather: Yes.

Caceres-Santamaria: There’s layers to every piece of data and information, so it’s not just what you see. There’s a lot more underneath that.

Fairweather: There’s a lot more underneath, and there are some things that we will never see where you just have to kind of make up a story, and the story that gets made up is from the storyteller’s perspective, so I think we need to have a lot of different storytellers.

Caceres-Santamaria: Very true. Great point. Thank you. A lot of the women interviewed in this series have shared powerful stories about mentors who have made a difference in their education or their careers. Do you have any mentors or role models who really impacted your career?

Fairweather: Some of the strongest mentors I encountered were at Amazon where I had a woman manager and a woman director, and I felt like having those role models really made me believe that I could get promoted and that I could work my way up, not just at Amazon but any company. Even though they weren’t economists, just seeing them succeed and seeing them overcome the obstacles that were in their way, whether it was sexism or whatever, it just really inspired me, so, yeah, those are two.

Caceres-Santamaria: Great. So, in turn, are you doing things to mentor or help draw women into the field?

Fairweather: I try. I mean, I’m here now, so hopefully, giving this keynote speech at the Women in Economics symposium will help with that. One thing that I do is I just respond to women who message me. There are women who follow me on Twitter, and when they DM me, I try to meet them. I just met up with a woman when I was out in D.C. to just learn about her and her career. I don’t have anything really structured, but I just try to take the phone call and try to take the meeting.

Caceres-Santamaria: I think your book will be a good—

Fairweather: Oh, yeah, the book.

Caceres-Santamaria: The book I think is a great way for you to provide some mentorship, I appreciate when there is a perspective that really wants to turn things around and flip things around so that you’re like, “Oh, I never saw it that way.”  So I think by doing that you’re providing some mentorship for sure.

Fairweather: Let’s hope.

Caceres-Santamaria: Now, careers in economics have the possibility to make an impact, ripples that extend so much further than the work of one sole career path. Can you share with us some insights on how your career has made a broad impact?

Fairweather: Well, one of the ways that I career has made a broad impact is that I have the privilege of being able to go on TV and talk to reporters and tell them about what’s going on in the housing market and the economy. When I was at Amazon, the work that I did was very internal, and it had an impact on the vice presidents and executives that were there, but I was really grateful to go to Redfin because they wanted me to speak more publicly and share the insights that we were getting and doing things like that and also being active on social media and sharing all the research that we do is one way that I can increase my impact.

Caceres-Santamaria: Great. Thank you. Is there anything else that you would like to discuss about women in economics?

Fairweather: Well, just overall I am optimistic about women in economics. I felt like when I was first entering graduate school, the underrepresentation of women was kind of seen as a feature of economics profession, that women weren’t interested in economics or they had other career paths that they could benefit more from, but I think that’s fundamentally untrue. Generally, women like studying people, and economics is about people.

When I was at MIT, one of the most popular majors for women was psychology and brain and cognitive sciences, but economics is kind of in that same vein. We’re studying the decisions that people make, and I think that’s something that women do want to study, and I’m hopeful that more women can see economics is a place where they can fit in, and they can really prosper.

Caceres-Santamaria: That’s an interesting way to see economics because a lot of people, when they think of economics, they think math, and the math helps to see a picture, which is that picture of human behavior and the psychology behind why we do what we do or the result—right?—and the study of it. So I like how you framed that in the sense of looking at the psychology side of it instead of the math, just going from what some people shared.

Fairweather: It’s both. It’s that intersection that I really like between math and human behavior, and there’s a lot of economics you can learn without really touching math. I think the math can get you to that next level of really being able to study something and use regression analysis and all of that, but there are so many important lessons from economics that you don’t need any math for, and hopefully, we can do better at getting outreach to young women before they even take their math classes, that they see that economics is something that they might want to pursue.

Caceres-Santamaria: Right. And the younger we can inspire them, the better. Well, thank you so much for sharing your story with us today.

Fairweather: Thank you. I’m so happy to be here.

Caceres-Santamaria: Great. Thank you. To hear more from the Women in Economics Podcast Series, visit www.stlouisfed.org/womeninecon. You can also find every Women in Economics episode on Apple podcasts, Spotify and wherever you like to listen to podcasts.