Monday Master Class: How to Use Time Arbitrage to Maximize Your Productivity ProfitJanuary 21st, 2008 · 20 comments
The Wonders of Arbitrage
In this article, I explain how to apply the well-known concept of arbitrage to the hours in your daily schedule. By taking advantage of the different values of these hours to different types of work, you can use time arbitrage to maximize your “productivity profit” — which describes the value you extract from the day in terms of both work accomplished and relaxation achieved. (We are at our best when we balance both.)
If you’re already comfortable with the concept of arbitrage, skip down to the section titled Time Arbitrage. Otherwise, continue on with the next section where we’ll cover the basics…
Arbitrage is a simple concept. In finance it describes the simultaneous purchase and sale of assets that generates a profit due to a difference in price. For example, let’s say that at this moment my most recent book costs $10 in Hanover because Dartmouth students are all brilliant and the advice is generally not needed. In Cambridge, however, it costs $20, because Harvard students need all the help they can get. If I put phones up to both ears and buy 100 copies from the Dartmouth Coop while selling 100 copies to the Harvard Coop, I’ve just made myself a tidy $1000 profit.
Arbitrage Beyond Money
The concept of arbitrage can be extended beyond finance. For example:
Geoarbitrage: Tim Ferriss has been recently promoting the concept of geoarbitrage. The basic idea: consider a task, like doing research for a freelance article, that requires 5 hours. If you’re being paid $1000 for the article, and it takes 10 hours total to finish, then the task of research is worth $500 to your editor. Assume, however, that a virtual personal assistant in Bangalore will do the same research for $10 an hour. You can now “buy” the asset (5 hours of research) for $50 in India and then “sell” it to your editor for $500, making a profit of $450.
Social Arbitrage: Keith Ferrazzi introduced the idea of social arbitrage to help explain the world of inter-personal networking. Assume you have two good friends. One is the CEO of a major tech company. The other is a freelance writer. Assume the writer is working on an important article about the tech industry. The cost to your friendship to ask the CEO to chat with the writer is small. It’s only slightly annoying — requiring maybe 20 minutes of the CEO’s time. The benefit to your relationship with the writer, however, is major. The connection will be key for him to complete his article (earning him money and respect). Therefore, you can “buy” the favor for cheap from the CEO and then “sell” it for much more to the writer. The introduction yields a large net gain to the overall strength of your network.
Time arbitrage concerns the hours in your daily schedule. As with any arbitrage system, we need a notion of value. For time: value can be defined as the amount of productive work or relaxation accomplished during the interval. We also need a notion of buyers and sellers. In this context: the buyers and sellers are activity types.
Scheduling your day, therefore, can be seen as a market in which you are buying and selling hours to and from activities with the hope of making money through value differences. To understand what value differences you have to play with, we have to define the different activity types and how they value time.
- Concentration Activities:These includes studying, reading, working on a problem set, or anything else that demands concentration. Earlier hours are worth more than later hours for these activities. You have more energy earlier in the day and can therefore better concentrate. In addition, isolated hours are worth more than consecutive hours. That is, an hour surronded by non-concentration activities is worth more than an hour in the middle of a marathon session. Too much consecutive concentration and your mind begins to tire. (See this post on pseudo-work for a more detailed discussion on the importance of energy and focus in completing demanding tasks.)
- Mechanistic Activities: These include errands, producing flashcards, tracking down sources in the library, or any other activity that does not demand concentration to complete. All hours are worth the same for these activities.
- Relaxation Activities: These include any activities meant to relax yourself and generate contentment. For example, dinner with friends, going to see a talk, pulling together a pong game, web-surfing or watching TV. Later hours are worth more to these activities. Early in the day it’s hard to fully relax because you know you have more work left to do later. In addition, consecutive hours are worth more than isolated hours. Little bursts of relaxation don’t relax you as much as being able to really let go for a while.
Becoming a Time Arbitraguer
Here’s an exercise. Look at your schedule for yesterday. Map out how you spent your free hours. Label each of these hours with the appropriate activity type from above.
Now, imagine you’re an arbitraguer. You want to buy up the time from the day and then sell it back to activities in a way that maximizes your profit. The key here:look for inefficiencies. Find places were activities own time that is of low value to them. Buy it on the cheap. Then sell it to activities that value it much more. For example:
- Perhaps you dedicated pockets of free time in the early afternoon to relaxation activities, like surfing the web and watching TV. (This is the typical student mantra: “I’ll work later, when I have more consecutive hours of free time.”) You can buy these hours at a low price because relaxation does not value early isolated chunks of time very much. Next, resell the time to concentration activities, like working on a reading assignment. The latter will pay quite a bit more for these same hours.
- Maybe your night was spent in a marathon of concentration activities, like studying for a test. Buy these hours on the cheap and sell them to relaxation activities. Again, generating a tidy profit.
- Once you’ve sold your high-profit late and early hours, sell the remaining chunks to the mechanistic activities. All time is worth the same to these activities, so they can be used to fill in the holes left after you maximize the value generated by selling hours to the concentration and relaxation activities.
Living the Time Arbitraguer Lifestyle
The example activities given above were specific to college students, but the three main activity types — concentration, mechanistic, and relaxation — are applicable to all walks of life. In the business world, for example, concentration might cover working on a new marketing idea, mechanistic might cover answering e-mails, and relaxation might cover time with family. The valuation formulas still work.
The key is to understand that all hours are not made equal. When you begin seeing your free time in terms of the different value it brings to different activities, and you develop a thirst for maximum productivity profit, you’ll be surprised by how much more value you can wring out of each day.