With the goal of being able to measure and predict inflation better than any government entity, Amazon has a "secret squad" of economists working behind the scenes.
Estimating inflation rates is a very complex and imperfect science. The Bureau of Labor Statistics sends testers to stores to manually record the prices of common goods, like groceries and tires. Surveys are done via phone to get real-time data on what consumers are paying for commodities like fuel and heating oil.
Using data and trends from their own platform, Amazon's economists are drilling down into product descriptions to identify the quality of a product, and indexing the products based on consumer demand and pricing history. Given that a whopping 75 percent of American consumers shop on Amazon most of the time, the shopping giant may well have the largest transactional data set in existence. With that much data, it stands to reason that Amazon isn't relying on the feds to validate or improve on their economic model.
Over the past three years, the company has hired over 150 PhD economists, likely making it the largest employer of economic doctors behind the Federal Reserve. At the American Economics Association's January conference, Amazon was the only company there recruiting, handing out pens and stress balls. The talent pool of PhD economists only grows by 1,000 or so new graduates per year.
The economists at Amazon are required to sign non-disclosure agreements because much of the work they are doing is in secret. Amazon's economists aren't doing the work of traditional men and women in their field. Instead, they are tasked with using machine learning algorithms to determine the lowest prices that will still deliver a profit, as well as analyzing customer preferences and determining whether or not advertisements are working.
These "tech economists" are not a new phenomenon, even if Amazon is making the most use of them. Companies such as Uber, IBM, Intel, and Microsoft have had them on staff for years, although not on the same scale as Amazon.
One of Amazon's lead number crunchers, Pat Bajari, likened the job of an Amazon economist to "cleaning up waste."
"What I've seen change in the industry, starting about eight years ago, is firms got more serious about using the scientific method and removing chunks of guesswork within companies," Bajari said. "You're basically trying to clean up waste."
This unique hiring strategy is just one facet of the secret formula that has made Amazon the largest, and arguably the most cost-effective, retailer on the planet.