Paragraphs highlighted in orange indicate hints for you how to guide the interviewee through the case
The key here is to recognize that the family needs to balance 3 things: Health, Wealth, and Happiness.
The candidate should both ask which should be prioritized (answer: Health), and come up with a view of what the trade-offs/balance points are.
- We cannot risk the health of the family/parents
- Need to minimize time spent outdoors
- The children need to be homeschooled (but implications for Wealth and Happiness)
There's really no alternative here. Whatever the candidate proposes, you need to counter. For example, if they suggest your children wear masks, follow best-hygiene practices, etc. you respond stating that the risk is still too great.
- How much income do we need to survive? This is table stakes and the minimum must be met
- Our previous expenses were 75% of income. The candidate should understand this is $150k
- How much have our expenses decreased and can they decrease further?
- We can cut our expenses in half, but this will negatively impact our happines
- Result: expenses are now 37.5% of income, or $75k
- How much can we cut our income, and still make ends meet?
- Since your partner's income is at 80%, our total income is now $180k
- Since the children are homeschooled, can one of the parents work part-time?
- Unfortunately not – homeschooling is a full time job, and neither employee will allow a shift to part-time
- In this case, we need to decide which parent gives up their job...there are 2 approaches, and both lead to the same result:
- Approach #1: Expected Value (EV)
- EV of you working = $50k (i.e. $100k earnings times 50% probability of keeping the job)
- This isn't enough to make ends meet!
- EV of your partner working = $80k (i.e. 80% paycut on $100k, but the job is safe)....just barely larger than our expenses of $75k
- Answer: Your partner keeps their job with a value of $80k
- Approach #2: Risk aversion
- Keep your job but risk losing it all
- Keep your partner's job but with a certainty of less money than the highest potential
- You're a married individual with a family! You would take the risk-averse route and be sure of providing for your family
- Answer: Your partner keeps their job, giving you a certianty of keeping food on the table
1) Homeschool our children (to protect the health of our parents)
2) Cut expenses by 50% in order to make ends meet (at the expense of happiness)
3) Have our partner keep their job at 80%, while we give up our risky job and take on the household homeschooling responsibilities