3 ms·

Is there even a consistent notion to the idea of a person adding a set amount of value? If we take a 3 person company and use a simple system to measure value

Is there even a consistent notion to the idea of a person adding a set amount of value? If we take a 3 person company and use a simple system to measure value added, how do you break down the value added by A who is +100k, B who is x2, and C who is x2? If you remove either B or C, half he value of the company is gone, so they each add half. But if you remove A then the entire value of the company disappears. So they add 50%, 50%, and 100% of the value of the company respectively? This is a pretty simple example, modeling real world would involve much more complex interactions, yet even with this simple one it would be hard to create a universal way of measuring value that is universally applicable. Is the notion that a person contributes a set amount of value something like set theory, in that it sounds pretty good and usable for many things but with enough analysis there is a flaw underlying the entire system that requires some creative work to get around, enough so the common mental model no longer applies and thus the original concept can be said to not be possible?

LeifCarrotson 4y ago
What do you mean by "B who is x2, and C who is x2?" I think the fundamental insight provided by the model is that each of A, B, and C are human, and have comparable intelligence, skill, and efficiency. But if B draws half the salary of A for 12 hours of sales calls in which he gets a lot of details wrong, while A spends 600 hours customizing the product for the user, that's ridiculous. It's not believeable for one expert witness to be worth thousands of dollars an hour while someone in the same profession with the same education and experience, but without connections to some buddies who went to law school, is only worth $20/hr. That's why juries freak out when they learn what expert witnesses are compensated.
- deleted 4y ago
  [deleted]
Banana699 4y ago
Cooperative Game Theory is one field that has been studying dividing payoff among cooperating players in proportion to how much they contributed to achieving the goal.
lalaithion 4y ago
Luckily, this is a solved problem in economics. You use the Shapley Value (https://en.wikipedia.org/wiki/Shapley_value https://en.wikipedia.org/wiki/Shapley_value) of each contributor. For small groups, you can use http://shapleyvalue.com/index.php http://shapleyvalue.com/index.php, and for the example you gave above, A should get 233k of the total 400k value, and the other two should get 83k of the total 400k value.
- robocat 4y ago
  This problem occurs exactly when founding a business - how do you apportion equity ownership when one central founder is essential, and co-founders have a multiplier effect on profitability? How do you deal with the uncertainty in the multiplier, or the future measurement of the multiplier? The Shapley Value seems like a perfectly spherical moose optimum. A can create an annual profit of 100k, and A+B+C can create a profit 400k. A will only bring on B or C if A can get more than 100k. Let us assume B is currently working in Chile and they would accept 40k (better than their current pay), and C works in the US and 120k is their minimum acceptable payoff to change jobs. The potential groups are: * option X: A profit 100k * option Y: A+B profit 200k, and A+B could argue over how to split the 60k excess. * option Z: A+B+C profit 400k, and A+B+C could argue over how to split a 140k excess. Or A just starts the business and keeps 100% ownership, and A offers B 40k, and offers C 120k, and A pays themselves 240k and A also gets 100% of the market value of the business. B + C complain that’s unfair, but accept the jobs anyway.
  - lalaithion 4y ago
    Right, this is why Shapley value is not the market value. One could also imagine a world in which A is a software engineer who can make 100k at his day job, but B and C are experts in a little-known, poorly paying, field with the potential to revolutionize the world, and they’re looking for a software engineer to help them build a product. B and C can then offer A 110k, while each pocketing 145k. Also note that the scenario above is not the scenario I worked out in my original post. If the software engineer makes 120k and the Chilean makes 20k on their own, then the Shapley value is actually A = 166k B = 86k C = 146k Shapley value != market value, but in many cases, it’s usually fairer than market value.

LeifCarrotson 4y ago

What do you mean by "B who is x2, and C who is x2?" I think the fundamental insight provided by the model is that each of A, B, and C are human, and have comparable intelligence, skill, and efficiency. But if B draws half the salary of A for 12 hours of sales calls in which he gets a lot of details wrong, while A spends 600 hours customizing the product for the user, that's ridiculous. It's not believeable for one expert witness to be worth thousands of dollars an hour while someone in the same profession with the same education and experience, but without connections to some buddies who went to law school, is only worth $20/hr. That's why juries freak out when they learn what expert witnesses are compensated.

deleted 4y ago
[deleted]

Banana699 4y ago

Cooperative Game Theory is one field that has been studying dividing payoff among cooperating players in proportion to how much they contributed to achieving the goal.

lalaithion 4y ago

Luckily, this is a solved problem in economics. You use the Shapley Value (https://en.wikipedia.org/wiki/Shapley_value https://en.wikipedia.org/wiki/Shapley_value) of each contributor. For small groups, you can use http://shapleyvalue.com/index.php http://shapleyvalue.com/index.php, and for the example you gave above, A should get 233k of the total 400k value, and the other two should get 83k of the total 400k value.

robocat 4y ago
This problem occurs exactly when founding a business - how do you apportion equity ownership when one central founder is essential, and co-founders have a multiplier effect on profitability? How do you deal with the uncertainty in the multiplier, or the future measurement of the multiplier? The Shapley Value seems like a perfectly spherical moose optimum. A can create an annual profit of 100k, and A+B+C can create a profit 400k. A will only bring on B or C if A can get more than 100k. Let us assume B is currently working in Chile and they would accept 40k (better than their current pay), and C works in the US and 120k is their minimum acceptable payoff to change jobs. The potential groups are: * option X: A profit 100k * option Y: A+B profit 200k, and A+B could argue over how to split the 60k excess. * option Z: A+B+C profit 400k, and A+B+C could argue over how to split a 140k excess. Or A just starts the business and keeps 100% ownership, and A offers B 40k, and offers C 120k, and A pays themselves 240k and A also gets 100% of the market value of the business. B + C complain that’s unfair, but accept the jobs anyway.
- lalaithion 4y ago
  Right, this is why Shapley value is not the market value. One could also imagine a world in which A is a software engineer who can make 100k at his day job, but B and C are experts in a little-known, poorly paying, field with the potential to revolutionize the world, and they’re looking for a software engineer to help them build a product. B and C can then offer A 110k, while each pocketing 145k. Also note that the scenario above is not the scenario I worked out in my original post. If the software engineer makes 120k and the Chilean makes 20k on their own, then the Shapley value is actually A = 166k B = 86k C = 146k Shapley value != market value, but in many cases, it’s usually fairer than market value.