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> He vowed that anyone who spent his money would be entitled to a 10 percent commission on the amount they spent. If someone booked out a restaurant and spent $

> He vowed that anyone who spent his money would be entitled to a 10 percent commission on the amount they spent. If someone booked out a restaurant and spent $1,000 on the tab, for example, they would earn $100. If they recruited someone to live in Park City, they would be entitled to a 10 percent commission on that person’s annual salary. And if someone could source a real estate deal and spent $1 million on the property, that person would earn $100,000. This is, quite literally, the stupidest incentive scheme I've ever heard of.

gojomo 3y ago
Oddly, it's not that different from other commission/finder's-fee systems. (It's also not totally different from the "commission" many governments collect via sales taxes: "everything happening within our nexus owes us 5-10% of the total spend".) If in fact the ultimate spender is reasonably confident that their actual spend decisions fit their values, but they generally aren't finding enough things to spend on, it could even make sense! But of course if the spend-decisions are unhinged/reckless, then this system makes them 10% more wasteful.
- TedDoesntTalk 3y ago
  It incentivizes the purchaser to overpay.
  - gojomo 3y ago
    Totally agreed, but still, finder's fees sometimes work that way – because the actual amount truly paid is considered the least-fakable proxy-signal of value delivered. Similarly, utility-style government regulation often caps profits (or profit-like 'overhead' like salaries) as a percentage of expenditures. This creates an incentive for doing things in an expensive manner. It's kinda dumb, and has been understood as a problem driving excessive costs in regulated industries for many decades. But the same thing was written into 2010's ACA ("Obamacare") as an "80/20 rule": insurers must pay out 80% of what they take in on certain preferred health expenditures, like medical procedures. So, the only legal way to grow the absolute size of the 20% an insurer must use for 'overhead' (including administrative salaries & profits) is to increase the totals paid for health services. That is, insurer management/shareholders can benefit when hospitals/providers charge them more. If the federal government habitually makes this mistake, can we blame Hsieh?
    - thaumasiotes 3y ago
      > Similarly, utility-style government regulation often caps profits (or profit-like 'overhead' like salaries) as a percentage of expenditures. This creates an incentive for doing things in an expensive manner. It's kinda dumb, and has been understood as a problem driving excessive costs in regulated industries for many decades. The term for this is "cost plus". As you note, it has long been understood to be a big mistake. And as you also note, it continues to be common.
      - MichaelZuo 3y ago
        Not necessarily, for stuff that genuinely doesn't exist yet, such as cutting-edge military technology , or for situations where there's literally only a single potential bidder, cost-plus contracts are the least bad method I can think of.
        thaumasiotes 3y ago
        They are significantly worse than the standard, extremely simple method of setting a budget and providing that amount of money.
        MichaelZuo 3y ago
        So then it doesn't happen, or some extremely high price is offered to cover all potential risks. Like 5x or 10x the naive estimate. Which seems worse.
- ricksunny 3y ago
  World Bank actually incentivizes originating capital project loans (for infrastructure in developing countries and the like) in a similar fashion.
zamnos 3y ago
Assuming you didn't get paid 10% off of buying stocks and bonds, it incentivizes actually spending the money on something. Don't forget Tony's recruiting process - whatever your current salary, I'll double it if you come work for me doing... whatever your heart desires. He had functionally infinite money, and you can't bring it with you, so what're you gonna do? Join the effective altruism crowd? Please. It doesn't make sense of you have a limited a amount of money, but he was a billionaire and thought like one.
- sheepscreek 3y ago
  Putting the aggressive tone aside, this makes sense. His acts were a different kind of altruism compared to other billionaires. But altruistic, nevertheless. My take is that somewhere deep inside, he felt he didn’t deserve the amount of wealth he had. There was some guilt and pain that ate him up inside. He seemed like a good man who was motivated by something other than money. The fact that he made a lot of it seems coincidental. A round peg in a square world, he was unlike his peers - much less obsessed with spending the wealth on himself. I hope that we can find some inspiration from his desire to build a community larger than himself. I hope he is now at peace, wherever he is.
55555 3y ago
I guess the idea was that he would veto all bad ideas.

gojomo 3y ago

Oddly, it's not that different from other commission/finder's-fee systems. (It's also not totally different from the "commission" many governments collect via sales taxes: "everything happening within our nexus owes us 5-10% of the total spend".) If in fact the ultimate spender is reasonably confident that their actual spend decisions fit their values, but they generally aren't finding enough things to spend on, it could even make sense! But of course if the spend-decisions are unhinged/reckless, then this system makes them 10% more wasteful.

TedDoesntTalk 3y ago
It incentivizes the purchaser to overpay.
- gojomo 3y ago
  Totally agreed, but still, finder's fees sometimes work that way – because the actual amount truly paid is considered the least-fakable proxy-signal of value delivered. Similarly, utility-style government regulation often caps profits (or profit-like 'overhead' like salaries) as a percentage of expenditures. This creates an incentive for doing things in an expensive manner. It's kinda dumb, and has been understood as a problem driving excessive costs in regulated industries for many decades. But the same thing was written into 2010's ACA ("Obamacare") as an "80/20 rule": insurers must pay out 80% of what they take in on certain preferred health expenditures, like medical procedures. So, the only legal way to grow the absolute size of the 20% an insurer must use for 'overhead' (including administrative salaries & profits) is to increase the totals paid for health services. That is, insurer management/shareholders can benefit when hospitals/providers charge them more. If the federal government habitually makes this mistake, can we blame Hsieh?
  - thaumasiotes 3y ago
    > Similarly, utility-style government regulation often caps profits (or profit-like 'overhead' like salaries) as a percentage of expenditures. This creates an incentive for doing things in an expensive manner. It's kinda dumb, and has been understood as a problem driving excessive costs in regulated industries for many decades. The term for this is "cost plus". As you note, it has long been understood to be a big mistake. And as you also note, it continues to be common.
    - MichaelZuo 3y ago
      Not necessarily, for stuff that genuinely doesn't exist yet, such as cutting-edge military technology , or for situations where there's literally only a single potential bidder, cost-plus contracts are the least bad method I can think of.
      - thaumasiotes 3y ago
        They are significantly worse than the standard, extremely simple method of setting a budget and providing that amount of money.
        MichaelZuo 3y ago
        So then it doesn't happen, or some extremely high price is offered to cover all potential risks. Like 5x or 10x the naive estimate. Which seems worse.
ricksunny 3y ago
World Bank actually incentivizes originating capital project loans (for infrastructure in developing countries and the like) in a similar fashion.

zamnos 3y ago

Assuming you didn't get paid 10% off of buying stocks and bonds, it incentivizes actually spending the money on something. Don't forget Tony's recruiting process - whatever your current salary, I'll double it if you come work for me doing... whatever your heart desires. He had functionally infinite money, and you can't bring it with you, so what're you gonna do? Join the effective altruism crowd? Please. It doesn't make sense of you have a limited a amount of money, but he was a billionaire and thought like one.

sheepscreek 3y ago
Putting the aggressive tone aside, this makes sense. His acts were a different kind of altruism compared to other billionaires. But altruistic, nevertheless. My take is that somewhere deep inside, he felt he didn’t deserve the amount of wealth he had. There was some guilt and pain that ate him up inside. He seemed like a good man who was motivated by something other than money. The fact that he made a lot of it seems coincidental. A round peg in a square world, he was unlike his peers - much less obsessed with spending the wealth on himself. I hope that we can find some inspiration from his desire to build a community larger than himself. I hope he is now at peace, wherever he is.

55555 3y ago

I guess the idea was that he would veto all bad ideas.