Would you sell life equity? | Hacker News Reader

Would you sell life equity?

zellunit.com

17 pointszellunit51 comments

I had the same discussion with a good friend a while back. We were thinking of starting an entire new market where people can sell some shares in themselves and then those shares can be traded. Some issues that we though about (I'll add more as I remember them):

- As author mentions, once you get paid you have less incentive to work.

- In order to make an investment, you would need access to confidential information - risk of diseases, test scores, etc. Not sure the ethical/privacy implications of this.

- The type of people willing to sell may likely be the people who don't have faith in themselves - why would you want to support that?

Can you tell me how these objections do not apply to buying shares of IBM? Clearly, the people who work for IBM would work a lot harder if they owned the company -- and yet billions of dollars ride on the assumption that they will work hard anyway!

You can probably decide on which information to disclose in advance. This is how it works with OTC securities -- some companies don't give any information in their annual report, and others will tell you down to the last dollar how much they spent on their secretary last year.

Unfortunately, if the government somehow allowed this, it would almost certainly mandate consistent disclosure, making this a market for people who have whatever cookie-cutter preferences the first bureaucrat thought up. Oh well. Maybe if you list people in Dubai you'll have better luck. They seem friendlier to new financial products.

Well they are compensated by the managers who have an incentive to make them be as productive as possible, otherwise they'll get replaced by the shareholders.

I'm sure there's some way to structure this to make it legitimate - maybe if we can tax it!

This is exactly the business model which most private US universities work with, except with the minor difference that people are not required to give money back to their alma mater. As high as the cost of tuition fees may be, it's much less than what it costs universities to provide that education; the difference is made up by the fact that over their lives, many Americans donate significant fractions of their income to the institutions which educated them. (A more macabre version of this calculation is done at universities which provide free education to seniors because experience tells them that this is a good way to be written into someone's will.)

And of course we shouldn't forget governments: By providing free primary and secondary education, and (in most developed countries) free health care, governments provide per-capita funding on the order of hundreds of thousands of dollars -- and then call their annual dividends on equity "taxes".

By providing free primary and secondary education

It just slays me that people could type such a sentence.

"Free"

As in, the money is stolen.

"Free"

As in, they force you to go there.

> As in, they force you to go there.

At least in the US you are under no obligation to send your kids to public school. You can send them to a private or parochial school or home school your children.

Why? Do you think making education completely optional would be better?

completely optional

It is completely optional. But you still have to "go there", to the building.

Most children in the U.S. do not have to go to school if their parents are willing to help them avoid school: the parents need only tell the school district that they are homeschooling their child from now on. (The parents then of course become responsible for overseeing the child's education.)

The school district will probably not like it, but unless the parents are under court supervision for some reason (e.g., the parents were convicted of a crime) the school district probably cannot force the parents to send the child to school, especially if the parents are willing to do research on the internet or appear in court once or twice.

But if the child's parents want the child to go to school, then yeah, the child has to go.

The public school system is probably a waste of time for a bright child who can learn on his or her own unless the child lives near an exceptionally good public school. More bright children who have proven that they can learn things on their own should be homeschooled.

> The public school system is probably a waste of time for a bright child who can learn on his or her own unless the child lives near an exceptionally good public school. More bright children who have proven that they can learn things on their own should be homeschooled.

Aren't there often socialization problems associated with home schooling? I don't know a lot about the topic, so I could be dead wrong. But overall, I would be more comfortable sending bright kids to a solid school with a good gifted and talented program where they can spend time with other kids their own age than home schooling them myself or having them skip a bunch of grades.

Is this a misconception on my part?

I have not reviewed the evidence myself, but the homeschooling web sites I have read claim that the methodological evidence shows that homeschooled kids turn out to have closer friendships and better social skills than enrolled kids.

I knew a kid from Vo-Tech who was homeschooled up to then. He was noticeably more civil & polite than the kids from public highschools his age, and seemed more mature in his poise. If anything the socialization you receive in public schools is a damaging exposure, I think.

This is one of my favorite objections to socialized medicine: do you really want your lifestyle to be a liability on the government's balance sheet?

lol, I just received my college's invitation to Alumni weekend next month. One of the 2 adult education classes is "Estate Planning 101". I guess that's a nicer name than "Let Us Teach You How to Give Us More Money".

taxes aren't dividends, they are taken by force. they decide how much they feel like taking this year, and you pay or go to jail. it's not a business transaction.

and of course they still take tax money from people who never went to their schools.

As far as I know, there are countries that still accept immigrants if you feel that the social contract of the nation you are currently inhabiting is unreasonable.

Failing that, there's always working for political change, or even armed insurrection.

Or you could just log on to a website and complain about it. Hey -- done!

Indeed! And there are other dark alleys I could have walked down -- shame on me for complaining, just because someone is threatening me with punishment in order to take away property I've earned.

In addition, the government under which I live is kind of nasty about engaging in anticompetitive behavior. Apparently they don't allow other people to operate anywhere they do business. And sometimes they set up shop in overseas countries, and engage in the same monopolistic tactics! Frankly, they are being run very poorly, and it is terribly inconvenient that they use such tactics to maintain their market share despite more efficient competitors.

You have no idea if I am working for political change, or not. Why be a jerk making a personal attack? i made a statement about what i think is true, and you respond with made up comments about how i'm not living up to something.

also advocating violence against Americans is pretty awful.

Sorry, I guess that was unduly harsh. Maybe I misread the tone of your prior post.

Referring to the social contract of a democracy as simply taking things by force sounded to me like deeply seated anger, and I guess I responded accordingly. And yes, advocating violence against Americans is pretty awful, but if you believe you live in a tyranny, violent overthrow is one of the traditional avenues for rectifying that situation.

there is no "social contract". i didn't sign anything. they use force. end of story. you don't pay, people with guns do come. there is no denying it.

but they aren't a tyranny, that's very different.

While a representative democracy cannot be considered a tyranny in the sense of being run by a single ruler with absolute power, a common, looser definition is that a tyranny is simply an oppressive and unjust government.

If you believe that the government is making you do things over which you have no control and which you have not consented to do through the use of force, how would you consider a tyranny different?

we don't have an "oppressive, unjust" government. just cause it has a flaw doesn't make it bad. it's a good thing. it helps us. it's much, much better than nothing. it's also the best in the world. the best that ever existed. i just want it to be even better and don't agree that taxes are like dividends.

Warren Buffet mentioned something similar... If you were to invest in the future success or bet on the failure of someone, what traits do they have?

You probably wouldn't pick the smartest or dumbest and the traits are probably habits. You can learn good habits and unlearn bad ones.

I once read this suggestion and was very surprised by the result when I applied it. My 'equity valuation' of someone was often in direct contrast to my 'general appreciation' of them as a person, and to such an extent that it was difficult to keep two such incongruous ideas in my head at the same time.

What was surprising was not the overriding tendency to appreciate people for economically unrelated traits, but the gross effectiveness with which I could evaluate someone as soon as I viewed them purely in terms of financial opportunity.

I was reminded of the experience I had had with the Socratic method. When first presented as an idea---"You just ask questions"---the Socratic method is comically simple, almost ripe for derision, and easy to dismiss. But applying it, and seeing it applied, you notice that it has a powerful effect. The thoughts we arrive at on our own are immeasurably more meaningful than the thoughts pressed on us by others.

By the same token, this method of evaluation was unexpectedly effective. As long as I was thinking critically about who I would buy stock in, I had a clear picture of who the most valuable people were. But just as soon as my own assets faded from consideration the ordering became very different.

The problem seems to be that life is a long time and most people who invest want to see returns in a short time. I guess banks could do it, but it seems unlikely that they would be the one to start.

I once met someone who claimed to be an entrepreneur and said they would be a mentor to promising entrepreneurs for a promise of equity in everything that entrepreneur did for his life. It sounded a bit ridiculous to me at the time, and it sounds even more ridiculous now that I know more about investing.

Most people want returns in a short time does not mean all good investments make returns in a short time nor does it imply all good investors look just for short term returns.

When someone invests in something there is an implicit assumption on both sides:

As a buyer/investor, I assume that your present value is greater than your price. This is what happens when people buy undervalued stocks. In better cases, I assume that your value after investment is greater than your present value by more than the amount of the investment. That is, by investing in you, I add more value than the amount of the investment. This is what Y Combinator does.

As a seller, you make the inverse assumption. Either you have lost faith in the value of what you sell, or you believe that with the investment, you'll be able to make more than you would otherwise.

In the case of life equity, the first case is tough to see. If you believed in your life equity's enough to sell it, you wouldn't sell it. So, you must be seeking the second case: If only I had more money now, I could make more money later, greater than the percentage of the funds I need to give back to my investor. From this we can assume that a potential investor would want a justification of how you will earn that money. We're effectively reduced to the same venture funding and loan structures that already exist today.

The only other way life equity would work would be as a scam: If life equity investors took advantage of bad-at-math or desperate sellers. This is actually the same as third-world loan sharks, only we're calling it an investment instead of a loan.

There was a commercial that had something to do with insurance or something, where families were traded like stocks on an exchange.

There have been numerous occasions where I've thought about making something like this. How do you determine the value of a person or family? Would people be open to exposing so much details about their lives in order to increase the "value" of their family/person (like a public company has to open their books)?

Yea really it is a great question. The valuation is one aspect. The other is the fact that your incentive to succeed goes down once you get money so the very moment you get it, you're expected future earnings go down.

It's fascinating to think about though.

US Fedgov Corp. already has a claim on 10-35% of my life income! I didn't even sign any contracts.

You got a good deal - the federal claim on my income is more like 60%

Your parents did that for you when they signed the birth certificate. :)

Someone offered to do this for me a couple years ago. There was an ethical conflict of interest though so I never actually considered it seriously. I don't remember what the actual proposal was, but I think it involved an apartment in Boston with a running tab for a couple years in exchange for some percentage of whatever I made for the next five or so years.

Besides MyRichUncle, who offered money mostly for college, yours is the only report I know of someone actually being offered money for a percentage of future income.

This reminds me of the woman in France who, in her eighties, sold her house to a man in his fifties. He had to pay her every month until she died and then he would get the house.

She lived to be 122. He paid for the house 4 times and then died first.

For the curious, this story is about Jeanne Calment: http://en.wikipedia.org/wiki/Jeanne_Calment

Wow thats awesome. Thanks.

Hiring a hitman would've paid for itself! ;)

I'd sell it if I had an option to buy it back.

All of the unresolved questions you have also apply to equity in corporations. Except that corporations live forever, rather than for seventy years, so the uncertainty is compounded.

I don't understand the 'corrupt' argument. Do you worry about this with regard to stocks, too? Does owning AMZN make you 'corrupt' when you ignore Barnes & Noble?

I swear you guys read my email. Please stop.

Apr 11 (11 days ago)

for what amount would you sell 1% of your future income? i should set up a stock market for individuals.... lets say how much would you sell 1% of your next 10 years income

Response:

Haha that would be interesting.

Of course if someone sells more than 90% of their income, then they probably won't earn anything :)

Perhaps they were reading my mind when I was thirteen, too.

And then they planted it in Milton Friedman's Capitalism and Freedom, which somehow has a copyright date from several decades ago.

Sure I'll take a million right now, you can have 5%... if invested wisely the interest on that is enough for me to live on...

You know, this already existed for 6 years.

http://en.wikipedia.org/wiki/MyRichUncle

They had to change their business model because they became way too popular.

Let me clarify that. The Wikipedia article says that MyRichUncle become a traditional maker of student loans "following an unsuccessful attempt to secure greater financing". In other words, although they had plenty of young people who wanted to sell a fraction of their future earnings in exchange for money now, they could not match those young people up with investors.

They began trying to match young people up with investors for a fraction of future earnings in 1999 and began making traditional student loans in 2005, which is where the "6 years" comes in, but during those 6 years they might have had to turn away most of the young people who wanted money now.

How is this an advantage over loans, bonds, scholarships, patrons, angel investors and all the other investment options people have? Most people don't want to get a perpetuity as a loan when there are much better options out there!

I would personally take a minimum to not worry ($1mm) and give out up to 10-15% ... guess I'm a sell out.

I'd have a hard time selling my life equity without thinking: "k, I'm officially someone's bitch."

I've heard that some college fraternities do this, but it may have been just a rumor.

Some colleges encourage something similar. The Acton MBA program encourages alumni to sponsor new students so that their education is free (and based entirely on their ability to be accepted into the program). Once these students graduate, they are encouraged to turn around and to the same thing for the students behind them (out of a percentage of their earnings over the following years, until it is repaid).

It's not exactly the same model, but it does represent a take money now and payback out of future earnings template.The thing is A: repayment is encouraged, but not required, and B: the amount taken out of your future earnings is fixed and will end once paid.

That sounds a bit different. There's no real risk. The exchange is voluntary, after-the-fact, and if you make $10B the school doesn't (necessarily) get a percentage. That's basically a loan: you get school paid for now, and you pay it back over the next several years.

One or two fraternities, I'd heard, actually have you sign over some small percentage of your salary (1-2%?) for life. That's equity.

Is there shorting? Can I short sell?

sure, I doubt i'd disclose how early i'm planning on retiring though.

Reply on news.ycombinator.com