Tag Archives: PayForResults

Five Ways to Rate

When we have people and orgs do things for us, we need ways to rate them. So we can pick who to have do what, and how much to have them do. And how we evaluate suppliers matters a lot, as they put great effort into looking good according to the metrics we use.

Results – When we buy a pound of roast chicken, or have someone to mow our lawn, we can pretty directly pay for the things we want. The more aspects of what we want that we can articulate and verifiably measure, the more of them we can specify in a contract. When action is risky, not always reliably producing desired results, paying for results means those who do things face payment risk, which they don’t like. And competitors might find a way to produce better results and displace them, a risk they also don’t like.

Record – If we get similar things over and over in a relatively stable context, and also stick with one provider for a while, then we can see a track record of how well they do for us. So we can pay them more of a steady fee not as closely tied to what we get, and drop them when their record seems unsatisfactory. We might switch between providers to sample quality, or hear gossip from associates about their experiences. Groups like Consumer Reports can collect stats on overall customer results. Suppliers face lower payment risks here, though still substantial competition risks.

Prestige – When data on customer results isn’t available, we may rely on a general opinion based on many weak clues about the quality of relevant people and orgs. For people, such clues include wealth, attractiveness, intelligence, social savvy, well-connectedness, etc. For orgs, there is also name-recognition, sponsorships, prestigious projects, and many other elements. Early education and training varies in prestige and adds to individual prestige. When individuals affiliate with orgs, the prestige of each adds to the prestige of the other. I count network effects under prestige; you use the system everyone else respects, As prestige is usually pretty stable over time, suppliers chosen by prestige tend to have a secure position.

Loyalty – While we less often admit it, we often choose suppliers to show our loyalty to “our sides”. Those we choose make sure to signal which sides they are on, and we help to ensure that our associates see those signals, so they can credit us for loyalty. It matters less to us that these signals actually correlate with the things we claim that our side seeks to achieve, as long as they are widely seen as clearly marking folks as on our side relative to other sides. The more stable are sides and signals, the more security a supplier can gain by clearly picking a side.

Procedure – Often specialists create official procedures re how to do something, and rules saying what not to do along the way. Then suppliers can brag to customers that they follow good procedures, they may be required by regulators to do so, and may be punished by courts as negligent if they deviate. Civil servants, for example, are typically paid and promoted based on following official procedures, and on internal politics, not on rates or results. Divisions within private orgs also try to become silos evaluated via rules and procedures, not results. Suppliers tend to like being evaluated by stable rules and procedures that can be achieved with limited effort, as this ensures high job/supplier stability.

While all these methods have their place, the first one, results, seems the most solid and hardest to corrupt from the customers’ point of view. Yes there are obstacles to applying it widely, but such problems are often exaggerated to excuse the other methods. Suppliers would generally rather be evaluated via prestige, loyalty, and procedure, as once these are established they can usually look forward to long stable lucrative relationships, unthreatened by upstart competitors.

I want to find ways to tell people that we could pay for results far more than we now do. Yes, suppliers would resist such a switch, but we customers would get more of what we wanted.

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What Can Money Buy Directly?

Can money buy oranges? Well obviously, in an indirect sense. With money, you could travel to a place where you’ve heard oranges grow wild, search to find such a plant in the wild, dig it up and try to ship it home, see if it you can make it thrive there, and if it does, take some oranges as your reward. This might work, but success depends not just on the money you pay; it also depends much more on your effort, abilities, and other context. In principle, you might be able to execute this plan without any money, but typically more money will make such a plan a bit easier. So, yes, in this weak sense, you can “buy” oranges with money.

At an ordinary grocery store, however, you can buy oranges much more directly. You go to the produce section, look for the orange color, walk to the pile of oranges, take as many as you want, and pay the price per orange at the register. Or at a full service grocery, you might just say “six oranges please” and a grocer would go find and bag them for you. Online, you might just type in “orange”, enter “6” for quantity, and click “buy”.

These ways to buy oranges are usually pretty reliable even for an ordinary person who knows little about oranges. Using these methods, the number of oranges you get depends mainly on how much money you are willing to pay, and much less on other context. This is what I mean by buying something “directly.” And so regarding the oft-asked question “what can money buy?”, a more interesting version of this question is “What can money buy relatively directly.”

As more money makes most any plan a bit easier to achieve, the many long lists one can find of “things money can’t buy” are in one sense obviously wrong; money helps with most of them. And if they just mean that money can’t guarantee the max level of each thing, that’s obvious, but trivial, as pretty much nothing guarantees that. You can’t even guarantee you’ll get oranges if you order them from a grocery. And if that is the meaning, why pick on money, relative to anything else that might greatly but imperfectly help you get things?

Perhaps what people mean is that money isn’t the main factor that determines if you succeed with such things; money can be a distraction from more important issues. But if so, that seems to claim that you can’t buy such things directly. Which then raises the key question: for what kinds of things can the money you pay be a strong factor in determining how much of it you get? That is, what can money buy directly?

In my last post, I talked about how one can buy higher wages, via a job agent. I wasn’t saying that there are complex and subtle ways to spend money to help your career, ways that could work if only you were clever and skilled enough to understand and apply them. I was instead saying that there is a simple direct way to do this, one most anyone can understand: hire an agent (and anti-agent). That method doesn’t guarantee you any particular wage, but it does let you control how much you pay per wage increase.

In fact, I’ll go further now, and say that there seem to be ways to measure most anything, and as a result we can buy most any measured thing relatively simply and directly. That is, via a simple method that most anyone can come to understand, you can just point to what you want, put cash on the table, and then lose cash in proportion to how much you get of what you want. And the relation is substantially causal; paying more can cause you to get more, even when you have little relevant ability or understanding.

In the academic literature, this method is called an “incentive contract”. You find a way to measure the outcome you want, you offer to give someone access to levers by which they can plausibly influence this outcome, and you contract to pay them more cash the higher is this measure. You might also hold auctions or competitions to see who is best to put into this role.

We have a great many real examples today, and in history, of oft-used incentive contracts. Artists and athletes have agents paid a fraction of their earnings. Line workers are paid “piece rates” per how many items they assemble, or tomatoes they pick. Sales workers are paid commissions, per how many items they sell. Hedge fund managers are paid more if their fund makes higher returns. Lawyers on contingency fees are paid a fraction of court awarded damages. Firm managers are paid in stocks and options which rise in value when firm stock prices rise. Athletes are paid bonuses for individual and team success. Construction contractors are paid more if their work is completed by a deadline. Ships carrying convicts to Australia were paid on the number who arrived alive (which worked much better than the number who started out alive.)

Are the applications we’ve seen the only feasible ones, or could many more yet be developed? Consider beauty. Some say beauty can’t be measured, as it is “in the eye of the beholder”. But if you ask many people to rate someone’s beauty, their ratings are correlated. So imagine taking many standardized pictures and video of a client, across across their usual range of clothes and environments, and then paying many independent observers to rate their attractiveness. Do this at the start to get an initial value, and plan to do it again in, say, six months. A client might pay a beauty agent based on the change in this measure.

Potential beauty agents could bid by offering how much money they want to be paid per unit of increased beauty, how much they would pay up front to gain this role, and which particular beauty decisions they want to control, rather than merely advise, at least until the second measurement. There are probably clever ways to use auctions or decision markets to select from among these bids, but such details need not concern us now.

Yes, it would be a problem if a beauty agent could corrupt beauty measurements, or exploit their biases. But if such effects are modest, expert beauty agents can likely substantially increase a client’s beauty, relative to that client’s amateur efforts. Consider that movies don’t usually let actors pick their own clothes and hairstyle to look good in each movie; beauty experts instead make those choices. Yes, clients may care less about beauty as seen by average people, and more as seen by particular communities. But measuring such local versions of beauty should only cost a bit more.

Now consider happiness. If happiness were an entirely internal mental state that never influenced our external appearances, well then yes it would be hard to measure happiness. At least until we can better read brains. But most humans leak their feelings in many ways. So a 24/7 audio/video feed of a person, especially their facial expression and tone of voice, perhaps augmented by watch-based measures of heart rates, etc., seems plenty sufficient. Especially if processed via self and other reports, rather than artificially. Happiness could be measured pretty accurately from such things, especially for a client who wants it to be measurable, so that they can hire an agent to increase their happiness. (And especially as things like smiles and laughter probably evolved to signal happy internal states.)

A happiness agent is given control over some elements of a client’s life, and can advise on others. Especially on which other agents to hire for beauty, health, career, etc. Happiness agents pay some initial fee to gain this role, and then they are paid in proportion to the client’s measured happiness. Such agents might be big firms that combine many kinds of happiness expertise, and who can take big risks. If there are things that an expert can learn about how to be happy, things an ordinary amateur doesn’t know, then there is likely substantial scope for using agents to directly buy happiness. If so, money can buy happiness, directly.

Well this is enough for one blog post. The key conclusion: it looks feasible to much more directly buy many things we care greatly about, including beauty, happiness, health, career success, popularity, and status. Yes it would be work to set up systems to measure such things, work that could not be recouped for just from one client. But the prospect of many millions of clients should be quite sufficient.

One key question remains: why hasn’t there been more interest in such possibilities? Are these new innovations that could spread widely, or are they blocked by key fundamental permanent obstacles not yet considered in the above discussion?

Added 20Apr: Most seem to actually be comforted by the fact that it can be hard to buy things with money, and seem uninterested in finding ways to make it easier to buy things with money. I suspect they feel that better methods of this sort would give a relative advantage to people with more money, who they see as other people. While everyone could benefit from better ways to buy things with money, that matters little to those focused on relative status.

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Why Not More Job Agents?

Professional agents take substantial fractions of client wages: 3-10% in sports,10-15% in music, 10-20% in acting, and 15% for writers. Somewhat relatedly, job recruiters take 10-30% of a first year salary, and home realtors take 2-3% of home sales.

The logic is simple: you might be good at your job, but you can’t be the best at everything related to your career. There is room to be helped by people or organizations who specialize in advising, presenting, evaluating, matching, and networking for workers with your sort of career. Such help can be useful not only when you seek to change jobs, or get promoted within an organization, but at all points in your career. Even at the start, when you are deciding where to get trained in what.

The agency relation works smoothest with a clear division of labor; your tasks and their tasks. But there is also room for collaboration on shared tasks. Such as by their giving you advice on choices that are ultimately up to you.

The best agents are usually paid via an “incentive contact”, wherein they get paid a fraction of what clients get paid. This seems a big improvement on how we usually pay tutors, advisors, mentors, personal coaches, or inclined-to-advise friends and family. When you instead pay someone by the hour, or by favors traded, their interests are less clearly aligned with yours. Yes, you might judge them based on reputations or track records. But track records are rarely visible, and reputations are often only loosely related to help. You may not be much better at judging if their help and advice is good than you would be at just trying to do those things yourself.

In contrast, paying your agent a fraction of your earnings more clearly aligns their interests with yours, and also makes it easier to choose an agent. By agreeing to be your agent, someone credibly signals confidence in their and your abilities, and that you can work together. This is similar to how most lawyers will happily take your case if you pay them by the hour, but will be much picker if you ask them to be paid a contingency fee (i.e., % of the verdict). Also, all else equal, the lower the fraction of earnings they will take to do the same tasks, the higher their estimate of your earnings given their help.

While most people informally collect some career advisors and mentors, it seems something of a puzzle that more people don’t have career agents. You might claim that agents just can’t help most careers, but that seems just wrong. Maybe they don’t help a lot, but surely they could charge a little do a little. You might note that most of us have goals other than making money, but that is also true for most who have agents; the incentive contract method doesn’t need to be perfect, it just needs to be better than other methods, such as paying by the hour.

Yes, if your career is very risky, with a small chance of huge success, then being your agent is risky too. But each agent can have many clients, and agents can band together into larger firms to spread risk. As a result, risk-aversion need not greatly limit agent incentive contracts.

Now perhaps you object that an agent just couldn’t help enough to deserve 10%, or even 5%, of most salaries. But you can use an initial signing fee to separate an agent’s incentive from their net compensation. For example, assume that your and your agent’s fractional incentives must add to 100%, and that for incentive purposes the most efficient fractions are 70% for you and 30% for your agent. But also assume that the cost to an agent to put in that optimal effort is equivalent to only 10% of your salary. In this case, a better contract is for the agent to pay you a 20% up front “signing fee” for the right to be your agent and then later get 30% of your earnings. In this way your agent will on net get paid 10% of your earnings, and yet have a 30% stake in your income to give them a strong incentives.

Yes, for short term contracts such incentives only make agents work hard in ways that can produce short term gains. And we might rightly be wary of committing early on to one agent for our whole life. A simple solution here is to have each new short-term agent pay their up front signing fee to your previous agent, instead of to you. In this way each of your agents has a long term incentive about you, even if they may not always stay your agent. Your first agent may then pay you an especially large signing fee, which you might use to help pay for early career education or training (or you could paying for those part of their tasks).

To avoid the problem that a stronger incentive for your agent comes at the cost of a weaker incentive for you, it is actually possible to have the sum of your and your agent’s wage fractions add up to more than 100%. All you have to do is find a third party “anti-agent” willing to accept the remaining incentive. For example, you could get 100% and your agent get 50% of your earnings, if your anti-agent takes a -50% stake. You’d pay your anti-agent an up-front signing fee, and then they’d later pay your agent 50% of your earnings, while you just kept your earnings.

The main problem with an anti-agent is that they’d have an incentive to hurt your career. So you’d want to make sure to pick anti-agents only from organizations who are set up so that it is hard for them to hurt you. Perhaps (1) they are only your anti-agent for a short period, (2) you use cryptography so they don’t know who exactly you are, (3) they are headquartered far from where you live, and (4) they are just a financial holding firm, without employees able to do things to help the firm.

It wouldn’t be terrible to use auctions (or decision markets) to pick your agents and anti-agents, and their fees, from qualified candidates. For example, you might initially pick optimal agent and anti-agent fractions, and identities, via an initial auction for the max net singing fee given to you. You could probably use many criteria to define who is qualified, though your agents would be wary of your later using arbitrary conditions to extort the signing fees that agents were supposed to be paid. So you would have to agree on some limits to changes in qualification conditions.

If agents expect that you will may make choices that cut your earnings, they would likely pay more for agent contracts that put those choices within their sphere of control. Such as the ability to format your resume, or perhaps to veto job choices. So you’d want to think carefully about which choices agents get full control over, and which they can only advise you on. And current laws may limit these contracts in many ways.

Think about it this way: with a good initial auction to choose an agent, if the help of an agent isn’t actually on average worth its cost, then the winning bid should be someone who just pays you up front for the present financial value of a fraction of your future income. They won’t include an amount in their bid to cover costs to help you, as they don’t plan to try to help. If that’s the winner, accept them, and walk away wiser for knowing that you are better off without an agent trying to help you.

With all these options available to help set up a productive agency relation, I am honestly puzzled about why more people don’t seem interested in having agents. Especially as it tends to be the more prestigious and successful people today who have agents. Why don’t people get an agent, just to brag that they have one?

(Note that I’m not making any assumptions about how the roles of “agent” are organized or divided. They could be provided by individuals or by large firms, and could either be unified into one role or divided up into many differing roles.)

Added 19Apr: Many say they’d rather pay an agent a percentage of earnings over some reference earnings. But that’s mathematically equivalent to an agent who pays a signing fee and then gets a percentage of all earnings.

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Pay More For Results

A simple and robust way to get others to do useful things is to “pay for results”, i.e., to promise to make particular payments for particular measurable outcomes. The better the outcomes, the more someone gets paid. This approach has long been used in production piece-rates, worker bonuses, sales commissions, CEO incentive paylawyer contingency fees, sci-tech prizes, auctions, and outcome-contracts in PR, marketing, consulting, IT, medicine, charities, development, and in government contracting more generally. 

Browsing many articles on the topic, I mostly see either dispassionate analyses of its advantages and disadvantages, or passionate screeds warning against its evils, especially re sacred sectors like charity, government, law, and medicine. Clearly many see paying for results as risking too much greed, money, and markets in places where higher motives should reign supreme.

Which is too bad, as those higher motives are often missing, and paying for results has a lot of untapped potential. Even though the basic idea is old, we have yet to explore a great many possible variations. For example, many of social reforms that I’ve considered promising over the years can be framed as paying for results. For example, I’ve liked science prizes, combinatorial auctions, and:

  1. Buy health, not health careGet an insurer to sell you both life & health insurance, so that they lose a lot of money if you are disabled, in pain, or dead. Then if they pay for your medical expenses, you can trust them to trade those expenses well against lower harm chances.
  2. Fine-insure-bounty criminal law systemCatch criminals by paying a bounty to whomever proves that a particular person did a particular crime, require everyone to get crime insurance, have fines as the official punishment, and then let insurers and clients negotiate individual punishments, monitoring, freedoms, and co-liabilities. 
  3. Prediction & decision markets – There’s a current market probability, and if you buy at that price you expect to profit if you believe a higher probability. In this way you are paid to fix any error in our current probabilities, via winning your bets. We can use the resulting market prices to make many useful decisions, like firing CEOs. 

We have some good basic theory on paying for results. For example, paying your agents for results works better when you can measure the things that you want sooner and more accurately, when you are more risk-averse, and when your agents are less risk-averse. It is less less useful when you can watch your agents well, and you know what they should be doing to get good outcomes.

The worst case is when you are a big risk-neutral org with lots of relevant expertise who pays small risk-averse individuals or organizations, and when you can observe your agents well and know roughly what they should do to achieve good outcomes, outcomes that are too complex or hidden to measure. In this case you should just pay your agents to do things the right way, and ignore outcomes.

In contrast, the best case for paying for results is when you are more risk-averse than your agents, you can’t see much of what they do, you don’t know much about how they should act to best achieve good outcomes, and you have good fast measure of the outcomes you want. So this theory suggests that ordinary people trying to get relatively simple things from experts tend to be good situations for paying for results, especially when those experts can collect together into large more-risk-neutral organizations.

For example, when selling a house or a car, the main outcome you care about is the sale price, which is quite observable, and you don’t know much about how best to sell to future buyers. So for you a good system is to hold an auction and give it to the agent who offers the highest price. Then that agent can use their expertise to figure out how to best sell your item to someone who wants to use it.

While medicine is complex and can require great expertise, the main outcomes that you want from medicine are simple and relatively easy to measure. You want to be alive, able to do your usual things, and not in pain. (Yes, you also have a more hidden motive to show that you are willing to spend resources to help allies, but that is also easy to measure.) Which is why relatively simple ways to pay for health seem like they should work. 

Similarly, once we have defined a particular kind of crime, and have courts to rule on particular accusations, then we know a lot about what outcomes we want out of a crime system: we want less crime. If the process of trying to detect or punish a criminal could hurt third parties, then we want laws to discourage those effects. But with such laws in place, we can more directly pay to catch criminals, and to discourage the committing of crimes. 

Finally when we know well what events we are trying to predict, we can just pay people who predict them well, without needing to know much about their prediction strategies. Overall, paying for results seems to still have enormous untapped potential, and I’m doing my part to help that potential be realized.

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