Tag Archives: Agents

We Sweat Big Stuff Badly

Don’t sweat the small stuff; and its all small stuff.

Compared to unimportant decisions, for moderately important decisions we tend to do more thorough practical decision analyses. This is mainly because we try harder. Yet when we get to our most important decisions, our decision analyses tend to be less explicit, thorough, or practical. This is in part because we tend to see such issues as more symbolic, and more sacred.

For example, we think more carefully about if and how to repair a car, compared to a broken pencil. Yet when it comes to thinking about repairing our bodies, our thinking tends to get less thorough and analytic. We would rather just trust our prestigious doctor, and those who conferred prestige on them, and not think about the subject. It seems that we mainly use medicine as a way to show that we care, instead of as a way to get well. And as a result, people who we randomly induce to get more medicine are not on average substantially healthier. That’s a pretty big fail.

We handle small conflicts all the time, and we put more effort into handling moderately important conflicts. Yet our biggest conflicts get handed over to a quite dysfunctional legal system. (A system few are willing to think of redesigning.) We each assume it works well until we personally have to deal with it. Then we try to just trust our prestigious lawyer. We show little interest in lawyer track records or incentive contracts; we just don’t want to think about the topic.

We are eager to connect with each other socially, and in a low key informal contexts where the same people regularly come into contact with each other, people will in fact chat, socialize, and get to know each other. In in those processes, they will successfully tend to get more contact with people they like better. But even the loneliest people are quite reluctant to directly approach strangers. We’d rather stay lonely than to risk a clear public rejection.

At home, we are generally capable of doing modest chores, and of learning the skills needed to do them. And we put more effort into learning the chores that matter more. But at school and on jobs, we often self-sabotage and put in low effort on the biggest choices, in order to make failure less of a signal of what we could accomplish if only we’d try harder. I’ve done this many times in my life. Often I was most productive when I’d play hokey from one “should do” project to work on another “not supposed to be doing” project.

Our disfunction re big work choices seems especially dramatic in the case of people who choose hobbies and video games with tasks, and related performance feedback, are quite similar to those on real jobs. They say they’d rather not work for money because they hate the prospect of being criticized or looked down on for poor job performance.

Yes many, perhaps even most, people slowly “mature” over time into becoming better able to “own” and practically consider big decisions. But even so, most of us still aren’t very good at this. So as a lot rides on such big decisions, how can we get people to better sweat the big stuff?

One approach is to pair people with incentivized expert advisors who can push particular decisions, more or less gently. These advisors can be more calculating and dispassionate, as such decisions don’t loom as large for them personally. And less individual more communal societies often do pair people with associates who advise them, though it is often unclear how expert or well-incentivized is such advice. Fans of regulation also suggest that regulators would do well in this advisor role, though critics of regulation have doubts.

This issue is one of the reasons I’m so interested in designing and testing better personal agents. Like tax career agents, life maintenance organizations, or legal liability vouchers. Such agents can arguably be both expert and well-incentivized to advise well. Making us more comfortable with encouraging ordinary folks to rely more on their advice, instead of on their own broken decision-making.

Added 18Dec: Thought some claim that standard decision theory is inadequate for big decisions, I’m not at all persuaded of that.

GD Star Rating
loading...
Tagged as:

Testing Tax Career Agents

Agents who are paid a larger fraction of their client’s income have a stronger incentive to promote and advise those clients. Thus the tax career agent idea makes more sense for governments that tax a larger fraction of citizen income. So they make less sense for city or state governments. But a national government may not be willing to try it without seeing results from a smaller experiment. So how could we make a smaller experiment to test the concept?

The big advantage of tax career agents is that they are basically free to create. As the government already sits in that role, all it has to do is transfer that role to someone else, at almost no net cost to anyone. But to test the idea of tax career agents, we don’t have to rely on the fact that such agents are free for governments to create; we can pay extra to create such agents privately, just for the test.

To create a test tax career agent regarding client C, we could hold an auction to see who is willing to pay the most to, every year for the next Y years, be paid an amount equal to what C pays that year in income taxes. If agent A were a real tax career agent, the money paid to A would come from what C actually pays their government in taxes. But for the purpose of an experiment, this money paid to A could instead from the budget of the experiment. This alternate payment source should not matter much for A and C behavior.

So auction winners would first give large auction win payments to the experiment, after which the experiment would commit to paying them back each year when their clients pay taxes. In the meantime, the experiment would hold and invest these assets. As the experiment should be able to invest as well as agents, auction competition should induce the net cost of this experiment to be mainly the time and effort costs that agents expect to make advising and promoting clients.

In a prior post, I estimated that an agent A who got 20% of client C’s wages would increase those wages by 1-3%. As agents wouldn’t on average put in more efforts than they get paid for those efforts, that gives us an upper bound to the financial size of agent efforts. Thus if N clients with average income I each get a test tax career agent for Y years, the auction revenue to be collected and invested would be ~20%*Y*N*I, and the cost to create these agents would be ~1-3%*Y*N*I. (For Y large, these amounts are lower due to time discounting.) Note that much of this “cost” is actually a transfer to clients, who we expect to enjoy higher incomes.

Of course we’d want to track a similar-sized control group of N clients who didn’t get test tax career agents. And if we wanted to give experimental subjects the choice of if to create such an agent, then if only a fraction V volunteer to get such an agent, we’d want to track ~N/V workers who were offered the choice, and another ~N/V control workers not offered the choice. Note that we’d also need funds to manage the experiment, to collect data on participants, and to analyze the results.

And that’s a simple outline of the experiment design, including a rough estimate of its cost. In the U.S., 3% of $31K median income over ten years is $9.3K, which for N=1000 comes to $9.3M. This cost would of course be less for lower-income workers. Any want to do an analysis of what size N we’d want given to see significant results given this expected effect size?

Added 21Oct: Christopher McDonald did a Sample Size Analysis for Tax Career Agent Experiment. Assuming tax career agents improve wages on average by 0.3% per year, he finds that you’d need 7000 subjects over a ten year experiment to get a true-positive probability of 80% and a false-positive probability of 5%. So applying the same estimates as above, that gives an upper-bound cost of ~$30M. In my next post on this, I’ll outline a cheaper experiment design.

Added 12Nov: I just realized that I’d previously mis-calculated the wage rise to be 1-3%, instead of 10-30%. A smaller experiment would of course be required to see such a larger effect.

GD Star Rating
loading...
Tagged as: ,

Divorcing Tax Career Agents

I love the tax career agent idea, because it seems so simple, seems to have no losers, and doesn’t seem to step on any taboos.

The basic idea is this: If the government auctions off the right to get the income tax revenue paid by taxpayer X diverted to the auction winner, then that winner becomes a career agent. Such an agent has an incentive to advise and promote X, just as career agents do today in acting, music, sports, etc. Such auctions are a direct substitute for government selling debt, which governments already do to convert future taxes into present revenue. Furthermore, competitive auctions will make sure the government gets paid its full value, and would also tend to pick auction winners who are actually better able to advise and promote clients X.

At the moment the government is your tax career agent, and they are doing a terrible job; they do absolutely nothing. So selling the role to someone else is a net gain if agents on average find it their interest to do some advising or promoting, and if their audiences aren’t on averaged fooled by that advice and promotion. At least if the value agents get by doing so is a lot bigger than the simple transaction costs of setting up the auction and diverting the payments, and such costs that can be made very low. Agents need not help most clients, but even if they only help 5% of clients that’s still an improvement over the status quo.

Now economic theorists will worry about transaction costs due to asymmetric information; what if some auction bidders know more than others about a taxpayer’s chances of future income? In that case the auction winner might get “information rents”, and so not have to pay full price, cheating the government out of a bit of their revenue. A simple solution to this is to do the auction very early in the life of taxpayer X, such as at birth. Then few know much about X’s future income, and so info rents are almost zero.

However, a much bigger problem is that many people find it creepy to think of someone they didn’t pick trying to influence their life. Even though such agents want to help them make more money, and have no official powers whatsoever to influence their behaviors; they can only advise and promote to audiences who will listen to them. Even so, many worry tax career agents will do illegal things, or exert influence malicious via gossip or bribes. So it seems best to modify the proposal to placate these worriers, even if that less placates economic theorists. So we need to find ways to help people feel more in control of their tax career agents.

Now if the tax authority that sets this up whole thing has a limited geographic scope, like a state or nation, then taxpayer X can always threaten to leave that region, and completely destroy the value of the asset that the agent has purchased. Furthermore, if X simply makes it clear that they won’t listen at all to their current career agent, but would listen to other possible agents who might fill that role, that should create an incentive to sell for their existing unloved agent to “divorce” them by selling their asset to one of those other agents.

These do seem to be substantial powers of X over their agent. But let’s give taxpayers even more powers, For example, maybe the tax career agent isn’t even created until taxpayer X explicitly asks for it. And maybe X can choose a limited time duration to be auctioned off. Allowing them to decide whether to authorize another auction latter when that first time period runs out.

Furthermore, we could more strongly encourage an unloved tax career agent to sell their role to someone else via setting a self-set (“Harberger”) tax on the asset that the tax career agent holds. Just as self-set taxes on physical property encourage transfer of property to those better above to gain value from it.

Finally, we might authorize taxpayer X to give a 1% discount on this self-set property tax to any owner of their choosing. This would give a further push for a unloved agent to sell their asset to a better loved agent. And yet not much threaten government revenue.

All of this seems to me to give taxpayer X plenty of powers to discipline any disliked tax career agent. Thus allowing people to feel less creeped out by this idea. All while having governments suffer only modest info rents that cut their auction revenue.

This poll says the ideal self-set tax cuts the asset value by 7%. And this poll suggests that 70% support tax career agents; I might do a more nationally representative poll to see how well that generalizes.

GD Star Rating
loading...
Tagged as:

Hating On Personal Equity

The New Yorker has new article called “Is Selling Yourself The Wave of the Future?”, purportedly on entrepreneurs Daniil and David Liberman efforts to finance their careers via equity (i.e., shares of future income) instead of debt or self-funding, and to entice others to do likewise. But like most New Yorker articles, most of its 8300 words are a profile with many personal details, with hardly any of the article actual discussing this idea.

But as I’ve often written on this concept, a concept close to others I’m fond of, let me take this chance to revisit the topic. In this article, I find five complaints voiced about financing careers vis equity:

Their model isn’t so much digging young people out of their predicament as replacing one kind of weight with another. The vulnerable are still vulnerable, and it remains a long way from the bottom to the top.

Yes, equity doesn’t eliminate poverty. But equity might still improve on debt or no funding, approaches that many vulnerable now use.

“Yes, if you’re the kind of person who wants to work at a job you love and it’s predictable how much money you’re going to make, it’s a bad instrument,” Sam Lessin, the venture capitalist, told me. “It works only when someone can squint and say, O.K., you’ll probably fail, but if you work we’re going to make a ton of money.

If the price of such instruments are set by market forces, I don’t see how they would be bad investments on average. Yes there are transaction costs to create equity, perhaps adverse selection in who sells them, and selling your equity can cut your incentive to work. But on the other side are two key gains. First, equity might fund good career investments that would not otherwise happen. And second, equity can help to align the incentives of advisors and promoters, as we already do now with most career agents.

(Note that in my favorite equity variation, wherein the government auctions off the rights to receive fractions of the stream of tax revenue that it would otherwise get from a taxpayer, there is no added disincentive to work, and in fact an improved incentive to work when that taxpayer wins auctions to buy their own revenue streams.)

Investors give money to promising youths—usually through middleman companies such as Upstart—in exchange for a percentage of their future incomes. The traditional knock against such schemes has been that they’re exploitative or worse, a form of indentured servitude.

This seem empty mud-raking slander. What exactly makes equity exploitive or bad? I think the following two complaints get to the heart of what most people really object to, as I’ve also heard them often when I’ve discussed related proposals:

If the young have to present themselves in a particular way to the older generations so that they will find their life trajectory appealing, I could totally see how there could be a social hierarchy you typically just have between benefactors and those who receive those funds. …

One economist told me he doubts that normal people, even with technical protections, could be free of shareholder influence. (“There is reason to expect that a system that starts out that way will evolve under pressure from investors,” he said. “We saw this with changes in bankruptcy law in 2005 that gave the holders of credit-card debt more power vis-à-vis credit-card debtors by making it harder to file for bankruptcy under Chapter 7.”) As most C.E.O.s know, not even success brings freedom from shareholder pressure.

That is, the key complaint is that whomever buys your equity might try to lobby you or your associates to influence your behavior. Or they might try to lobby the government for favorable treatment and powers. That is, they might ask you to agree to changes as a condition of their investment. Or as investors they might try to cosy up to your associates to get them to lobby you toward behavior they prefer.

Note that your associates, in addition to wanting to promote and help you, also have various ways that they want your behavior to change. And they already coordinate with each other to lobby you about these. Such associates include family, friends, lovers, employers, landlords, shared-club members, and business partners. Note further that we already allow you to borrow money, by which once strangers acquire a financial interest in both promoting and lobbying you re your future income.

Once we see that your debt owners, employers, and many other associates already want to promote and lobby you and the government re your behavior, I find it very hard to see how letting you sell shares in your future income adds much to this problem. Especially if we let you decide who if anyone can buy such shares. This seems to me more like a simple anti-capitalist instinct that just isn’t very sensitive to the specifics of this situation.

GD Star Rating
loading...
Tagged as:

More/General Agents in NBER

For many years now I’ve suggested solving various social problems via competing market-selected agents whose future financial payments track some kind of welfare; they get paid more when good things happen, and less when bad things do. For example,

I’ve previously suggested that people choose health agents, who pay for and choose medicine but who lose lots of money if their clients become disabled, in pain, or die. I’ve also suggested that people choose crime vouchers, who must pay for cash fines when their clients are found guilty of crimes, but who have client-voucher contracts able to set client co-liability and to choose punishments and freedoms of association, movement, and privacy. I’ve also suggested having agents who insure you against hard times, career agents who get some fraction of your future income, and that parents get such a fraction to compensate for raising you.(more; see also and)

On Monday, economist Erzo Luttmer posted an NBER working paper, Can Fiscal Externalities Be Internalized?, that is remarkable for two reasons. First, he makes proposals quite similar to mine. And second, his paper is almost entirely qualitative, with almost no math. The reason I’d given up on trying to publish my related proposals in econ (or other) journals is that it seemed clear to me they wouldn’t consider qualitative discussions without supporting game theory or stat analysis. Is that world changing, or do only top elites quality for this exception?

What I call “agents”, Luttmer calls “sponsors”:

Each individual’s fiscal externalities, both positive and negative, are transferred to a private party or “sponsor.” Thus, the sponsor receives the tax revenue that the individual generates, while at the same time the sponsor must reimburse the government for any expenses incurred for this individual. The sponsor pays a predetermined sponsor fee (possibly negative) to the government that is equal to the individual’s expected fiscal externalities. The sponsor has no coercive power over the individual. Individuals, if they choose, are free to ignore their sponsor.

Later he expands his proposal to include other externalities:

Government can incentivize sponsors to help the individuals they sponsor stay alive by counting each year an individual is alive as a positive fiscal externality of a given amount. … government could enact a policy that makes a sponsor also responsible for negative non-fiscal externalities from crimes committed by individuals it sponsors.

That’s as much detail as Luttmer gives re what specific externalities he wants to include. Instead of creating many particular agents for particular issues, he instead seems to want to give each person one maximally general agent.

And instead of offering the simplest possible version of his proposal, Luttmer instead makes it more complex to deal with problems he foresees. For example, he worries about excess sponsors “marketing”, and so proposes regulation:

Sponsors may use marketing techniques to induce people to focus on the material rewards of working harder, to the point that people become worse off … government can regulate how sponsors may interact with individuals … [or] could allow only non-profit organizations to serve as sponsors.

Also, while Luttmer wants each sponsor to max welfare regarding each of their clients, he designs a complex payment and selection process exactly to prevent sponsors from having a shared interest in maximizing welfare overall. As then they might try to lobby the political system to make society more efficient, which would be unacceptable “political interference” by capitalists:

The sponsor fee equals the average fiscal externality of individuals in group g that were matched to other sponsors, plus a group-specific adjustment term. … This insulates sponsors from shocks that affect all individuals in a given group [and] … limits incentives for political interference in the determination of fiscal externalities. … because such policy choices affect the fiscal externalities of both the individuals sponsored by the sponsor in question and those sponsored by others, the net effect on a sponsor’s compensation is zero on average.

For reasons I don’t fully understand, Luttmer also adds complexity to get random matching:

Government … procedure for matching sponsors to individuals must ensure effective competition between sponsors. … and ensure that marginal sponsors do not receive rents. … One way … is to randomly match individuals, from a broadly defined group to sponsors interested in that demographic … Matches are permanent, but a sponsor may transfer the sponsorship to another sponsor if both sponsors agree. … If the government accepts a proposal, only a randomly assigned fraction (say half) of the proposed group gets matched to sponsors. Individuals not matched to a sponsor form the control group … provides the control group for a randomized evaluation of the welfare benefits of the sponsors’ interventions.

I prefer mechanism simplicity, am not worried about marketing, and would love to see agent/sponsors lobbying for more efficient policies. So I’d go with a simpler auction, perhaps give the target client more control over the process. But I’m happy to see Luttmer (unknowingly) join me in suggesting that we consider more kinds of, and/or more general versions of, agents.

GD Star Rating
loading...
Tagged as:

Replace Govt As Career Agent

Agents for actors, musicians, and artists get 10-20% of their payments in order to advise, promote and negotiate on their behalf. Sports agents get 4-10%, while speaker agents get 20-30%. Headhunters get 18-25% of first year salary. The idea is simple: when someone gets a big fraction of your income, they have an incentive to increase your income. (In addition to reputation and repeat business incentives.)

True, you might not be willing to part with a big fraction of your income just to create such an agent. But it turns out that you already have a career agent who takes 1/4 to 1/3 of your income: your government. But while your government may sometimes pay for guidance counselors and jobs listings, overall they do a terrible job as your career agent. They do far far less than would a private agent paid that big a fraction of your income.

However, it would cost very little to transfer this career agency role from your government to a private actor. All we need is for the government to auction off the right to be paid the amount in taxes that you will pay to the government. The government is no worse off; it could use that auction revenue to pay off its debt, or to buy stock index funds. The auction winner gains strong incentives to increase the taxes you pay, such as by helping you to earn more money. And investors gain a new asset class to diversify over.

Notice that you’d be under no obligation to listen to agent advice, or to accept any of the deals they find for you. And they’d have no powers to enforce or change taxes, or to prevent the government from changing taxes. Though they might report you if they found you cheating on your taxes. This is nothing like tax farming. Seems crazy to me to claim (as many do) that they’d illegally censor you or threaten to break your kneecaps.

Note also that this asset is worth less to someone who can’t get you to listen to or work with them. So the asset will tend to be traded to someone who can get you to listen, if any such person exists. So you’d have a lot of influence over who held the asset. This asset on you could be held by a parent, school, employer, or even by you yourself.

Yes, this agent doesn’t weigh all of your interests the way you do; you’d pick fun over work more often than would they. But such a conflict also exists for all of the other kinds of career agents mentioned above, and for the other agents in your life, such as your lawyer, sport coach, priest, parent, and teacher. They can all help you even though you know to not just believe everything they say. Note also that some of these agents, e.g., parents and teachers, are assigned to you; you don’t get to pick them.

To avoid problems with auction bidders fearing that others know more than they, best to do the auction early, such as at birth, when few know anything. And to tell bidders then some basic stats on the parents. Individual auction prices don’t need to be made public, though seems fair to tell the parents of kid whose rights are sold. (And maybe also to give parents a cut.) There should be a way to contact the asset holder of a person, so one can offer to buy that asset.

You might fear that asset holders would lobby to increase taxes, but they are easily outvoted by ordinary taxpayers. Conversely, you might fear that governments would lower tax rates to please voters while hurting asset holders. But governments would fear cutting revenue in new auctions; governments similarly don’t usually inflate to pay off bonds for fear of raising their cost of new bonds. These tax assets can function as well as does government debt, which is pretty well.

Yes, the risk of unpredictable changes to economic growth and tax rates would impose a risk premium on the cash that auction bidders would pay for these assets. But that’s much less of an issue if the auction itself is denominated in a risky asset, such as a stock index fund, instead of cash..

Yes, people might try to extort asset holders to sell their tax asset to them cheap via threatening to choose a tax-free life. But asset holders would likely call their bluff and just refuse to sell in such circumstances.

Yes, it makes sense to try to start first with small experiments, such as perhaps in a small nation. Maybe also do an experiment where only a random subset get their taxes sold at auction.

Added 8p: To avoid extortion scenarios, it might help to fix the tax system to cut situations where someone gains nearly the same value and consumption, but via very different personal lifetime taxes paid, merely by different formal approaches to what is treated how tax-wise.

Added 2July: 53% of my Twitter followers reject this proposal, including these two variations: let parents veto the auction at birth, and impose a Harberger tax on the assets, to make them more easily transferred.

Added 16Sep21: I suggest there’s even more value from having you be your own career agent, to lower your marginal tax rate.

GD Star Rating
loading...
Tagged as: ,