September 7th, 2001, 12:18 pm
Hmmm. . .So say an employee is entrusted with n different tasks (either simultaneously or consecutively) with capital investments C1, C2, . . .Cn. The outcome of each is O1, O2,. . .On. You suggest that the evaluation function is the sum of Oi for Oi>0 and a*Oi/Ci for Oi<0.To the extent money can be moved among outcomes, the employee should move money from the tasks with Oi<0 and Ci>a, first to tasks with Oi<0 and Ci<a, then to tasks with Oi>0. If there are still tasks with Oi<0 and Ci<a, the employee should move money from tasks with Oi>0.One example of this is found in mutual funds. Managers would overpay $1,000,000 in brokerage commissions for their biggest fund in order to get $500,000 in deliberately underpriced IPO for their smallest fund. The $10 billion fund lost 0.01% in annual performance, the $10 million fund gained 5%, the broker made $500,000. It was particularly attractive if the big fund were stuck with the kind of mediocre returns that would not attract new money, but did not drive away existing money.This passed for honesty among fund managers, by the way, the dishonest ones took the $500,000 personally. An older, and less efficient, variant of this is to buy 10,000 shares of stock X for $25 for the small fund; then buy 1,000,000 shares in the last ten minutes of trading for the quarter in the big fund, driving the price up to $35. The small fund adds $100,000 (1%) to its quarterly return, the big fund spends $10,000,000 more than its stock is worth, but this is only 0.1% and causes no performance penalty until the end of the next quarter.From a personal standpoint, it suggests writing off big unsuccessful tasks (become a movie star, fly to Mars, cure cancer) and devote the energy to minor unsuccessful tasks (get haircut, clean desk, check phone bill) until they are done; then work on things you're actually succeeding at.