Oki / Goei / Kwe!
Last week we took our traditional break in support of Truth and Reconciliation. From our base in Alberta to our friends in BC to our long-loved Maritime family - and everywhere in between - we are all, of course, Treaty people. So let’s all share that responsibility moving forward and not just consign it to the past. If nothing else, learning to listen and nurturing empathy for others are both skills worth heavily investing in.
This week, of course, is Thanksgiving (in Canada at least) which would traditionally take us offline for a second week as we focus on family stuff (like finally cleaning out the shed) - but today seemed like a good time to leave a couple of acorns in your brain to grow over the long weekend and beyond. See it as an early holiday gift. You’re most welcome.
Pay transparency cometh
If you’ve been entirely focused on North American happenings (and hey we get it - the world is a big place) then you may have missed the incoming EU legislation around Pay Transparency. For regular readers, you’ll know we’ve been talking a lot about Labour trends of late, and this is another development that’s going to drastically change the way we talk turkey. Per the EU:
“The intention of the pay transparency directive is to solidify the principle of equal pay for equal work through enhanced transparency and enforcement. The regulation focuses on the pay differences between men and women.”
Europe huh? Always pushing that envelope. Thing is, when the EU delivers something, it tends to cause big ripples in the global mindset. Privacy is one great example - when the EU delivered ‘The General Data Protection Regulation (GDPR)’ there was a general ‘meh’ from North American business, until it dawned on them that handling any EU generated data made them liable. Cue instant scenes. Privacy officers became de rigeur. Lawyers began heavily invoicing for boilerplate. From Meta to local businesses, web work began in earnest. From the way we send marketing emails, to how we store and protect someones contact details - it all shifted. You may have missed the macro effects, but if you used Mailchimp or Hubspot or the plethora of ‘dynamic marketing hubs’ out there, you were effected on a micro level whether you realized it to not. Post-GDPR, Canada emboldened it’s own Privacy laws, as did many other governments - because global trade, data and the general internet really doesn’t care about national borders.
So we can expect in the near-term some felt effects on the other side of the Atlantic. Global hiring is now a new normal. Remote working is now pretty standard. Many, many businesses big and small are employing EU citizens on their payroll or are directly working with EU-based or EU-adjacent entities. And if you’re one of those business which is free of EU entanglement, you can likely expect mid-term to be facing changes in national Labour laws as other governments play catch-up and Unions state their case.
Now is the time to read up on it, get a sense of its focus, and reflect on how that might - if not immediately - impact how you hire and employ in your business moving forward. Don’t say we didn’t warn you. Better to be ahead of the game.
How to size your bets
Sam Bankman-Fried from failed crypto Ponzi-scheme FTX is in a NY courtroom trying to escape a tightening Federal vice. Now, hang on, yes we know…why would you care about some crypto-fraud court case about some billionaire wonder-kind. And we get that it’s probably not relative to your current daily business concerns. But Matt Levine is writing about it - and we do love a hot Matt Levine take - so here we all are.
Matt Levine writes like only Matt Levine can, which is to say he (naturally) studied the entire FTX universe and found something tiny of note to completely obsess over. But what a doozy it is.
Bankman-Fried, it turns out, was once an intern at Jane Street Capital. If you’ve ever wondered what it’s like to intern at a financial trading firm - or just wondered why trading is so…generally feral…hold onto your hat!
“Jane Street wants to teach its interns to think in bets, so they are encouraged to bet against each other all the time. To prevent disaster, there is a rule that no intern can lose more than $100 in a day. One morning, another intern, called “Asher” in the book (Michael Lewis’ Going Infinite), offers to bet Bankman-Fried on the maximum amount any intern will lose that day. “This cannot settle above one hundred or below zero, right?” confirms Bankman-Fried. And then he buys at 65: If any intern loses more than $65 that day, Asher will pay Bankman-Fried that intern’s losses above $65; if none do, Bankman-Fried will pay Asher the difference between $65 and the maximum loss. If an intern loses $100, the maximum, then Bankman-Fried gets $35. If the biggest loser loses only $50, he pays Asher $15.
Of course Bankman-Fried can easily win this bet by losing $100 himself. That is not optimal, for him, but he can use that fact to manufacture a good trade. He immediately turns to the other interns in the room and offers them $1 to take an even-money coin flip for $98.”
What then follows is not only the failure of crypto in a nutshell, but a really important analysis on the real differences between positive-expected-value and negative-effected-value. It also shows one of the core tenets of trading - and therefore the deep workings of, what can best be defined as ‘hardcore business’.
“Bankman-Fried easily saw how to manufacture the bad outcome for Asher.”
What Levine is talking about here is not just ‘winning’ - but purposefully accentuating the loss of the other party. Naturally, Bankman-Fried doubles-down.
“I’ll pay a dollar to anyone who will flip me for ninety-nine dollars! Sam shouted.
Now he had a machine for creating wagers in which both parties enjoyed positive expected value. That machine was named Asher. Interns were lined up to take the bet. “People get so obsessed with free dollars when you frame it correctly,” said Sam. … “If I’d have spent the rest of the internship flipping that coin, I’d have been satisfied.” And for a while it appeared that he might, as he won the second coin flip too.”
But as Levine notes, the more this betting machine evolves, the more the coin is flipped, the quicker the positive-expected-value becomes negative-effected-value.
“Not for his counterparties, who get paid $1 to take a fair coin flip, but for Bankman-Fried. And not the first one; that one is fine; the math above is right. He pays $1 to play, he gets a fair coin flip, he makes $33 from Asher, fine, good trade. But then he keeps going to eke out a few marginal pennies from Asher.”
Did we mention it’s a great read? (register for free to access it)
It’s got it all. Increasingly negative returns, sunk cost fallacies, the addiction to seeing other people lose, of inflicting pain on your competitors while saddling increasing risk - and the omnipresent danger of letting a deal define you.
There’s a lesson in there for all of us, and a solid lecture on how to size your bets - no matter what that bet may be for you in the coming weeks.
Happy (Canadian) Thanksgiving!
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