Business philosophy on negotiation

(This is sub-posting the THORChain Integration Grant thread, which will be obvious to anyone who is following that thread. But, I think it is true in general and potentially useful in general, and I don’t want to get involved in that topic itself since it is the job of other people (e.g. ZOMG) to learn everything they need to know in order to make weighty decisions about that topic, and I haven’t done the work to educate myself about it to that level.)

Suppose you want to buy a product from Alice, and she says she won’t create one and sell it to you for less than $100.

Now, you might think “That costs Alice a lot less than $100 to make! She should sell it to me for less!”. But, you’d be wrong in both of those sentences.

The first sentence is wrong because you can’t know what Alice’s costs are. Not only because you don’t know all the details of her operations, but also because Alice’s cost is ultimately her opportunity cost — what else she has to forgo in order to do this. If she can do something else and make $100, then she’d be losing money by doing this for you at $99. And you can’t know whether or not this is the case.

The second sentence is wrong because of the word “should”. What does that even mean? That it would be better for Alice herself if she charged a lower price? That Alice has an obligation to do something that benefits herself less in order to benefit you more? That charging a price that is a certain amount higher than her (unknowable) costs is immoral? That sentence with that “should” in it is just an unfalsifiable statement. You can debate it at a philosophy round table, but you can’t test it. Another way to look at this is: what action do you take based on that statement?

So let’s try to replace that unfalsifiable statement with a falsifiable one. A great thing about these substitutes is that they are all actionable! There are a few candidates:

  1. “If I negotiate (i.e. refuse to pay $100), Alice will come down and meet my lower offer.” This might be true, and it might not, and it is easy to test — just try it! You should always try to negotiate, except when doing so threatens a relationship or a timeline that is more valuable to you than the added value you could get from successful negotiation.

  2. “I can find someone else who will make and sell me one of these things for less.” Great! Again, it’s falsifiable, and again, it’s highly actionable. And likely to produce much better results than option 1, if you can find such candidates. Probably the single best negotiating tactic in the world, when you can do it, is getting multiple suppliers to compete with each other.

  3. “That thing is not worth $100 to me.” This is great! It’s falsifiable (to you—not to anyone else) and it’s eminently actionable: just don’t buy it. Note that this one has nothing to do with Alice’s costs—it’s all about the value of the thing to you.

Okay folks, hope this helps, and if it doesn’t at least I hope you enjoyed reading it :joy:. Would be interested to hear your responses.

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Right. There should not just be an Alice to negotiate with. There should also be a Bob, Carol, Dave, Erin,…et al. The cryptosphere is rife with monopolistic behavior and rent-seeking. That’s bad for consumers and bad for the space as a whole.

Uh… I’m not sure I agree with the implication of this. It sounds kind of like you’re blaming Alice for being the only supplier that you’ve made contact with. But that’s on you, not on her!

Correct me if I’m wrong. Rent seeking, as I understand it - is the attempt to grow ones wealth without reciprocal contribution or productivity. This doesn’t seem relevant to funding a Thorchain grant as there would be added value to the Zcash ecosystem through more exposure and decentralization. My concerns would be more related to the vulnerabilities that were experienced earlier this year. Another concern within community was the limited technical information presented in the proposal, the need to hire and onboard a team to do this work, and the price of the work. Should these be addressed in one way or another, then it wouldn’t matter too much who did the work - to me personally anyway. If there’s a Bob, Carol or Dave that can submit a proposal, that would be ideal, but if only one team is willing to get the job done, then the issue shouldn’t be that they are getting more funds to do more work - if they have a track record of delivering. So the question then is: does this team have a track record of delivering on previous grants? Can the concerns above be resolved? How important is the goal of decentralization to the Zcash ecosystem?

Opinions are my own.

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The Palgrave Dictionary of Economics defines rent-seeking thusly:

‘Rent seeking’ refers to the investment of resources in efforts to create monopolies. Such investments impose a social cost (which may outweigh the benefit to the monopolist) because they are unproductive. That cost is greater than the mere cost of lobbying by special interests for privilege when the privilege is conferred in a way that is economically inefficient but politically feasible (which is often true of regulations). Research on rent seeking has demonstrated that the true social costs of promoting special interests thus greatly exceed the deadweight costs of the distortions introduced into the economy.

Here’s the issue: Network effects can create monopolistic tendencies. We even have a name for this: natural monopoly. Thorchain is trying to create a network of cross-chain interoperability. The main benefit that Zcash gets to linking with Thorchain is not in the tech itself, but rather lies in the network effect. Therefore we should be mindful of the monopolistic issues involved. Is there a better cross-chain network that we could be spending ZOMG funds on?

Aaah it seemed you were referring to “Alice” as being a rent seeker.

To your point, I think it’s near-impossible, as the space gets more decentralized, to avoid the emergence and capitalization of network effects.

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Just 2 cents (or about 1.33x10^-4 ZEC) from someone with crummy technical know-how but what I like to think is decent common sense and some experience in investing in a growth business.

I’m posting here rather than the Thorchain integration thread because I lack the experience with coding to judge the “reasonableness” or market rate/competitiveness of @aiyadt’s proposal and feel like engaging on a meaningful level with specifics in that conversation is beyond my knowledge base.

I’d like to echo much of what @zooko said eloquently in the original post. I also empathize with those skeptical about the cost, who seem to have a better handle on how much such a thing “should” cost. I hear you that setting the precedent that we will overpay for things (if that is what we are doing here, I’m honestly not sure) because of pressure from the community or lack of options due to limited visibility could be a problem for the future. But without other comparable, quality proposals to compete with what’s in front of us, these “shoulds” are mainly philosophical rather than practical. The question before us seems to be not “how much should this cost in a perfect world”, but rather do “we pay x percent of ZOMG funds to achieve Thorchain integration in the near future, or do we miss out on an important opportunity to do something interesting and useful with ZCASH”?

I ask, are there other, more productive ways we could be spending this portion of the ZOMG budget that will not be funded due to the resource tie-up? I think we would all agree that ZOMG funds are more productive deployed to the community on interesting projects than sitting in a vault waiting for pitches that may or may not come

I get the sense that there is broad (though clearly not unanimous) support for @aiyadt’s proposal - which to my mind means there should be very compelling practical and not merely hypothetical/philosophical costs involved that outweigh the potential benefit if this is going to be indefinitely held up.

Also this whole kerfuffle just goes to show how ZOMG needs a working RFP process like whoah.

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Yeah, it’s good to have these public discussions every once in awhile as they allow the community to come together and form consensus, but at some point, it’s an opportunity cost so you’ve got to shit or get off the pot, and learn/apply it to the playbook going forward.

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In the context of the Thorchain integration grant, the question to me is not whether 200K is too much or too little. But how much value we are truly getting out of it. IMO Thorchain is not what it claims to be and there are issues regarding their past behavior (hacks and handling of such hacks).

I don’t think we should simply ignore these points because they are the only Defi project on the radar.

Coming back to your point, I think most people know that we don’t get products anywhere close to their manufacturing costs. We don’t have to look very far: take any Apple product or Louis Vuitton bag…

However, as a community member, I would like the grant process to be as inclusive as possible. That is option 2). It seems to me that we aren’t even putting this option forward.

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If we think competition is good (which it is, generally), let’s put our money where our mouth is. Open up a bidding process for Thorchain integration. Let’s not allow a monopoly granted to the group that proposed the integration.

@hanh and @Rucknium, you both made it seem like your issues were the lack of safety of THORchain (which I would totally understand and even agree with this concern), and the fact that THORchain is becoming a monopoly through its network effect (don’t agree with this one at all). But really, the problem you guys seem to actually have, is that a team that has been granted funding in the past, is the team proposing this integration - meaning they could be granted even more funds.

Part of coming to a solution is identifying the problem. And as I see it right now, your problem is that “Alice” is the team behind this grant application. Your concern isn’t about a Thorchain integration. Your concern isn’t either about the safety of THORchain. According to Hanh, the concern isn’t even about the cost. You’re both still pro the integration, you just want more diversity in the grantee pool than “Alice”.

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Personally, I am against the integration with Thorchain because of the lack of safety and their misleading self-description. They claim they would be the first native DEX for zcash.
They aren’t the first, they aren’t a dex and they are as native as Gemini.
That’s why I haven’t submitted a proposal.

However, if the community wants to proceed, I’d like to see "more diversity in the grantee pool than “Alice”.

It seems that a sense of urgency was built up and supporters of this proposal are saying “Let’s go quickly. It’s a one-time offer and we’ll get our money back anyway in 100x”.

I have no idea where this 100x comes from and why it has to be done, right now.

On the other hand, I can understand why there is a fierce debate. If the rewards are so high and we end up passing on it because of some cost that frankly we can afford, we will regret it.

But in my opinion, besides marketing / promoting the integration, I don’t see it as an effective way to increase Defi exposure.

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While I agree with the above, I would disagree with the following:

In this type of hype market, Thorchain integration works can be the catalyst of Zcash exposure to the wider defi speculators. In the short term, spending money here will be effective to increase Defi exposure for Zcash. In the long term, however, people can just forget this work ever exists. Just like announcements made where ultimately nothing comes out.

Zcash is fortunate that the community seems to be focused on the long term. I would be sad if we start to sacrifice long term goals for short term gains.

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Replying to the original topic.

I have expressed number 3 numerous times in the thread.

Number 1 does not work as the grant proposer does not want to back down when it comes to costs.

Number 2 is a luxury for Zcash today. The ability to create tokens and share the ownership of various projects have spurred incredible (albeit short-term) wealth creation in the defi space. Unfortunately this will not involve Zcash for as long as $ZEC is the only thing we can use on Zcash.

Well, if you are considering it a marketing tool it is possible that you will see a rise of defi speculation. However, I very doubt it because defi speculation is linked to tokens. Renzec is better suited for it.

For instance, Thorchain has ltc and btch integrations already. I don’t think it has had any impact on their usage in defi.

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