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Would you accept a buyout offer that made you rich but you still felt was undervalued?

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Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#21

Post by yummyfajitas »

ericb wrote: post #12

This goes to an area where economics hasn't caught up to reality yet. If you watch Deal or No Deal, many economists would say contestants are making a mistake (being irrational, unlike the ideal homo economicus) when they accept a deal that is significantly lower than the average value of the cases remaining. What they miss is that dollars offer diminishing returns at scale, so the decision is rational. Going from 0…

I think economics caught up with reality a long time ago (in this respect). Last time I saw the end of that stupid show, I was yelling at the TV:

"Maximize your utility function, not the money, moron!"

(I'm not an economist, but I talk like one.)

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#22

Post by TrevorJ »

No, I think feeling undervalued will be a constant for anybody who's most interested in innovation. Now, if you are in it for money then sure the possibility exists for you to walk away from a deal someday thinking "Damn, I REALLY robbed 'em blind on that one!" But I don't think those of us that do things with passion because we believe in an idea will ever feel that money can every truly put a full value on our vision.

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#23

Post by nazgulnarsil »

mattmaroon wrote: post #11

It depends on your financial situation. How much money do you think will make you happy? If you hold out for more, even if you make it, will your life significantly improve? What are the chances of ending up with nothing? I'm a swing for the fences type of guy, but I'd have a hard time passing up any offer that hit my minimum number. That's why I think investors should let founders of companies take money off the tab…

this is the crux. will it make your life any better? I'd say the law of diminishing returns applies here. 1 million will make you happy because you don't have to work anymore, 2 million will make you happier, but not twice as happy.

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#24

Post by lastdual »

Plenty of people might "feel" their company is undervalued when the offer may in fact be fair. Decisions like this should be based more on the numbers rather than "your gut feeling" - assuming your goal is to maximize wealth. If your life goals are tied up with the mission of your business, then by all means follow your passion.

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#25

Post by reitzensteinm »

ericb wrote: post #12

This goes to an area where economics hasn't caught up to reality yet. If you watch Deal or No Deal, many economists would say contestants are making a mistake (being irrational, unlike the ideal homo economicus) when they accept a deal that is significantly lower than the average value of the cases remaining. What they miss is that dollars offer diminishing returns at scale, so the decision is rational. Going from 0…

You're totally right about the phenomenon. But it is well understood in economics - it's called marginal utility and it's in any Economics 101.

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#26

Post by ericb »

reitzensteinm wrote: post #25
ericb wrote: post #12

This goes to an area where economics hasn't caught up to reality yet. If you watch Deal or No Deal, many economists would say contestants are making a mistake (being irrational, unlike the ideal homo economicus) when they accept a deal that is significantly lower than the average value of the cases remaining. What they miss is that dollars offer diminishing returns at scale, so the decision is rational. Going from 0…

You're totally right about the phenomenon. But it is well understood in economics - it's called marginal utility and it's in any Economics 101.

"The implicit assumption of conventional economics is that the only relevant metric is the magnitude of the absolute change in expenditure." I'm not the first person to say this:

http://en.wikipedia.org/wiki/Loss_aversion#Can_loss_aversion...

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#28

Post by mattmaroon »

mrtron wrote: post #19
mattmaroon wrote: post #11

It depends on your financial situation. How much money do you think will make you happy? If you hold out for more, even if you make it, will your life significantly improve? What are the chances of ending up with nothing? I'm a swing for the fences type of guy, but I'd have a hard time passing up any offer that hit my minimum number. That's why I think investors should let founders of companies take money off the tab…

Matt I was hoping you would give a nice poker analogy here :) My brother is a pretty good player, but he is quick to 'chop'. In fact I mock him all the time for it, but it really depends on what your comfort level is. At a certain point it is not desirable to take exchange risk for reward. Inevitably whenever you wish to get out of the game, you are going to have to take a discounted rate. In poker, if the final 2 gu…

Chopping does work similarly. I always had a no chopping policy though, because pretty much any tournament with a life-changing prize is televised, and therefore chopping is banned.

In fact, poker tournaments in general have the concept of chip devaluation, which is fairly similar to how money works in real life.

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#29

Post by reitzensteinm »

ericb wrote: post #26
reitzensteinm wrote: post #25

Earlier quoted context omitted.

You're totally right about the phenomenon. But it is well understood in economics - it's called marginal utility and it's in any Economics 101.

"The implicit assumption of conventional economics is that the only relevant metric is the magnitude of the absolute change in expenditure." I'm not the first person to say this: http://en.wikipedia.org/wiki/Loss_aversion#Can_loss_aversion...

I'm no economist, I just took a few units a while ago, but I'm pretty sure that's not an implicit assumption, because marginal utility is an important part of economics.

In fact the article you linked to says exactly that:

"All of the above effects can be expressed in terms of the utility function of money, and, in particular, not regarding money as a linear measure of utility. In other words, if money has diminishing marginal utility, then each dollar is worth less than the one before it. To use the example before, the first $1000 might be worth $1000 to a person, and the second $1000 worth only $950 (in terms of utility). This would not be "loss aversion" but just a phenomenon adequately explained by economic theory."

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#30

Post by DaniFong »

nazgulnarsil wrote: post #23
mattmaroon wrote: post #11

It depends on your financial situation. How much money do you think will make you happy? If you hold out for more, even if you make it, will your life significantly improve? What are the chances of ending up with nothing? I'm a swing for the fences type of guy, but I'd have a hard time passing up any offer that hit my minimum number. That's why I think investors should let founders of companies take money off the tab…

this is the crux. will it make your life any better? I'd say the law of diminishing returns applies here. 1 million will make you happy because you don't have to work anymore, 2 million will make you happier, but not twice as happy.

It depends on what you're using it for. When I cash out, I'm considering putting much of my earnings into fusion research.
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