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Commerce · V.01 · MMXXVI · daylight

La Bourse  /  Volume V  /  Nº V.01  /  Workbook — the student

WORKBOOK — THE STUDENT

Chapter V.01 · What a Person Is Worth

For the person studying this alone, or in a seminar, with no payroll to run and no budget to set. You are not too early. The five instruments in this chapter will be used on you — in a salary offer, an insurance quote, a policy argument, possibly a courtroom — and the only question is whether you can read them when they are.

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WHY THIS WORKBOOK IS DIFFERENT

The chapter was written for someone who sets prices. You may only be subject to them. That turns out to be an advantage for learning, for one reason: you can compute all five of the numbers for yourself, on yourself, this week, and nobody has to approve it.

Do that once and something permanent happens. The next time somebody tells you what you are worth, you will be able to say which of the five instruments they are using, what question it answers, and what it is structurally blind to. That is not a debating trick. It is the difference between being priced and being able to read a price.

A warning that belongs at the front. Computing these numbers about yourself can be destabilising if you let them mean something they do not mean. None of the five is a verdict on you. Brief 10 exists for exactly this moment; read it before Part Two and keep it beside you.

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PART ONE — DISCOVERY

Days 1–30: find where the question is already being asked

Exercise 1.1 — The five rooms (90 minutes)

Go looking for the places the question is asked in your own life and write what you find, without judging it yet.

For each, write one sentence: what decision was this number actually deciding? Not what it seemed to say about somebody. What it decided.

Exercise 1.2 — The appreciative interview (45 minutes, with another person)

Find somebody who has had to price a risk professionally — an engineer, a nurse, an actuary, a safety officer, a fleet manager, an insurance broker. Ask exactly this:

"Tell me about a time you had to decide how much to spend on reducing a risk, and it went well. What did you weigh? What made the decision possible? What would have happened if nobody had been willing to put a number on it?"

Then stay quiet and take notes on the conditions, not the outcome.

You are collecting something specific: the ordinary, unspectacular competence that already exists in people who do this for a living. It is far more thoughtful than the public conversation about it, and hearing it once will inoculate you against the two lazy positions — that pricing risk is monstrous, and that it is simple.

Exercise 1.3 — Find one implied price (one hour)

Take any local decision you can get numbers for: a junction the council has not improved, a level crossing, a building without sprinklers, a bus route cut. Estimate the money saved and the risk accepted, and do the division. Your figure will be rough. That is fine — the object is to feel how easily a price falls out of a decision that never named one.

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PART TWO — THE ARITHMETIC

Days 31–50: compute all five, on yourself

Do not take the chapter's numbers on trust. Open lib/verify/V_01.py, read it, and then reproduce these independently, by hand or in a spreadsheet.

Exercise 2.1 — Reproduce the chapter (2 hours)

1. The markdown table: 60.0 per cent of product at an elasticity of 1.5, 75.0 at 3.0, 83.3 at 5.0, 90.9 at 10.0.
2. The risk step: 13,200,000 USD at a risk of 1 in 10,000 gives 1,320 USD per person, and the reverse calculation from a 900 USD premium gives 9,000,000 USD.
3. The annuitised life-year: an annuity factor of 23.115 over 40 years at 3 per cent, giving 571,063 USD.
4. The lifetime earnings present value of 1,630,736 USD, and the ratio of 8.09 x between the two.
5. The implied price at Grenfell: 293,368 GBP over seventy-two deaths, giving 4,075 GBP.

Exercise 2.2 — Your own human capital (60 minutes)

Use the growing-annuity formula from the chapter. A worked case to check your spreadsheet against: starting earnings of 34,000 USD, real growth of 2 per cent, a 3 per cent real discount rate, forty-five working years gives a present value of 1,208,146 USD.

Now do your own, with your own honest assumptions. Then write two sentences: what this number is for, and three things about your life it does not contain. Keep those sentences. You will want them in a bad week.

Exercise 2.3 — Your own insurance requirement (30 minutes)

Compute the income hole rather than accepting a multiple. If a household loses earnings of 60,000 USD a year, needs to replace 70 per cent of it, and needs that for ten years, the requirement is 420,000 USD. Compare that with the underwriting rule-of-thumb figures — 600,000 USD at ten times income, 900,000 USD at fifteen, 1,200,000 USD at twenty — and notice that the rule of thumb is a sales number and the computed one is a need number.

Exercise 2.4 — The training decision, done properly (45 minutes)

A course costs 9,000 USD and raises your earnings by 2,400 USD a year. Simple payback is 3.75 years, a 26.7 per cent return, which comfortably beats any discount rate you would reasonably apply.

Then do the harder version: add the earnings you forgo while studying, and the probability that the increase does not materialise. A training decision that only works at a 100 per cent success probability is not an investment, it is a hope, and the arithmetic will tell you which one you are looking at in about twenty minutes.

Exercise 2.5 — Your own markdown (45 minutes)

Estimate the revenue your work generates for whoever pays you — a defensible estimate, with the method written down. Then apply the markdown at an elasticity of 2.50: 71.4 per cent of product, a gap of 17.71 USD an hour on a product of 62.00 USD, which is 33,657 USD across a 1,900-hour year.

Write one paragraph on what would raise your personal elasticity — a second credential, a portable client relationship, savings that make leaving possible, a city with more employers. That paragraph is a career plan, and it is a better one than most career plans, because it names the mechanism instead of the wish.

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PART THREE — DESIGN

Days 51–70: build the apparatus you keep

Exercise 3.1 — The five-row card (30 minutes)

Write the chapter's five-row table on a single index card, in your own words: the question, the instrument, what it decides. Carry it. Every time you read a public argument about what people are worth, put a finger on the row being used.

Within a month you will start catching the slide — the sentence that begins in one row and ends in another. It is the most common dishonesty in this field and it is almost always unconscious.

Exercise 3.2 — The label habit (ongoing)

For the rest of the term, never state a valuation without naming the instrument in the same sentence. "On a human-capital basis." "At the published risk price." "As an underwriting requirement." Six words, every time.

This feels pedantic for about two weeks and then becomes the thing people notice about how you argue.

Exercise 3.3 — Steelman the position you dislike (2 hours)

Whichever side you came in on, write eight hundred words for the other.

If you arrived believing pricing lives is obscene, write the case that a refusal to price hands the decision to an unexamined budget, and use the implied prices: 4,075 GBP at Grenfell, 3,009,956 USD from the speed-limit study, 1,500,957 USD for the 1973 memorandum figure in today's money.

If you arrived comfortable with the arithmetic, write the case against — the withdrawn discount of 37.0 per cent on lives over seventy, the transferred value of 440,000 USD at unit income elasticity, and the fact that measured satisfaction adapts after severe injury in a way a strict wellbeing rule cannot see.

You do not get to hold the position you came in with until you can write the other one well.

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PART FOUR — DESTINY

Days 71–90: make it durable

Exercise 4.1 — The indexation habit (20 minutes)

Take three numbers you care about that were set years ago — a fee, a threshold, a grant, a cap — and deflate them. The chapter's case: a cap set at 250,000 USD in 1975 is worth 45,951 USD in its original money, 18.4 per cent of its value, and would need to read 1,457,714 USD today.

Then make it a standing habit. Any number without a date and an index is a number in decline, and noticing that once a year will make you look prescient for the rest of your life.

Exercise 4.2 — The standing file (ongoing)

Open one file called implied prices. Every time you meet a decision that traded money against risk, add a line: what was saved, what risk was accepted, the division, the date. Ten entries is a body of evidence. Forty is the beginning of a research contribution, and it is the sort of thing a dissertation supervisor will fall on gratefully.

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PART FIVE — READING AN OFFER, AND ANSWERING IT

The whole term lands in one practical skill, so practise it directly.

Exercise 5.1 — Take an offer apart (45 minutes)

Find a real offer — yours, a friend's, or a posted band — and separate it into the three figures the chapter says are always present but rarely named:

1. What the market clears at. What comparable people are actually paid, from at least three sources.
2. What the role appears to produce. Your defensible estimate of marginal revenue product, with the method written down. Revenue per head is a crude proxy and a legitimate starting point when you say that it is.
3. What the employer has chosen between those two, and what the markdown implies about how hard the employer thinks you are to replace.

Exercise 5.2 — Write the sentence you would actually say (20 minutes)

Not a demand. One sentence that names the instrument. "On the revenue this desk produced last year, the band looks like it sits well below the role's product — what would move it?"

Notice what that sentence does. It puts the arithmetic in the room without putting a verdict on anybody, which is the entire register of this chapter compressed into twenty words. Rehearse it out loud until it is boring. A sentence you have said aloud forty times survives a conversation in which you are nervous; one you have only written does not.

Exercise 5.3 — The thing that raises the elasticity (30 minutes)

Return to the markdown. Your pay moves when your ability to leave moves, so list the five cheapest things that would make leaving genuinely easier within a year — a second language, a certification, a portfolio in public, three months of reserve, a relationship in another firm. Cost each one. Pick the cheapest two and put dates on them.

This is not careerism. It is the one intervention on the wage that you control directly, and the chapter's arithmetic says so explicitly: the markdown is a property of the frictions, and some of those frictions are yours to dissolve.

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THE TERM PROJECT

Write the implied-price audit of one institution you have access to.

Your own university, your employer, a local authority, a hospital trust, a sports club — anywhere with published accounts and published decisions.

The deliverable is eight to twelve pages:

1. Three decisions the institution took that traded money against risk, with the sources for the money and for the risk.
2. The implied price of each, computed, with the arithmetic shown and the uncertainty stated honestly.
3. The comparison with a published figure — the transport department's 13,200,000 USD, or your own jurisdiction's equivalent.
4. One recommendation: the single line you would add to the institution's appraisal template, and who would have to sign it.
5. The constraint, written in: that any published price is for populations and decisions taken before the people are known, and may never be applied to a named individual.

Two disciplines make it good rather than merely done. State what you could not find out — a denominator you could not obtain is a finding, not a gap to be quietly filled. And write it appreciatively: the institution is not on trial. Almost every implied price in the world is an accident of a budget rather than a decision anyone made, and the useful contribution is making the next one deliberate.

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SELF-ASSESSMENT

Score yourself honestly. Five is fluency, one is recognition.

The one that matters is the last row, and the test for it is not a score. It is whether you can sit in a room where these numbers are being used and feel neither superior nor sick. That is the register the whole volume is written in, and it is learnable.

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WHAT YOU HAVE AT THE END

A card with five rows. A spreadsheet with your own five numbers in it and a note on what each leaves out. A file of implied prices with at least ten entries. An audit of a real institution with a recommendation somebody could act on. And a habit of labelling the instrument in the sentence.

The next chapter, Work as Metabolism, asks what work is doing in a living system rather than what it earns. Bring the card. Everything in it stays true and none of it stays sufficient.