Subject: Re: Unexercisable rights
From: "Stephen J. Turnbull" <turnbull@sk.tsukuba.ac.jp>
Date: Fri, 25 Jun 1999 11:51:19 +0900 (JST)

>>>>> "DJ" == DJ Delorie <dj@delorie.com> writes:

    >> Admittedly, smart people do fall prey to that fallacy (DJ
    >> Delorie did in his example about not reselling Adobe
    >> Photoshop).

    DJ> If this is what you think, then you missed my point.  Yes, I
    DJ> know about sunk costs and such, and I realize I've probably
    DJ> got a couple thousand dollars worth of boxed software sitting
    DJ> on my shelf, and if I was desperate for cash (I'm not) I could
    DJ> probably sell them.

    DJ> That wasn't my point.

It wasn't mine, either.  Your decision was of course correct for you.
But you continue to incorrectly analyze your (continuing) decision to
keep the software.  My point is that whether you currently show a net
loss or net profit is irrelevant.

The decision is correctly made on the basis of whether the expected
net present value (which is an appropriately weighted sum of _future_
benefits) from keeping the software is greater or less than the cash
you could earn by selling it (after adjusting for factors like your
effort involved in selling and the possibility of being accused of
pandering non-free software).  No past values are included in that
calculation, not paid-out cash nor benefits received.

Since you are a person, not a large joint stock corporation, it is
unlikely that Lord Hanson will rise from his coffin and conduct an LBO
of you so that he can sell off that copy of Adobe Photoshop.  But it
is precisely that kind of mistake in analysis that makes a company
vulnerable to "LBO-and-dismember" vultures (not "vampire"---I admit I
don't much like them---they cause a lot of pain which should be
cushioned by social policy but is not---but they are a necessary part
of the ecology :).

Point by point (assuming that you are forced to do accounting like a
corporation, rather than taking the much less costly _and much more
accurate_ shortcut of "doing what you think is the right thing at the
time"):

    DJ> My point was that I consider software to be a service, not an
    DJ> investment.

Technically incorrect.  All durable assets must be considered
investments, as most of the return will be in the future, and the
right to those future flows can be transferred to another party.
Information is the most durable asset I know of; it can be destroyed
or thrown away, but it does not physically depreciate.

    DJ> I paid a certain amount of money to get the ability to do
    DJ> certain things, and I did those things enough to make the
    DJ> purchase worth the cost.

Thus you do not regret your purchase.  You should conclude that in a
similar situation in the future you should similarly purchase the
software.

    DJ> I traded a certain amount of my stored value (money) for a
    DJ> certain amount of transient value (use of the software) and I
    DJ> feel it was a net benefit to myself, rather than a net loss.

I'm glad, but that's irrelevant to future decision-making, except as
it confirms your process is accurate.

    DJ> The software currently has no value to me (I'm not currently

False; you admit that below.  (Note value is normally considered a
stock; "not currently using it" is a flow condition.  Value of a
durable good, OTOH, should consider possible future benefits.  You can
define it as a flow, if you like, but you will then be contrary to all
economic and accounting usages.)

    DJ> using it) but neither does it represent unused stored value
    DJ> (because I used it before).

False, which is implied by your admission that somebody might use it
and might have cash value.

    DJ> At some point in the future, I may need those services again,
    DJ> and the cost of obtaining them will be zero, as the software
    DJ> is already here.

See?  You do receive some "option value" from it being on the shelf.

    DJ> Since I've gotten sufficient value out of the software, the
    DJ> cost of maintaining ownership is zero, and the odds of me
    DJ> using them again is slightly non-zero (the kids might play
    DJ> with it, for example), there's no further loss for me to hang
    DJ> on to it indefinitely

But there is:  the market cash value less the transactions costs.

    DJ> and no urge to make my purchase worth the price.  So I keep
    DJ> it.

Please note, I do not advise individuals to think in these terms.  If
you accounted all costs and benefits "properly", I am fairly sure you
will find that you won't change your decision.  That's not because you
want to spite me---it's because it's hard to do the cash-value
accounting right for personal preferences, your intuition is more
accurate.

But companies must do this kind of accounting, because (at least one
of) their goal(s) is profit, and cash-flow is survival (and if you're
publically held, LBO-and-dismemberment is something to fear).  The
fact that both are naturally denominated in cash makes it easier.

-- 
University of Tsukuba                Tennodai 1-1-1 Tsukuba 305-8573 JAPAN
Institute of Policy and Planning Sciences       Tel/fax: +81 (298) 53-5091
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What are those two straight lines for?  "Free software rules."