[Chocobean]

Right. So the IOUs need to be a form of investment as well.

re: star employee example--it's not how much you made the company, it's how much of the company is yours to begin with. Founders will be smart to reward performance, but to reward proportionally based on contribution wouldn't work. If the star is unhappy, he's welcome to quit, take the risk and start his own company.

[barrkel]

Right - and by letting the star quit, the founders are ending up with less value, in this hypothetical. In other words, they are acting irrationally.

[zem]

that seriously underestimates how important the perception of fairness is. i'm with joel on that one.

as a side note, taking the emotional impact of your decisions into account is not acting irrationally. indeed, it's more rational than deciding things on a purely monetary basis, because it takes all possible inputs into account.

[barrkel]

No, it's not about fairness; it's about loss aversion bias, and how it can lead to suboptimal economic outcomes. It leads to poor investment choices all over the place. People are worse off when they don't control for it.