October 3, 2009

Options, Terms and Conditions

In the Four Agreements of Terms and Conditions, a paper I wrote earlier this year, I postulate that terms and conditions can be re-characterized as the conferment of real options. Here the real in real options is the tangible asset cash. As cash is the basis of exchange and fungible into all other tangible assets, in my world it is also a tangible asset.

I claim that the ability to "game" a compensation agreement relies on the ability to exercise a real option. The grantor can confer a real option without being compensated for or realizing it, thereby creating an misalignment of incentives. "Gaming" on the part of the option holder occurs when he exercises an option to profit from a misalignment.

I claim that without the existence of an option, no arbitrage can exist. I will go one further and claim that without at least one option, no zero sum game can exist.

In either case I am available for hire on the matter.

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