This post is an expansion/remix of elityre’s post here:
I am looking for some criticism/comments of the below post, does anyone find this type of exploration useful? Why? Would diagrams/images assist or detract from the post? Should my formulas be more concise and use mathematical equations or is writing them out in markdown code sufficient?
Introduction
A topic that is at the heart of the way our civilisation functions is that of power or status. A powerful person in business has connections, the ability to make things happen and, ultimately, has a greater capacity to achieve a certain goal. This is absolutely worth delving deeper into, as a greater understanding of this type of control actually provides a really important framework to achieving your own goals—understanding how your skills tie into this complex network of power transactions.
This post first outlines the basic axioms of this type of framework, exploring the basics of human behaviour and how these concepts tie into a resource transaction. Next, I propose a formula to conceptualise how we approximate the value of another person’s value to us in these types of transactions. This is extremely useful to view as a tool for improving your own value in terms of resource power.
Next, the concept of ‘status’ as an individual attribute is dicussed. These transactions coalesce into a relatively stable status hierarchy and the nature of a person’s power is identified. Finally, I will list a few resources if you wish to look deeper into this topic at some point.
<br/>
Basic Axioms
1. People Have Goals
Let’s start at the very beginning. You, as an individual, want things. You have goals. It may be to own a Ferrari, or to become a famous pianist. You may want to move to London or to learn about Italian architecture. Each of these goals is uniquely yours and consists of unique components. In order to achieve the goal, you must complete the various components, or tasks, that comprise this goal.
Each component requires a certain amount of a resource. In purchasing a ferrari you may need $200,000 dollars. To learn Italian architecture may require 50 hours talking to an expert in the topic. Money and time are resources that you need to aquire to achieve a goal.
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2. Everyone Controls Resources
You control a number of different resources yourself. You have some amount of money, some amount of skill in various topics, some number of connections within your social and professional networks, some time you may dedicate to a cause, etc.
Similarly, other people control resources. They may have expertise on the same topics as you, or totally different ones. They may have more money, less time and more connections. The idea is that everyone has some unique combination of resources that make them uniquely valuable to other people.
You may have the goal to write a book. This goal is comprised of components including: researching, writing, editing, publishing and marketing. Each one of these components requires resources—whether that is time, money, expertise...whatever. While you may have some of the resources required to achieve your goal, there are other people that control these relevant resources.
An editor is an easy example. This person has skill in editing manuscripts (a resource relevant to your goal) and working with them is something you want/need to do. This makes an editor valuable to you, more valuable than that same person would be to someone not interested in writing a book.
<br/>
3. Trading Resources is Beneficial
Now this concept gets interesting because an editor will not provide their expertise for nothing in return. Even if they do the work absolutely for free, they receive some amount of goodwill on your behalf, an increased likelihood for you to refer them to people in the future or any number of other non-tangible resources. This is the nature of a transaction—each individual trades relevant resources in order to accomplish a certain goal.
People, then, are more willing to help (offer favours to) a person who can help them achieve their goals. You make a trade, or ally, with other people who control resources you deem to be worthwhile.
A certain individual has a certain value to you, this perceived value differs based on your own goals. Let’s explore this concept by placing some values on a person’s resources; from the perspective of two different individuals.
<br/>
Transactional Value
Note: Note that the following definitions and numbers are guesses designed to illustrate the framework I use to think about this types of power transactions—they are in no way verified or proofed. Also, we obviously don’t do explicit calculations about the ‘power’ or ‘willingness’ of a person but it is worthwhile exploring how people mentally approximate this kind of thing.
<br/>
Power
Power = Expected Payoff of Person's Resources
We will keep this really simple, but utility is the sum of all the payoff’s a person’s resources offer. Person C may be great at editing so their Power to Person A and B may be something like:
Person A (Wants to write a book): 80 Power
Person B (Doesn’t want to write a book): 5 Power
Person A sees Person C as more valuable than Person B does, because their resource aligns more closely with their goal. If Person C was only accepting money as a form of transactional power in exchange for their expertise, supply and demand dictates that Person A would be willing to pay a higher price.
Person C may also be an overachiever and have a deep knowledge of, say, coding. Person B has very little interest in writing a book but they do want to build their own website. Person A is also a little interested in coding (to market their future book) but not as interested as Person B. The cumulative Power now looks like:
Person A: 80 + 10 = 90 Power
Person B: 5 + 70 = 75 Power
Person C is now has a greater Power to both Person A and B. However, they will still trade resources with Person A since that person gets greater Power, and thus offers more Power (typically), from the exchange.
<br/>
Probability of Exchange
Probability of Exchange = Percentage Chance of a Transaction Occurring
While a bit harder to measure quantitatively, we can consider another variable of transactional value to be the probability that the exchange will actually happen (on the agreed upon terms). For instance, lets say that Person A is fairly rude and, in the past, has tried to weasel their way out of business deals and agreements. This signals low ‘integrity’ in a person and will likely affect the outcome of the exchange.
Person B, on the other hand, has a track record of paying on time, being respectful and ultimately upholding their end of these types of transactions much more frequently. This is favourable for future transactions.
Person A:65⁄100 Favourable Transactions = 0.65 Integrity
Person B:90⁄100 Favourable Transactions = 0.90 Integrity
<br/>
Utility
Utility = Power * Probability of Exchange
Just like the Expected Value formula used in probability analysis, we can say that the Power is the expected payoff (power) multiplied by the likelihood of that payoff occurring (probability of exchange).
Taking the variables given above, the utility for Person C will be as follows:
Person A: 90 * 0.65 = 58.5 Utility
Person B: 75 * 0.90 = 67.5 Utility
Person C will actually opt to engage and trade resources with Person B—when taking into account personal integrity and the Power from Person C’s two skills.
At this point, the transaction tends to move to resolution. We might say that each point of Utility is worth $10 and Personal B will pay Person C $675 in exchange for their expertise. Maybe Person C believes that they can receive relatively equal Utility from Person B’s knowledge about cars and decides to trade utility that way.
<br/>
Connections
Now imagine a scenario where Person B doesn’t know anything about cars but does have a close friend who is an expert on the matter. Is this connection valuable to Person C? Of course! So having a connection to a resource is, in itself, a resource. We can imagine that the utility of this resource may be added to the power that our individual has.
Person B intially could offer 67.5 utility to Person C, all in monetary form. Now, Person C is happy to exchange less money in order to make use of Person B’s important connection (call this Person D).
Let’s say the power of this connection is worth 60 utility to Person C. The transaction value Person B gets from this connection would be something like:
60 * (Probability of Exchange Between Person B and C * Probability of exchange between Person B and D)
Old Transaction: $675 to Person C
New Transaction: $297 to Person C and introduction to Person D
Note: This assumes Person B brings no other resources to the table but this is sufficient to illustrate the point of connection value.
<br/>
Status
The value added to the transaction by the use of a connection ties in to the concept of status. With multiple connections on top of an existing skillset, the value of a person reaches a certain level (think of it as a number, in terms of utility) to every person they meet. A person with greater resources (or ability to obtain those resources) essentially has more power/status.
All of these status/power transactions stabilise into a relatively static hierarchy of power. Those with high-quality, valuable connections continue to boost their own power by trading connections. Those at the bottom of this hierarchy are usually forced to use a form of convergent resource (like money) or to develop valuable skills. Sometimes it is a matter of boosting your integrity, or credibility, to the point that your power turns into meaningful utility (as people don’t feel that they are risking so much to receive that power).
This post is an expansion/remix of elityre’s post here:
I am looking for some criticism/comments of the below post, does anyone find this type of exploration useful? Why? Would diagrams/images assist or detract from the post? Should my formulas be more concise and use mathematical equations or is writing them out in markdown code sufficient?
Introduction
A topic that is at the heart of the way our civilisation functions is that of power or status. A powerful person in business has connections, the ability to make things happen and, ultimately, has a greater capacity to achieve a certain goal. This is absolutely worth delving deeper into, as a greater understanding of this type of control actually provides a really important framework to achieving your own goals—understanding how your skills tie into this complex network of power transactions.
This post first outlines the basic axioms of this type of framework, exploring the basics of human behaviour and how these concepts tie into a resource transaction. Next, I propose a formula to conceptualise how we approximate the value of another person’s value to us in these types of transactions. This is extremely useful to view as a tool for improving your own value in terms of resource power.
Next, the concept of ‘status’ as an individual attribute is dicussed. These transactions coalesce into a relatively stable status hierarchy and the nature of a person’s power is identified. Finally, I will list a few resources if you wish to look deeper into this topic at some point. <br/>
Basic Axioms
1. People Have Goals
Let’s start at the very beginning. You, as an individual, want things. You have goals. It may be to own a Ferrari, or to become a famous pianist. You may want to move to London or to learn about Italian architecture. Each of these goals is uniquely yours and consists of unique components. In order to achieve the goal, you must complete the various components, or tasks, that comprise this goal.
Each component requires a certain amount of a resource. In purchasing a ferrari you may need $200,000 dollars. To learn Italian architecture may require 50 hours talking to an expert in the topic. Money and time are resources that you need to aquire to achieve a goal. <br/>
2. Everyone Controls Resources
You control a number of different resources yourself. You have some amount of money, some amount of skill in various topics, some number of connections within your social and professional networks, some time you may dedicate to a cause, etc.
Similarly, other people control resources. They may have expertise on the same topics as you, or totally different ones. They may have more money, less time and more connections. The idea is that everyone has some unique combination of resources that make them uniquely valuable to other people.
You may have the goal to write a book. This goal is comprised of components including: researching, writing, editing, publishing and marketing. Each one of these components requires resources—whether that is time, money, expertise...whatever. While you may have some of the resources required to achieve your goal, there are other people that control these relevant resources.
An editor is an easy example. This person has skill in editing manuscripts (a resource relevant to your goal) and working with them is something you want/need to do. This makes an editor valuable to you, more valuable than that same person would be to someone not interested in writing a book. <br/>
3. Trading Resources is Beneficial
Now this concept gets interesting because an editor will not provide their expertise for nothing in return. Even if they do the work absolutely for free, they receive some amount of goodwill on your behalf, an increased likelihood for you to refer them to people in the future or any number of other non-tangible resources. This is the nature of a transaction—each individual trades relevant resources in order to accomplish a certain goal.
A certain individual has a certain value to you, this perceived value differs based on your own goals. Let’s explore this concept by placing some values on a person’s resources; from the perspective of two different individuals. <br/>
Transactional Value
Note: Note that the following definitions and numbers are guesses designed to illustrate the framework I use to think about this types of power transactions—they are in no way verified or proofed. Also, we obviously don’t do explicit calculations about the ‘power’ or ‘willingness’ of a person but it is worthwhile exploring how people mentally approximate this kind of thing. <br/>
Power
Power = Expected Payoff of Person's ResourcesWe will keep this really simple, but utility is the sum of all the payoff’s a person’s resources offer. Person C may be great at editing so their Power to Person A and B may be something like:
Person A (Wants to write a book): 80 Power Person B (Doesn’t want to write a book): 5 Power
Person A sees Person C as more valuable than Person B does, because their resource aligns more closely with their goal. If Person C was only accepting money as a form of transactional power in exchange for their expertise, supply and demand dictates that Person A would be willing to pay a higher price.
Person C may also be an overachiever and have a deep knowledge of, say, coding. Person B has very little interest in writing a book but they do want to build their own website. Person A is also a little interested in coding (to market their future book) but not as interested as Person B. The cumulative Power now looks like:
Person A: 80 + 10 = 90 Power Person B: 5 + 70 = 75 Power
Person C is now has a greater Power to both Person A and B. However, they will still trade resources with Person A since that person gets greater Power, and thus offers more Power (typically), from the exchange. <br/>
Probability of Exchange
Probability of Exchange = Percentage Chance of a Transaction OccurringWhile a bit harder to measure quantitatively, we can consider another variable of transactional value to be the probability that the exchange will actually happen (on the agreed upon terms). For instance, lets say that Person A is fairly rude and, in the past, has tried to weasel their way out of business deals and agreements. This signals low ‘integrity’ in a person and will likely affect the outcome of the exchange.
Person B, on the other hand, has a track record of paying on time, being respectful and ultimately upholding their end of these types of transactions much more frequently. This is favourable for future transactions.
Person A: 65⁄100 Favourable Transactions = 0.65 Integrity Person B: 90⁄100 Favourable Transactions = 0.90 Integrity <br/>
Utility
Utility = Power * Probability of ExchangeJust like the Expected Value formula used in probability analysis, we can say that the Power is the expected payoff (power) multiplied by the likelihood of that payoff occurring (probability of exchange).
Taking the variables given above, the utility for Person C will be as follows:
Person A: 90 * 0.65 = 58.5 Utility Person B: 75 * 0.90 = 67.5 Utility
Person C will actually opt to engage and trade resources with Person B—when taking into account personal integrity and the Power from Person C’s two skills.
At this point, the transaction tends to move to resolution. We might say that each point of Utility is worth $10 and Personal B will pay Person C $675 in exchange for their expertise. Maybe Person C believes that they can receive relatively equal Utility from Person B’s knowledge about cars and decides to trade utility that way. <br/>
Connections
Now imagine a scenario where Person B doesn’t know anything about cars but does have a close friend who is an expert on the matter. Is this connection valuable to Person C? Of course! So having a connection to a resource is, in itself, a resource. We can imagine that the utility of this resource may be added to the power that our individual has.
Person B intially could offer 67.5 utility to Person C, all in monetary form. Now, Person C is happy to exchange less money in order to make use of Person B’s important connection (call this Person D).
Let’s say the power of this connection is worth 60 utility to Person C. The transaction value Person B gets from this connection would be something like:
60 * (Probability of Exchange Between Person B and C * Probability of exchange between Person B and D)Connection Value = 60 * (0.9 * 0.7) = 37.8 UtilityThe transactions would look like:
Old Transaction: $675 to Person C New Transaction: $297 to Person C and introduction to Person D
Note: This assumes Person B brings no other resources to the table but this is sufficient to illustrate the point of connection value. <br/>
Status
The value added to the transaction by the use of a connection ties in to the concept of status. With multiple connections on top of an existing skillset, the value of a person reaches a certain level (think of it as a number, in terms of utility) to every person they meet. A person with greater resources (or ability to obtain those resources) essentially has more power/status.
All of these status/power transactions stabilise into a relatively static hierarchy of power. Those with high-quality, valuable connections continue to boost their own power by trading connections. Those at the bottom of this hierarchy are usually forced to use a form of convergent resource (like money) or to develop valuable skills. Sometimes it is a matter of boosting your integrity, or credibility, to the point that your power turns into meaningful utility (as people don’t feel that they are risking so much to receive that power).