"Time-dependent utility function," he repeated brightly.
"Oh, I can't be bothered--all that technical stuff--leave it to
specialists," I muttered, making the trap nice and inviting.
But he knew he had to explain. "Naturally only the essentials need
_your_ personal attention," he said smoothly. "You express in the
time-dependent utility function your financial policy--the broad,
overall outlines of the course you want to steer. This must come from
you. This makes the difference between a Robert Jones and a Michael
Thompson. You have a possibility of doubling your investment in a year,
let's say. How certain do you have to be of it before you prefer it to
a more conservative investment? Even odds? Six to four? Or we might ask
a similar question about a ten-year period. You see the point."
"Uh ... but it depends on how much I've got." I kicked myself. My
brother would not approve my helping the salesman along like that.
"Ah, yes! Certainly! When you have a hundred million, an extra million
won't seem nearly as important to you as when you have twenty-five.
We understand! Our technical expression for this is that the value of
money to the investor is not a linear function of dollars. Logarithmic,
some say--but that depends on the investor. Whatever relationship you
select as a matter of fiscal policy. That is a part, a critical part,
of the information which you give the Statistomat when you work out
your time-dependent utility function, or risk function, as we call it
for short."
"No risk! Can't afford risk!"
"Mr. Borch, I speak with confidence when I assure you that your estate
can be subject to as little risk when its direction is assigned to the
Statistomat as in any other way." I almost called him on that, until
I reflected that he had really made only one specific claim: that you
could feed just as excessively conservative a risk function into the
Statistomat, if you were compulsively conservative, as you could into
the G.C. Incomac. That might be true.
He went on, "Two of the soundest business research agencies in the
country have been invited to inspect all our operations and have okayed
us, not once but repeatedly: the S.E.C. and the F.T.C."
Darn right they've checked you, I thought--by law. And don't think
they'll stop.
* * * * *
But it didn't do any good to spot a steep slant in his formulations.
He was a salesman, after all. Just so he stayed clear of demonstrable
falsehoods and "fraudulent tendencies" (as defined by the 1978 Commerce
Act), he was within his rights.
He was staying clear. Some of his claims a stickler might want to check
up on; but I wasn't going to bother any more to watch for things like
that. I thought the stickler would find in each case that he'd been
wasting his time. This little salesman seemed awfully good at skating
just at the edge. He really knew his profession.
I didn't let my bafflement show. I just looked at him dully and made
noises as if I was about to say something. I was, but I didn't know
what.
There just had to be something bad about this Statistomat venture.
Without (apparently) any new gimmick, a small new company was producing
just as good a product as one of General Computers' best-managed
divisions. How could Statistomat hope to deliver a normal profit? It
wasn't reasonable. There must be badly cut corners, if not in the
product then in the sales program or the servicing of customers; or
else the investors _weren't_ hoping for a normal return. In that case
there was something funny in their motives--a long-range scheme to
undermine G.C., or something. That might show up in this salesman's
pitch.
So I switched to, "How do I know what stocks this thing'll tell me to
buy?"
"Not _tell_ you to buy," he corrected charmingly, "_buy_ you. The
machine can be connected by direct wire to the Exchange's computer."
"Yeah-yeah, but how do I know what stocks I'll be getting? I want
General Computers preferred!"
He smiled. "Quite possibly you'll find yourself the owner of a
considerable block of G.C. preferred--provided of course your
time-dependent utility function dictates a policy which--"
"You mean," I said, with the very suspicious expression my brother
always objected to, "you'd let your machine bid for G.C. stock for me?"
"Naturally. The Statistomat has often recommended purchase of G.C.
stock. Let me explain to you an aspect of modern firm management which
may be so specialized as to have escaped your attention.
"Each firm draws up what is called a preference function. It is
somewhat analogous to the investor's time-dependent utility function.
It gives exact expression to the objectives of the firm. For any
conceivable economic position the firm might be in, it determines,
let us say, the weight the board places on a dividend this year as
against a larger dividend a year from now, or ten. And so on. It is
the criterion for all the optimization computations which pattern the
firm's activities.
"Under a 1978 law, every corporation offering stock on the Exchange
must publish its preference function. All these preference functions
are known to your Statistomat; in effect, it is as if they were all in
Statistomat's memory, continuously updated, automatically. Naturally,
for a particular kind of investor only certain kinds of stock are
suitable.
"But Statistomat does more--and this is the point I think you'll find
intensely interesting. After all, more than the firm's policy is
important. Two firms may have identical financial policies but very
different dividend rates, either due to different degrees of success or
to different kinds of partial success. Statistomat also has available
to it a sound estimate of the firm's expectations--"
"Who does the--uh--estimating?"
"Based entirely on Commerce Department reports. That's as impartial as
you can get, Mr. Borch, and it's also one of the best-informed sources
in the country. This information is processed at our home office on one
of the largest automatic computers in the world. You see, Statistomat
Incorporated is deeply conscious of its responsibility to give flawless
service to the men who control and direct America's fortunes."
* * * * *
The little salesman sounded overconfident again so I thought I'd shake
him up. "What does General Computers use for their whatchamacallit?"
"The General Computers' Incomac uses exactly the same sources of
information."