Discounting
From a profit perspective, the value of a future risk is the amount of money (this includes loss of revenue through badwill, loss of customers, legal fees and support to competitors) you lose times the likelihood you are caught, discounted by how far in the future the crime will likely be found.

A short-term businessbeing will have fast discounting, and hence even huge risks are acceptable for a short-term gain. They tend to do well in the short term - in the long term, they are gone. Usually to be replaced with new short term people who have not learnt their lesson.

Long-term businessbeings discount slowly. If I can earn a million credits today by cheating, and there is 10% chance that I will be found out in a century and forced to pay back ten million, I might still not take the risk. Which means that I will likely not do as well in the short term as the risk taker next door, but if I have long term investments and financial security I can wait a few centuries and then buy up him cheaply when he is bankrupt after some dirty deal. In the world of true megacorps it is the slow and certain that will win.
 
Appears in Topics
 
Development Notes
Text by Anders Sandberg

Initially published on 09 October 2001.