Our Gemara on Amud Aleph discusses an interesting economic and psychological scenario regarding partnership versus working as a subcontractor on commission. As we shall soon see, psychology and economics can be heavily intertwined. In our Gemara, due to certain halachic technicalities of usury, a person who enters into 50/50 financial partnership in raising an animal, actually makes out with less profit than if the owner of the animal had contracted with him to tend this animal for a percentage commission, at the same percentage of profit:

“The sharecropper said to him: Now will you not also give me as you did initially? Before, when I was not a partner in the animal but accepted it only in order to fatten it, you gave me the entire head. Now that I am a partner with you, are you going to give me only one-half of the head?”

Regardless of the halacha, how does the market sustain this inequity? What is the motivation to be an entrepreneur, if in the end, one makes less money?  The reality is, that even when the immediate financial benefits of entrepreneurship are not realized, the psychological benefits of independence and self-mastery incentivize people who have a particular mindset and disposition. In other words, you can tax the heck out of them, but still somehow they will keep striving to make more money and take more risks. And yet, there seems to be a truth in life, that the middle class often suffer the most, without the benefits of wealth nor the subsidies of the poor.  

The late Nobel Prize winning Israeli-American author, psychologist and economist, Daniel Kahneman made a career out of spoofing how human decisions, even those made by experts, are biased by emotions instead of mathematical losses, gains and rational calculation of risk. One of his key ideas is that people tend to feel the pain of losing something much more strongly than the happiness of profit. Losing $500 FEELS worse than how much making $500 feels good.  Because of that key factor, so-called rational business investments often are unconsciously biased, placing more fear and importance in avoiding loss than the mathematical possibility or even likelihood of gain. Thus, even if the odds in an investment plan are 60% in favor of profit over time, many people would not have the stomach to sustain the emotional battering of the 40% losses all the time. Therefore many will foolishly choose, so-called, safe investments. 

Here is a practical real world example of how that plays out, although I’m not giving anybody financial or insurance advice. I have known many middle-class wealthy people who let us say, for argument's sake, have $500,000 in savings. Those same people will buy a car that’s worth $60,000 and spend an additional $5,000 a year on theft and collision insurance. If you take into account other types of insurance such as homeowner’s insurance, flood insurance, and low deductible health insurance, the cost of these various products that are sold for peace of mind amount to an additional $20,000 a year. If a person had the discipline, and set-aside the same money to themselves and invested it wisely, the chances are that over a lifetime, they would fare far better than the insurance pool. But the fear of loss is too strong. Most people, even very wealthy people who could absorb such losses, never consider such a strategy. Even more pertinent to those who are less wealthy, I noticed that my collision/theft insurance was $500 cheaper if I chose a $1,000 deductible.  Do you get that math? If a person got into a car accident less than every other year, he would make out with a huge profit over a decade, just by choosing the $1,000 deductible.  And, that is without paying the premium difference to yourself and investing it!

This might explain why in our Gemara, despite the economic disincentives, a person might still choose partnership instead of working on commission to raise the farm animals. Yes, he may not make as much money, but he does not feel the loss of the animal when the owner comes to collect his animals and divide the profit. If he owns the animals as a 50/50 partner, then all of it is divided 50/50, including the animals that he cared for, of which he is an equal owner.  However, the sharecropper might keep 50% of the profits and even a bit more due to the halachos of ribbis, but still feel the loss of “his” animals that he cared for now being taken away.

Translations Courtesy of Sefaria, except when, sometimes, I disagree with the translation

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