Mutualising risks through multilateral agreements

Sofi is an ‘artificially intelligent’ system that predicts problems in the demand and supply of enterprises, analyses the implications, and proposes changes to contracts with customers and suppliers. The changes are readily accepted because they put everyone in better positions than before. The contracts are thus risk-adjusted to new realities. The mutual attraction between promises of demand and supply is higher than before. The risks of competition and regulatory action are lower than before. Sofi notarises the multilateral accord and prepares advisory notes for implementing the changes.

As a trusted third-party, Sofi is aware of the goals, priorities and concerns of an enterprise. It has privileged access to documents and discussions, allowing it to monitor internal developments. Its neural networks are like equity analysts, each focussing on specific types of promises and able to detect abnormalities and patterns. The promises are like stocks in a market index. When all indications are that there is going to be a problem, Sofi notifies its principals and, following their standing instructions, starts looking into contracts and relationships. Its protocols direct its attention to promises that are most likely to be broken, either by the enterprise, or by its customers or suppliers.

Contracts have significant levels of locked potential because of gaps and conflicts i.e. pockets of missing supply or demand, and instances of 'what is good for demand is bad for supply', and vice versa. To unlock the potential, Sofi first transforms contracts into chains of promises, through a process called sequencing. It then lengthens the chains, by including implicit promises and by inserting the interests of stakeholders who are not part of the contracts but can make a difference. That includes governments and financial institutions willing to underwrite risks to promote sustainabilities and stimulate economies. The artificially long chains afford a wider range of possibilities for restructuring and distributing risks.

Each chain is a multilateral set of promises backed by the interests of several parties. Sofi makes small, speculative changes to a few promises and 'rings the bell' to set off a trading session. Each trade requires small adjustments to commitments of demand and supply based on mutual interests and reciprocal risks. Trading algorithms suggest the smallest possible changes that lead to large increases in mutual welfare across the entire set. A few rounds of trading gradually close the worrisome gaps and conflicts.

Sofi is able to act quickly and confidently because of a new kind of bookkeeping. For every enterprise, Sofi maintains ledgers on all the promises of demand and supply. The promises are recorded across rows and columns: commitments, considerations, and implications in rows, and the associated benefits, risks, and costs in columns. The rows and columns form a 'balance sheet' that shows 'who is promising what' (values), 'why and how' (assurances), and 'when and where' (windows).

The accounting is in words, not numbers. Everything is expressed in the form of clear and concise statements, not unlike in computer programming. The statements are the inputs and outputs of all calculations. They define meaning and intent. Each statement opens into a document that provides the reasoning and justification behind key words. The rich text of the document is annotated with relevant data, analysis and research that are routinely updated with real-time information to reflect new realities.