Here I’m using the term “liquidate” in the economics sense (conversion of an asset into cash) rather than the Rocky-and-Bullwinkle sense of the word.
Here’s the story: Katherine Chen writes:
An executive summary version of Ackman and Dineen’s Powerpoint analysis underscores the potential impact of DSOs [direct selling organizations] upon distributors’ networks:
Recruiting family members, friends, work and church acquaintances and others in their communities into a rigged game, one that is highly likely to exact financial and emotional harm on those loved and trusted by them, has an impact that cannot be repaired or recompensed with dollars alone.
In class discussions over the years, students have made similar conclusions, with some sharing experiences about how they no longer can socialize with relatives and friends who are members of DSOs because of the relentless pressure to buy and join. Others continue to do part-time work as DSO members who were recruited by family.
I’d only thought about the statistical issues regarding Herbalife’s claims, but, now that I see them, the above observations make sense. A multilevel modeling scheme is can be seen as a way of taking apart one’s social network and converting it into (a small amount of) money. In a sense that is true of all frauds and dubious business propositions so maybe there’s nothing special here, it’s just that in modern America the vast majorities of our economic transactions are impersonal and so don’t involve this trading off on connections.
There’s been a lot of talk about the role of trust in economic behavior; multilevel marketing is an extreme case in which personal relationships are being used as collateral.