How does it feel watching 40% of your business walk out the door, knowing everyone in the room quietly agrees on how to fix it?
Affluent parents know their children require financial foundation. Heirs suspect they’ll be flying blind after the windfall. Advisors are aware the traditional AUM model does not serve the next generation well. Stakeholders typically acknowledge that a discussion about wealth and inheritance would benefit everyone. Every party nods in agreement; and yet (as discussed in the previous article) the crucial conversations don’t happen, the relationships don’t adapt, and consequently four-in-ten heirs plan to leave their parents’ advisors.
The instinct is to treat this issue as a communication breakdown, throwing more newsletters, relevant educational content, and routine outreach at the problem. But if information were the missing link, the crisis would already be resolved. Therefore, what’s missing isn’t additional information but a structural understanding of why intelligent people who recognize the common problem remain unable to resolve it, and why good intentions consistently fail to translate into cooperative action.
The fact that advisors broadly understand the problem and yet consistently fail to resolve it is precisely what demands deeper analysis. What is it that simultaneously prevents advisors to adapt, and pushes heirs to leave?
To stop the mass exodus, advisors don’t need better sales pitches, assertive persuasion, or more goodwill. They need to reveal the invisible forces that keep everyone stuck. To solve the heir retention puzzle, we need to uncover the two hidden games between the three (not two) parties: heirs, their parents, and parents’ advisors.
Game Theory provides us the necessary structure for analysis. Specifically, it offers two distinct analytical frames — two hidden games: one for each conversation — that explain not only why cooperation fails in each case, but why a specific kind of intervention is required to restore it.
The Family Stag Hunt
The first “game” is played between parent and heir. Its structure is what game theorists call a Stag Hunt. Two hunters can collaborate to catch a stag which feeds both of them well. Alternatively, each can hunt a hare alone thus feeding only themselves and to a lesser extent. The stag is the better outcome but only if both hunters show up for a hunt, and follow through with it. If one shows up and the other doesn’t, the one who came catches nothing, while the other gets a hare. If both come but either one, seeing a hare, quits hunting the stag, it gets the hare while the other hunter gets nothing.
The defining feature of the Stag Hunt is that there are two stable outcomes: (1) mutual cooperation, which is better for both parties, and (2) mutual defection, which is safer for each participant individually. The best outcome (the stag) depends on whether each trusts the other to also start and follow through with cooperation.
In the Heir-Parent context, cooperation means raising the topic of wealth, inheritance, and financial planning openly, sharing the specifics of the estate plan, exposing one’s hopes and fears, discussing the existing advisory relationship, naming the numbers and responsibilities, showing the ropes — doing enough to actually prepare the heir. Defection means leaving the topic in a psychologically comfortable suspension: “We’ll get to this topic eventually.” Or simply never finding the “right” moment.
For the parent, the Stag is certainty and peace of mind. It is the specific resolution of a long-carried anxiety about whether, on the one hand, the heir is prepared for what’s coming, while on the other, whether the parent’s will propagates across time. It includes:
- tying loose ends,
- preserving legacy,
- ensuring continuation of the family’s financial values and relationships beyond the parent’s own life.
For the most part, these payoffs are non-monetary and felt relatively soon. The parent doesn’t have to wait ten years to experience the relief of knowing the heir understands the situation.
In addition, inheritance is often used (unconsciously) as an incentive for caregiving. If the heir defects, the parent loses this leverage, injecting massive uncertainty into their end-of-life care plan. What’s more, exposing the magnitude of estate creates the risk that when the heir finds out they are getting a specific slice of estate this may disrupt their current financial discipline, drive, and ambitions.
The parent’s Hare is the preservation of comfortable ambiguity:
- avoiding the mortality conversation,
- experiencing heir’s sudden entitlement,
- escaping cash advancement requests,
- not having to watch the heir’s face register the reality of what they’ll actually inherit (if it’s less than what the heir expects),
- avoiding family confrontation when several heirs are involved,
- maintaining the fiction that there will always be a better moment for conversation,
- thinking that everyone’s on the same page.
On the other hand, the parent knows that the heir is unlikely to be financially sophisticated to handle inheritance and doesn’t have the whole picture of the parent’s estate.
An heir is worried their autonomy may be thwarted by so-called carrots.
For the heir, the Stag is something different in kind: it is informed agency, preparedness, resolved ambiguity, and smooth inheritance. Arriving at the inheritance event knowing what to do, having an established relationship with an advisor, understanding the family’s financial picture rather than being overwhelmed by it is reassuring and empowering.
The heir’s Stag also includes social and emotional rewards that occur immediately if the conversations go well. The heir feels trusted as equal, responsible adult; like an acknowledged participant in the family’s future rather than a passive recipient.
Apart from participation, heirs want to preserve their personal autonomy. They are worried it may be thwarted by “carrots” — wonderful promises of inheritance if (!) you comply with the parent’s requests. The Stag is the kind of inheritance the heir will not get bitter and resentful about.
The heir’s Hare, on the other hand, is the maintenance of particular social norms as well personal psychological safety:
- they are not eagerly anticipating inheritance,
- they are not the kind of child who asks about parent’s money,
- the relationship with the parent and siblings is paramount over their personal financial interest,
- they don’t like discussing parent’s disabilities and death,
- they don’t want to imagine (and role play) worst-case scenarios.
There is a real and immediate payoff to maintaining this social image, calmness, and composure. When it comes to finances, due to the lack of information, the heir’s notion of the assets and events ensuing inheritance create a distorted image of the value of assets.
What prevents both parties to cooperate is the Sucker’s Payoff.
If asked abstractly, both parties would choose the cooperative outcome. Most parents want their children to be financially prepared. Most heirs acknowledge that understanding their family’s financial disposition would be valuable. The Stag is visible; both hunters hypothetically want it.
What prevents them from pursuing it, though, is the sucker’s payoff: the outcome where one party raises the subject and the other deflects. This outcome is emotionally costly, hence undesirable. The exposure of having initiated a difficult conversation and been met with avoidance, redirection, reprimand, or tension is frustrating.
Proposed by Amos Tversky and Daniel Kahneman, loss aversion establishes that, when it comes to financial decisions, individuals are approximately twice as sensitive to potential losses as to equivalent gains. Emotional losses can often be psychologically much more severe than a standard 2-to-1 ratio. Therefore, at the exact moment either party considers making the move, the potential emotional loss from the sucker’s payoff looms (at least) roughly twice as large as the potential gain from a successful conversation.
Present bias adds insult to injury: the discomfort of initiating a sensitive conversation is immediate, while its benefits are in a distant future, and therefore discounted sharply in the experienced calculus of the person deciding whether to make the first move.
The result is a behavioral equilibrium trap. Two parties who both prefer the cooperative outcome consistently select the worse equilibrium — mutual silence — because the behavioral cost of risking the first move is amplified to feel larger than it objectively is. No one is at fault. Everyone is stuck. (See Appendix A for the Heir-Parent Stag Hunt structure in detail.)
The Prisoner’s Dilemma
The second game, between advisor and heir, has a different, more intractable structure. It is not a familiar Stag Hunt game. It is a well-known Prisoner’s Dilemma, with a special kind of twist to it. Here, given the payoffs, a single undesirable equilibrium is the only rational outcome. To understand why that is the case requires distinguishing between objective payoffs and experienced payoffs.
There are two distinct prisons in this Prisoner’s Dilemma
Consider the objective payoffs first. When an advisor cooperates by reaching out proactively, developing heir-appropriate service offerings, absorbing the short-term cost of relationship investment, — and the heir reciprocates — both parties benefit. The advisor builds a sustainable future book of business; the heir receives guidance calibrated to their actual life, values, and financial circumstances rather than their parents’.
Objectively, the heir gains more from cooperation than from defection. A fully rational heir, offered heir-appropriate advice at an appropriate-level fee from a proactively cooperative advisor, would engage. Under those objective payoffs, the game again resembles a Stag Hunt.
However, one party doesn’t evaluate payoffs in purely objective terms, and it is here that the structural and behavioral prisons each player inhabits become the crux of the problem. In other words, there are two distinct prisons in this Prisoner’s Dilemma.
Traditional AUM model itself is the advisor’s structural prison.
The advisor’s constraint is structural. Many advisors operate under a tried-and-true traditional AUM model. While the advisor wants to make sure an heir doesn’t leave after inheritance, they simultaneously have to (at minimum) recover the service costs.
As a result, they are unable to accept heirs en masse whose assets are below a certain threshold. After all, there are no guarantees that absorbing service costs for several years will ensure heir retention in the future.
In addition, the costs of serving younger clients who are in a wealth building mode are likely to be higher than working with older clients who’ve already settled on a financial plan. An AUM-based compensation model generates revenue proportional to the assets under management. An heir in their thirties or early forties is, almost by definition, an early-stage wealth accumulator; their investable assets are below the thresholds that justify significant advisory attention within the existing economic logic of most advisory practices.
The advisor who invests in heir relationships does so by redirecting time and resources away from the current AUM-rich clients who sustain the practice today. Defection is not a failure of the advisor’s character. It is a rational response to a set of incentives that were not designed with heir-retention in mind. In this sense, the AUM model itself is the advisor’s “prison”. A business structure with internal logic that makes cooperation with low-AUM heirs economically unjustifiable regardless of the advisor’s personal intentions.
The heir’s prison is behavioral.
The heir’s constraint, on the other hand, is of a different kind. Where the advisor’s prison is structural and external, the heir’s is behavioral and internal. The fees, lifestyle adjustments, and behavioral changes that an advisory relationship requires arrive immediately and register as losses because they are perceived relative to the heir’s current reference point, i.e.,
- current externally unconstrained lifestyle,
- spending habits,
- and no annual advisory fee to pay.
The future benefits: financial security, wealth accumulation, estate preparedness, the avoidance of costly mistakes that no one warns you about in time — are real, but distant. Loss aversion feels approximately twice as painful as equivalent gains feel rewarding.
Applied to an heir evaluating an advisory engagement, this means the experienced pain of an immediate sacrifice is amplified to roughly double its objective weight, while the experienced value of future financial security is discounted toward the present by the present bias — the systematic human tendency to overweight immediate costs relative to future benefits.
Together, these two forces transform a payoff structure that is objectively favorable to cooperation into one that is experienced as unfavorable. The advisor who offers something of genuine value is meeting an heir whose cognitive architecture is predisposed to undervalue it. Through no failure of goodwill on either player’s part.
This is the critical analytical point. In the objective game without the behavioral distortions, the Advisor-Heir relationship is a Stag Hunt, where cooperation is achievable if both parties trust each other to give it a try, if both give something up and cooperate. With present bias and loss aversion applied to the heir’s experienced payoffs, defection becomes dominant for the heir regardless of what the advisor does.
Add the structural constraint of the AUM model, which makes the advisor’s cooperative move economically costly under current incentives, and defection becomes dominant for the advisor as well. Consequently, both parties defect. The resulting Nash equilibrium, which is the single outcome from which neither party has a unilateral incentive to deviate, is mutual defection. The advisor maintains an AUM-only model, the heir engages minimally or not at all, and the relationship does not survive the inheritance event. (See Appendix A Section 2 that maps the full payoff structure).
The classical prescription for an Iterated Prisoner’s Dilemma is the Tit For Tat strategy: initiate the game with cooperation, then mirror whatever the other party did in the previous round (Axelrod, 1984). As the Game Theory suggests, it is the only strategy that can produce the highest long-term value.
Changing the Structure of the Tit For Tat Strategy
Tit For Tat is the most effective strategy in repeated games of this structure, and it is implicitly what much of the existing literature on heir engagement recommends:
- be proactive,
- go first,
- build the relationship before the inheritance event,
- invest in the heir’s financial education.
This is sound advice as far as it goes. But it doesn’t go far enough; for two reasons that are rooted in the specific structure of this particular game.
First, the heir’s present bias and loss aversion mean that even a fully cooperative advisor may not receive reciprocal cooperation. Because the heir’s experienced payoff from cooperation may be negative regardless of the advisor’s move. When the advisor goes first, the heir still doesn’t completely engage. As a result, the advisor has absorbed a real cost with little to no return.
Tit For Tat requires a partner who can recognize and respond to cooperation. A present-biased heir, experiencing the advisory relationship primarily as a current cost and only abstractly as a future benefit, is not that partner — not yet.
Second, the advisor’s AUM model means that the first cooperative move is economically irrational under current incentives, regardless of the heir’s likely response. Tit For Tat suggests both players to be cooperative but says nothing about the structural reasons why they are not.
What is required, then, is not a better strategy within the existing payoff structure, but a change to the payoff structure itself — for both players, simultaneously.
The Lever: Parents-Pay Model
The mechanism is simpler than the problem it solves:
- The parent agrees to fund a financial planning engagement for their heir as an extension of the existing advisory arrangement.
- The heir receives professional guidance calibrated to their own life, goals, and values.
- The advisor receives compensation for that guidance regardless of the heir’s current assets.
This is a Parents-Pay Model, and its importance rests not in the billing arrangement itself but in what that arrangement does to the experienced payoff structure that prevented cooperation in the first place.
Recall the two “prison cells” identified earlier. The advisor’s structural prison cell (the AUM model’s limitations) is unlocked the moment the advisor receives a parent-funded retainer (6 units/year — see Appendix A to follow the unit examples). The economic irrationality of serving the heir disappears. What was previously an uncompensated risk becomes a paid engagement: the heir is retained (120 units) and advisor is paid at a normal profitability rate (60 units / 10 years). Cooperation becomes not merely aspirationally desirable but financially rational (180 units). The advisor’s dominant strategy shifts.
The heir’s behavioral prison cell is unlocked differently, and this is where Kahneman and Tversky’s loss aversion coefficient comes into play. Two things change simultaneously. First, the primary immediate cost of cooperation (the advisory fee) is removed. With the fee gone, the immediate experienced cost of the advisory relationship drops sharply, and cooperation begins to feel like a reasonable exchange rather than a net loss.
Second, defection acquires an immediate cost it did not previously carry: parental disappointment (CPU — cost of making parent upset). The parent who arranged and funded the engagement now has an expectation. An heir who declines it incurs a social loss relative to their reference point of “Parents are satisfied with me; we have a normal relationship.” A loss that will be felt now, not in the future, which is precisely the timeframe that governs a present-biased agent’s choices.
With loss aversion at λ ≈ 2.0, both changes are amplified to approximately double their face value: removing the fee saves the heir roughly twice its objective weight in experienced terms, while adding parental disappointment costs the heir roughly twice its objective weight in the event of defection. The mechanism does not persuade the heir that cooperation is worthwhile, it restructures the payoffs so that cooperation becomes the rational choice even for an heir whose personal present bias remains entirely intact.
Consequently, there is a shift in the Nash equilibrium. Where mutual defection was previously the only stable outcome, mutual cooperation now becomes dominant for both players. Reimbursed by the parent, the advisor cooperates because it is now economically rational, and the heir cooperates because the experienced payoff from cooperation exceeds the experienced payoff from defection regardless of what the other party does. (See Appendix A Section III for the new equilibrium.)
There is a second mechanism embedded in this arrangement which operates on the Heir-Parent Stag Hunt. The parents-pay conversation does not begin with a billing proposal. It starts with the advisor offering to facilitate a structured family conversation. A planning session in which the parent’s values, intentions, and financial picture are discussed openly with the heir present, and with the advisor serving as agenda-setter and neutral convener — a conduit.
This offer resolves the Stag Hunt by removing the asymmetric risk that behavioral forces amplify. In the unmediated family game, the sucker’s payoff kept both parent and heir from making the first move. The advisor’s offer of a well-defined meeting renders that payoff structurally unavailable. Neither party has to be the one who raises an uncomfortable topic, because the advisor has already assumed that role. If anything, it is the “insensitive” advisor everyone can put their blame on.
Show, don’t tell. Let the parent experience the heir’s degree of unpreparedness for themselves.
The conversation must be scheduled in advance, have a clear agenda, a defined scope, and specific objectives. It is during this facilitated conversation that the parents-pay arrangement most naturally presents itself. When an advisor, a parent, and an heir sit together and examine the heir’s actual financial situation the need for ongoing professional guidance becomes self-evident rather than theoretical. The parent who might never have thought to fund a planning engagement for their child(ren) sees, in real time, what the alternative looks like. When the financial advisor’s offer comes, it arrives in a context that makes accepting it quite obvious.
The sequence, then, is this:
- The advisor proposes a facilitated family conversation which resolves the Heir-Parent Stag Hunt.
- The conversation addresses the heir’s planning needs, surfaces hidden assumptions, brings up pros and cons, evaluates risks and costs.
- The parents-pay arrangement follows naturally; it isn’t imperative for the advisor to be the originator of this idea because it may emerge organically from the family conversation.
- The Advisor-Heir Prisoner’s Dilemma resolves.
And the third, Parent-Advisor relationship (see Figure 1) deepens as a byproduct of both resolutions, requiring no independent intervention.
Once the cooperative equilibrium is established, a further dynamic comes into play. Research on the endowment effect suggests that people value whatever they possess more highly than before they acquired those things (Thaler, 1980). Having a financial plan with professionally well-articulated goals and an ongoing engagement with an advisor who knows their special situation, represents ownership in a psychological sense.
Loss aversion, which previously worked against the heir entering the relationship, now works in the advisor’s favor. Leaving would mean losing something the heir already has, which is experienced as far more costly than never having had it. The cognitive force that was an obstacle becomes an anchor.
What used to be prescriptive per Tit For Tat strategy (begin with cooperation, sustain engagement, build and mirror trust) is now actually naturally ensuing because the initial equilibrium was established by design rather than left to chance. But in order for this sustainability to actually work, the heir must perceive the value of an ongoing relationship higher than zero. This is achieved primarily by elevating the five elements in the Trust Equation.
The parents-pay model isn’t a billing innovation. It is actually a structural reform that makes cooperation rational for all players, a convening function that makes the family conversation possible, and an endowment mechanism that makes heir retention durable. It’s the change to the payoff structure itself.
In the third and last article in this series I will offer specific backstage and frontstage changes that will make cooperation economically sensible and behaviorally accessible. Scheduled for publication in late November, 2026.
Read the first article in the series here: Trust Doesn’t Transfer: The Adaptability Gap in Heir Retention.
APPENDIX A
Section I. Heir-Parent Stag Hunt
In Heir-Parent Stag Hunt game, two equilibria exist: [Cooperate, Cooperate] and [Defect, Defect]. Reaching [Cooperate, Cooperate] requires each party to risk the sucker’s payoff — the outcome where you raise the topic and the other person defects, or when both parties initially agree to cooperate but eventually the counterpart quits unexpectedly, leaving the other exposed, uncertain, and having gained nothing.
The perceived risks and costs are both monetary and emotional. Loss aversion (λ) makes the risk feel disproportionate at the exact moment either party deliberates action. Consequently, both players quietly retreat to the safe equilibrium of [Defect, Defect] not because it’s objectively better, but because of the sucker’s payoff each can incur if one cooperates but the other defects.
To construct the Family Stag Hunt game, we assume the following values scaled at $1,000 per unit. We will also assume that emotional discomfort from discussing mortality and tragedy is equal among parties.
US (The Stag). This represents the long-term utility of a perfectly harmonized, legally optimized, and emotionally sound estate transition: minimized taxes, avoided probate court, absent family conflict litigation, heir equipped to preserve rather than erode the family’s accumulated wealth. Assets under management (AUM) are optimally protected during transition.
US ≈ 3,200 units
CE (Cost of Effort). This is the time and coordination cost of holding the conversation: preparing documents, scheduling the discussion, and where applicable, engaging a specialist advisor or attorney. When both parties actively participate, this cost is shared evenly (CE/2 each), since a genuine two-way conversation requires reciprocal preparation and presence. When only one party initiates and the other does not reciprocate, the initiator bears the full cost alone (CE), since they alone did the work of preparing and showing up.
CE ≈ 32 units
CPD (Cost of Psychological Discomfort). The immediate discomfort from discussing mortality, illness, death, inheritance distribution, personal goals and values, and family expectations. Heir may perceive a risk of potentially losing a portion of inheritance (to charity, restrictive trust, or another heir) due to making the parent upset, resentful, or angry. The heir may also fear losing sense of control (thwarted personal autonomy) by the conditions of the parent’s will. The inheritable assets may be perceived as coming with strings attached, which will require changing personal life and perhaps habits to adapt to the parent’s reality — a carrot that controls heir’s normal behavior.
Exposing the actual financial disposition and plan to the heir may be perceived as risky due to cash advancement requests, undermining ambitions, shift in heir expectations and demands that may necessitate change in the current financial plan, risk of instigating internal family conflict that may undermine overall wealth.
We will assume CPD is directly incalculable but amplified by loss aversion (λ) or status quo bias. It is zero only when neither party raises the topic at all (the [D, D] cell), since discomfort requires an actual encounter to be felt. We leave this term symbolic rather than assigning it a fixed value, because its magnitude varies enormously by family, and because, as shown below, the Stag Hunt structure holds across a wide and defensible range of CPD values without requiring a specific number.
CR (Cost of Rejection). The emotional sting, disappointment, sense of betrayal, or relational alienation experienced when one party reaches out in good faith but the other defects (refuses to engage, gets defensive, accusative, or resentful). CR applies to the parent only in the cell where the parent cooperates and the heir defects [C, D], and to the heir only in the cell where the heir cooperates and the parent defects [D, C]. It does not apply to whichever party did the defecting, since the defector does not experience rejection — they experience relief. We will assume CR is incalculable — because we cannot measure the extent to which either party values the relationship — but amplified by loss aversion (λ).
CI (Cost of Ignorance). The expected erosion of estate value when the heir’s unpreparedness goes uncorrected. For the parent, a feeling that a portion of inherited assets will be squandered or mismanaged once they get into the hands of a “drunken sailor”; the heir isn’t aware of this cost. If heir defects, the parent, often correctly, expects that their accumulated wealth will take a hit after inheritance. Factors that contribute to such an impression:
(1) self-directed investor underperformance of approximately 1.5 to 1.7 percentage points per year between what markets deliver and what individual investors actually receive, primarily due to poorly-timed decisions;
(2) estate planning inefficiency: without proactive guidance, suboptimal asset titling, missed step-up basis opportunities, and unnecessary capital gains realizations may cost 3–5% of estate/asset value;
(3) sudden wealth syndrome and concentrated position mismanagement suggests 4–6% additional loss from poor initial decisions within the first 12 months.
We assume that these negative effects will not be completely alleviated with the first 12 months of inheritance resulting in monetary losses of approximately 340 units (10.6% of US). Critically, CI applies whenever genuine information transfer does not occur, which as defined below is every cell except [Cooperate, Cooperate], because the underlying financial risk to the estate depends on whether the heir actually absorbed what they needed to know, not on who attempted the conversation or who declined it.
CI ≈ 340 units
σ (Heir Awareness). The heir’s baseline knowledge of the estate prior to any conversation, derived from the Multi-Attribute Utility Information Index (MAUII: structural, magnitude, and operational sub-indices weighted 0.30/0.50/0.20 and calibrated against the Fidelity 2025 Family and Finance Study) exhibited in Appendix B.
According to Fidelity 2025 Family and Finance Study, 70% of parents say they’ve created a will and estate plan and feel confident about it (30% haven’t); 68% of parents haven’t told their children what they’ll inherit — or if they’ll inherit at all; 35% of parents don’t want their children to know how much they’ll inherit; 52% of parents have not discussed net worth with their children; only 25% of parents want to leave their entire net worth to their heirs after they pass on.
We use the data from this report to construct a MAUII and a formula (see Appendix B). Based on the proposed formula, we will assume that typical heir awareness is approximately 0.52 (where 0 < σ < 1, and 1 represents complete awareness of the inheritance situation). Consequently, based on data, the average heir possesses barely half of the structural, quantitative, and operational information about the estate.
σ ≈ 0.52
φ (Revelation Premium). This is the incremental awareness the heir gains specifically from a successful, mutually engaged conversation. We derive it in three steps.
First, the heir’s unknown territory can be expressed as (1 − σ ); 0 ≤ φ ≤ (1 − σ); 1 − σ = 0.48. This can be decomposed by MAUII into the weighted structural (0.10), magnitude (0.30), and operational (0.08) unknowns: 0.48 = 0.10 + 0.30 + 0.08 = w₁S + w₂M + w₃E = 0.3 × 0.335 + 0.5 × 0.6 + 0.2 × 0.42.
Second, we assume that structural (0.10) and magnitude (0.30) information are addressable within a single conversation, while operational (0.08) readiness requires lived experience and cannot be transferred in one sitting. This leaves an addressable unknown of 0.40. Because structural information is quite straightforward and easy to comprehend, memorize or write down, in our calculations we take the gap in the magnitude information into account (0.30).
Third, we apply a single-conversation absorption rate of approximately 0.5, reflecting that people do not fully retain complex, emotionally weighted information from a single disclosure. This pattern is well documented in research on patient recall following single medical consultations, where retention of complex or distressing information is frequently about or below half due to anxiety, stress, unfamiliarity of the topic, and focus drift.
φ ≈ 0.30 × 0.5 ≈ 0.15
The heir’s post-cooperation awareness is expected to be meaningfully improved, but still short of full preparedness:
σ + φ ≈ 0.52 + 0.15 ≈ 0.67
Stag Hunt Calculations
With these variables defined, the four payoffs are calculated as follows. To attain the Stag Equilibrium, mutual cooperation [C, C] will be expressed as:
Parent Cooperates: UP = US − CE / 2 − CPD
Heir Cooperates: UH = US × (σ + φ) − CE / 2 − CPD
Both accept the immediate effort and discomfort to secure the optimized long-term payoff.
UP = 3200 − 32 / 2 = 3184 − CPD
UH = 3200 × (0.52 + 0.15) − 32 / 2 = 2128 − CPD
The heir expects to get a better understanding of the family estate, thus increasing awareness (σ) by φ, which is assumed to be 0.15; the heir’s cooperation gives them access to the previously unfamiliar territory φ, which becomes additional information. However, due to limited information still, the heir perceives a different Stag as the parent, hence heir’s overall perceived estate value is initially less (or distorted compared to actual). The awareness gap doesn’t completely disappear after the initial conversation as it requires several conversations and learning-by-doing which may take some time.
When both defect [D, D]:
Parent Defects: UP = US − CI
Heir Defects: UH = US × σ
Because both choose no to engage, both enjoy the comfort of absent emotional tensions. No effort is spent, no discomfort is triggered, and no information transfers, but the underlying financial risk to the estate (CI) persists in full, unaddressed. Heir perceives a smaller Stag (i.e., Hare) due to lack of information.
UP = 3200 − 340 = 2860
UH = 3200 × 0.52 = 1664
Neither party raises the topic. Both reside in a state of behavioral quiescence.
When parent cooperates but heir defects [C, D]:
Parent Cooperates: UP = US − CI − CE − CPD − CR
Heir Defects: UH = US × σ − CPD
Parent reveals their financial situation, heir defects, leaving the parent exposed and uncertain, bearing the full cost of effort.
UP = 3200 − 340 − 32 − CPD − CR = 2828 − CPD − CR
UH = 3200 × 0.52 − CPD = 1664 − CPD
Because the heir disengaged rather than absorbed the disclosure, no φ is realized. The heir’s awareness (σ) and the parent’s underlying CI risk remain exactly where they started.
When parent defects but heir cooperates (D, C):
Parent Defects: UP = US − CI − CPD
Heir Cooperates: UH = US × σ − CE − CPD − CR
The heir initiates alone and is deflected. The parent, though defecting, still experiences CPD, because deflecting one’s own child’s direct question is not entirely costless. However, parent pays no CE, since the parent did not engage in preparatory work.
UP = 3200 − 340 − CPD = 2860 − CPD
UH = 3200 × 0.52 − 32 − CPD − CR = 1632 − CPD − CR
The heir is concerned about potential new obstacles that may shatter their original hopes and dreams in relationship to inheritance or make them harder to attain. The heir may also expect inheritance-related losses due to the conversation unfolding the wrong way.
| Parent ↓ | Heir → | Cooperate | Defect |
|---|---|---|
| Cooperate | P: 3,184 − CPD H: 2,128 − CPD |
P: 2,828 − CPD − CR H: 1,664 − CPD |
| Defect | P: 2,860 − CPD H: 1,632 − CPD − CR |
P: 2,860 H: 1,664 |
For this to constitute a genuine Stag Hunt, mutual cooperation must dominate mutual defection, which must in turn dominate the sucker’s payoff, for both parties. Checking the parent’s payoff structure in [C, C] and [D, D], CPD would have to be valued above $324,000-equivalent before the structure breaks down, a threshold so extreme it would represent outright avoidance rather than ordinary discomfort. Parent’s [D, D] (2,860) exceeds the sucker’s payoff in [C, D] (2,828 − CPD − CR) unconditionally by 32 units, apart from C’s. The same logic holds for the heir, with [C, C] exceeding [D, D] whenever CPD is below 464 units. In other words, the Stag Hunt structure is robust. It holds across the full plausible range of psychological discomfort, breaking only at implausibly extreme values.
We should also note that this is not a classical Stag Hunt dilemma — both the Hare and the Stag are degraded in mixed scenarios: [C, D] and [D, C]. Defecting when the other party cooperates actually makes you worse off than staying silent together. Both parties therefore have an even stronger incentive to coordinate on one of the two pure equilibria: (C, C) or (D, D). And since (D, D) requires no action, no shared cost, and no socio-emotional costs, it wins by default whenever trust between the parties is uncertain.
Note that these are not rigorous, empirically validated formulas. They are a way of evaluating the dilemma — to demonstrate that it’s a Stag Hunt, and the trap is robust rather than incidental. Future development and empirical validation of the proposed formulas and parameters is necessary.
Section II. Advisor-Heir Prisoner’s Dilemma
We continue with the $3.2M (3,200 units) scenario established earlier, scaled at $1,000 per unit (see Table 1). For the advisor, all variables below are structural, requiring no behavioral distortion to produce the result.
We will use a single-payoff quasi-hyperbolic discounting formula in our analysis, based on Laibson, D. (1997) and Phelps, E. S., & Pollak, R. A. (1968):
U = U0 + (UT × β × δᵀ)
β (present bias parameter). This is composite for monetary and non-monetary rewards; if only money is expected to be inherited, the parameter is closer to 0.94. Where β = 1 means a completely rational actor. β ≈ 0.85
δ (long-term discount factor) ≈ 0.95 per year
T (time horizon in years). Inheritance event is expected to occur in 10 years; T = 10.
δᵀ ≈ 0.5987 at T = 10
β × δᵀ ≈ 0.5089
λ (loss aversion coefficient) ≈ 2.0
R (Risk Adjusted Return). AUM are expected to yield an annual risk-adjusted return of R ≈ 4.2%
UHFV (Future Value of Heir Retention). At a 1% AUM fee on the 3,200-unit asset the relationship generates approximately 32 units in annual recurring revenue today. Given the expected inheritance event to occur in 10 years (T), the future AUM is calculated with a familiar Future Value formula: FV = PV × (1 + R)T = 3200 × 1.04210 ≈ 4829 units. A standard range in wealth management practices M&A is 2.0–3.0 times annual recurring revenue. We apply a conservative 2.5 multiple, yielding UHFV ≈ 4829 × 0.01 × 2.5 ≈ 120 units.
CE (Cost of Service). We assume that for a practice this size the cost of serving one heir is 5 units per year. An heir with 200 units in assets generates roughly 2 units/year in fee revenue at 1%. The resulting annual subsidy of approximately 3 units, sustained over a representative 10-year pre-inheritance engagement window (T), totals 30 units. We do not take profitability losses into account.
CE ≈ 30 units
CB (Cost of Behavioral Change). We assume it is directly incalculable yet amplified by loss aversion. Heir is expected to change their spending, saving, and investment habits, which is typically uncomfortable.
A (Heir Attrition). We assume a conservative baseline attrition rate per Harris Poll data (four-in-ten heirs plan to switch). We use this directly as the probability of losing the relationship under [D, D] and [C, D] when heir defects.
A ≈ 0.40
VTA (Heir-Tailored Advice Value). According to 2026 Russell Investments’ Value of an Advisor study, the estimated potential value of an advisor in the U.S. is 4.92%. Given the current heir assets (200 units), the future value of assets can be estimated as FV = PV × (1 + 0.0492)ᵀ = 200 × 1.049210 ≈ 323 units. Therefore, the value of advice itself is:
VTA = 323 − 200 ≈ 123 units
Heir expects to inherit parent’s assets regardless of advisor actions. Eight payoffs are as follows.
Advisor invests by accepting low-AUM heir, heir engages and is retained. Advisor provides heir-relevant service offerings and changes the minimum fee to 2 units/year (1% of current 200 units). The heir also expects advisor to improve the current asset growth by additional 4.92 percentage points per year — the estimated value of advice (VTA). Thanks to advisor’s help, the heir expects to avoid first-year ignorance losses after inheritance ( CI × σ × β × δᵀ) but it is heavily discounted. [C, C]:
UA = UHFV − CE = 120 − 30 = 90 units
UH = −(2 units × T × λ) + VTA + ( CI × σ × β × δᵀ) − CB = −40 + 123 + (340 × 0.52 × 0.5089) − CB = 173 units − CB
Advisor invests in relationships, adjusting service offerings; heir leaves after inheritance anyway — the advisor’s sucker’s payoff. Heir receives tailored advice at a discount, and doesn’t have to change behavior. [C, D]:
UA = − CE = − 30 units
UH = −(2 units × T × λ) + VTA + ( CI × σ × β × δᵀ) = 173 units
Heir wants to engage at 1% AUM and retain the parent’s advisor. Advisor declines to accept unless fees go up to cover costs (5 units) plus normal profit (1 unit). Advisor doesn’t provide the heir-relevant service offerings and doesn’t change the minimum fee (5 + 1 ≈ 6 units/year). Heir does not receive the heir-appropriate guidance that constitutes the cooperative benefit —at best they get a fraction — yet is forced to change own behavior. The heir expects to avoid first-year ignorance losses after inheritance ( CI × σ × β × δᵀ) but it is heavily discounted. The heir also expects advisor to improve the current asset growth by additional 1.7 percentage points per year in contrast to self-directed asset management (200 units of current heir assets minus future value of extra 1.7% over T=10 years). [D, C]:
UA = UHFV + (Fee × T) = 120 + (6×10) = 180 units
UH = −(Fee × T × λ) + (200 × (1 + 0.017)T − 200) + ( CI × σ × β × δᵀ) = −120 + (36.72) + (340 × 0.52 × 0.5089) ≈ 6 units − CB
Even if we don’t take loss aversion (λ) into account, the expected heir payoff is negative (−15 units).
Neither party invests in relationship; heir attrition probability applies [D, D]:
UA = UHFV × (1 − A) = 120 × (1 − 0.4) = 72 units
UH = 0
Heir preserves status quo not spending any money on advice, not altering own behavioral patterns, and not expecting any additional benefits other than the inheritance itself.
| Advisor ↓ | Heir → | Cooperate | Defect |
|---|---|---|
| Cooperate | A: 90 H: 173 − CB |
A: −30 H: 173 |
| Defect | A: 180 H: 6 − CB |
A: 72 H: 0 |
Section III. The New Equilibrium
Advisor provides heir-relevant service offerings for a fee paid by parent (6 units/ year). The heir gets the benefits of advice without paying for it. [C, C]:
UA = UHFV + Fees = 120 + (6 × 10) = 180 units
UH = VTA + ( CI × σ × β × δᵀ) − CB = 123 + (340 × 0.52 × 0.5089) − CB ≈ 213 units − CB
Advisor adjusts service offerings and gets paid. Heir is uncooperative, hence potentially might leave after inheritance. Heir receives tailored advice and is now under pressure for potentially upsetting the parent (CPU) who is paying for advice. [C, D]:
UA = UHFV × (1 − A) + Fees = 120 × (1 − 0.4) + 60 = 132 units
UH = VTA + ( CI × σ × β × δᵀ) − CPU ≈ 213 units − CPU
Heir wants to retain the parent’s advisor and is cooperative. However, advisor declines to adjust service offerings to provide heir-relevant advice, while is still getting paid by the parent. This uncooperative behavior makes the heir consider leaving after inheritance. [D, C]:
UA = UHFV × (1 − A) + Fees = 120 × (1 − 0.4) + 60 = 132 units
UH = (200 × (1 + 0.017)ᵀ − 200) + ( CI × σ × β × δᵀ) − CB = 36.72 + (340 × 0.52 × 0.5089) ≈ 126 units − CB
Neither party invests in relationship. Advisor doesn’t accept the heir until they inherit, and isn’t getting paid. [D, D]:
UA = UHFV × (1 − A) = 120 × (1 − 0.4) = 72 units
UH = − CPU
| Advisor ↓ | Heir → | Cooperate | Defect |
|---|---|---|
| Cooperate | A: 180 H: 213 − CB |
A: 132 H: 213 − CPU |
| Defect | A: 132 H: 126 − CB |
A: 72 H: − CPU |
For heir to prefer cooperation, the cost of behavioral change must be lower than the perceived cost of an upset parent: CB < CPU. The consequences of making the parent upset, resentful, or angry can be severe: a portion of expected inheritance is donated to charity, a chunk is lost to another heir, some assets are locked in a restrictive trust. These are just the monetary costs; there are social, emotional, and self-image related costs, too: (e.g.) “I’m a bad kid. I’m the reason parents are unhappy.”
How the heir perceives these risks depends on a multitude of factors. But each consequence can be assigned a probability and a magnitude. For example, “Influenced by a recent conversation with my siblings, parent might increase their portion of inheritance at my expense” (10% of $3.2M = $320,000 with probability 0.20); “I did something stupid to upset the parent, and now I risk losing a portion of inheritance to charity” (15% of $3.2M = $480,000 with probability of 0.10); “I also think parent will not make any unfavorable changes to the will” (zero losses with probability 0.70).
Typically, behavioral changes should be estimated lower than the expected actions of a disappointed parent. Primarily because the behavioral proclivities to be altered are known, whereas the parent reactions are unknown, which injects massive uncertainty into the equation. However, we can envision marginal scenarios where heir will refuse cooperation regardless of consequences. For example, when heir developed a gambling (or any other) addiction, which already undermines their financial health, the future risk of losing a portion of inheritance is still lower than present urges to bet on zero. They might fake cooperation to get access to funds ASAP.
APPENDIX B
Multi-Attribute Utility Information Index (MAUII)
To estimate an heir’s awareness (σ), we will construct a Multi-Attribute Utility Information Index (MAUII). This index will consist of three dimensions:
(1) Structural information (does the heir know an estate plan exists and where to find it);
(2) Magnitude (does the heir know how much the estate is worth);
(3) Operational execution readiness (does the heir know how to manage it or act as executor).
We define σ as a weighted linear combination of probabilistic variables across these three dimensions, bounded between 0 < σ < 1.
The Heir Awareness Formula: σ = w1S + w2M + w3E
The structural, magnitude, and execution sub-indices are defined as:
S (Structural Index):
M (Magnitude Index):
O (Operational Index):
Sub-variable parameters based on Fidelity 2025 Family and Finance Study; xi ∈ [0, 1]
xwill.exists ≈ 0.7 ; 1 if the parent has an executed estate plan; 0 if not.
xlocation.known ≈ 0.63 ; 1 if the heir knows exactly where documents are located; 0 if not (an estimated parameter aggregated from various sources).
xnet.worth ≈ 0.48 ; 1 if net worth has been explicitly discussed; 0 if unknown.
xallocation ≈ 0.32 ; 1 if the specific breakdown or inheritance size is shared; 0 if hidden.
xexecutor ≈ 0.41 ; 1 if the heir’s role as executor or POA is legally established and communicated; 0 if unclear.
xmanagement ≈ 0.75 ; 1 if the heir is actively co-planning; 0 if heir is avoiding.
Calibrating the weights (w₁, w₂, w₃):
The weights must sum to 1:
∑wi = 1
These weights reflect the information density of each category:
w₁ = 0.30 (Structure): foundational parameter because knowing a plan exists and where to find it is a binary prerequisite for execution.
w₂ = 0.50 (Magnitude): heavily weighted parameter because unknown dollar amount is the most functionally disabling gap at the moment of inheritance; it makes every downstream decision uncertain.
w₃ = 0.20 (Execution): captures operational readiness and is weighted lowest because it can be partially substituted by professional advisors at the time of inheritance.
Heir Awareness calculation:
σ = w₁S + w₂M + w₃E = 0.3 * 0.665 + 0.5 * 0.4 + 0.2 * 0.58 = 0.5155 ≈ 0.52
The weights assigned to the Structural (w₁), Magnitude (w₂), and Execution (w₃) dimensions reflect a theoretical ordering of functional importance at the moment of inheritance, in which the heir’s inability to quantify the estate is treated as the most disabling informational gap. These weights are calibrated estimates rather than empirically derived parameters.
The awezzom question of the day:
How feasible is the Parents-Pay model for our practice?
