Liars and Outliers (41 page)

(6)
Counterfeiting is a particularly hard problem, simply because of the economics. Anti-counterfeiting technologies must be cheap to copy in bulk, yet very expensive to copy individually. To put it in concrete terms, it is certainly worth $80 for a counterfeiter to make a passable forgery of a $100 bill. But the government can't spend more than a few dollars on printing the real bills, so any anti-counterfeiting technology has to be inexpensive.

(7)
Studies show that despite knowing how easy it is for a criminal to create or clone a legitimate-looking website, people often use the
appearance of a website
as a gauge of credibility. A better way to judge legitimacy is the URL.

(8)
For example, a study on reducing terrorism risks at shopping centers found that the
least costly measure
suspicious package reporting, reduced risk by 60%, but the costly and inconvenient searching of bags at entrances achieved only a 15% additional risk reduction. Overall, in fact, the cheapest six security measures reduced risk by 70%, and the remaining 12 more costly security measures reduced risks by only another 25%.

Chapter 11

(1)
On the other hand, he might not steal because of pride. This dialogue appears in
Robert A. Heinlein's
To Sail Beyond the Sunset
:

“Thou shalt not steal. I couldn't improve that one, Father.”

“Would you steal to feed a baby?”

“Uh, yes.”

“Think about other exceptions; we'll discuss it in a year or two. But it is a good general rule. But why won't you steal? You're smart; you can probably get away with stealing all your life. Why won't you do it?”

“Uh—”

“Don't grunt.”

“Father, you're infuriating. I don't steal because I'm too stinkin’ proud!”

“Exactly! Perfect. For the same reason you don't cheat in school, or cheat in games. Pride. Your own concept of yourself. ‘To thine own self be true, and it must follow, as the night the day—'”

“'—thou canst not then be false to any man.’ Yes, sir.”

“But you dropped the ‘g’ from the participle. Repeat it and this time pronounce it correctly: You don't steal because–”

“I am too…
stinking
…proud!”

“Good. A proud self-image is the strongest incentive you can have towards correct behavior. Too proud to steal, too proud to cheat, too proud to take candy from babies or to push little ducks into water. Maureen, a moral code for the tribe must be based on survival for the tribe…but for the individual correct behavior in the tightest pinch is based on pride, nor on personal survival. This is why a captain goes down with his ship; this is why ‘The Guard dies but does not surrender.’ A person who has nothing to die for has nothing to live for.”

(2)
Moral philosophers cover similar territory using a different vocabulary. Theologians talk about three
levels of moral meaning
: the first is personal desire, the second is commitment to social order, and the third is “about the relations among extant order and the relations to past and future orders.” I'm making a gross generalization here, but someone at the first level will choose his self-interest and defect, someone at the second level will choose the long-term group interest and cooperate, and someone at the third level will either cooperate or defect depending on some higher moral principles.

(3)
William C. Crain provides a good summary of Kohlberg's six stages:

At stage 1 children think of what is right as that which authority says is right. Doing the right thing is obeying authority and avoiding punishment. At stage 2, children are no longer so impressed by any single authority; they see that there are different sides to any issue. Since everything is relative, one is free to pursue one's own interests, although it is often useful to make deals and exchange favors with others.

At stages 3 and 4, young people think as members of the conventional society with its values, norms, and expectations. At stage 3, they emphasize being a good person, which basically means having helpful motives toward people close to one. At stage 4, the concern shifts toward obeying laws to maintain society as a whole.

At stages 5 and 6 people are less concerned with maintaining society for its own sake, and more concerned with the principles and values that make for a good society. At stage 5 they emphasize basic rights and the democratic processes that give everyone a say, and at stage 6 they define the principles by which agreement will be most just.

(4)
Social identity theory
has a lot to say about the relative strength of different groups.

(5)
Between 800 and 3,000 people worldwide
immolated themselves
in the 40 years between 1963 and 2002 in support of various political and social causes.

(6)
Author and poet
Brian Christian
writes this about relative morals:

Thomas Jefferson owned slaves; Aristotle was sexist. Yet we consider them wise? Honorable? Enlightened? But to own slaves in a slave-owning society and to be sexist in a sexist society are low-entropy personality traits. In a compressed biography of people, we leave those out. But we also tend on the whole to pass
less judgment
on the low-entropy aspects of someone's personality compared to the high-entropy aspects. The
diffs
between them and their society are, one could argue, by and large wise and honorable. Does this suggest, then, a
moral
dimension to compression?

(7)
If you think back to the Prisoner's Dilemma, the police deliberately put the prisoners in that artificial and difficult situation to induce their cooperation. It turns out this is a
useful mechanism
for social control.

(8)
The
Stop Snitching campaign
can also be explained as a pair of societal dilemmas. The trade-off is between cooperating with society as a whole, and cooperating with the people in the local neighborhood.

(9)
On the other hand, there's a lot less cod in the stores now than there was in the 1970s. And what there is is a lot more expensive.

(10)
Nepotism is making
a comeback in the United States, especially in politics. George W. Bush and Dick Cheney both brought relatives into the federal government while they were in the White House, as did many in their administration. When Republican
Senator Frank Murkowski
became governor of Alaska, he appointed his daughter as his Senate replacement. Republican
Representative Richard Pombo
might be the worst recent offender in the country; he used his office to funnel money to all sorts of family and friends. Not to pick only on Republicans, Democratic
Representative Eddie Bernice Johnson
awarded thousands of dollars in college scholarships to four of her relatives and two of her top aide's children.
Even Bernie Sanders
has paid family from campaign donations, and he's a socialist.

It's not all big government, either. One study of Detroit libraries found that
one in six staffers
had a relative who also worked in the library system. And
Rupert Murdoch's News Corp
was sued in 2011 by shareholders for nepotism when it bought his daughter's company.

(11)
Many states have policies
about this.

Chapter 12

(1)
One.Tel in Australia
was an example of this. CEO compensation was based on the number of subscribers. As a result, CEOs initiated new-customer campaigns with very cheap contracts—so cheap that the company was losing money on each new subscriber. As a result, the CEOs got their bonuses and One.Tel went bankrupt.

(2)
I am not trying to imply that organizations encourage employee loyalty in order to make them more likely to defect from society as a whole, only that it's one effect of employee loyalty.

(3)
There's another complication. A bishop is not just an employer or supervisor of a priest. In the theological understanding of the church, a bishop is considered to have something of a paternal relationship to a priest. Therefore, the bishop has a responsibility to his priests that a bank supervisor would not have to one of his subordinates. The bishop legitimately is supposed to look out for his priests, especially since his priests have given up all their normal family social connections, and dedicated their lives to the church.

(4)
There was no evidence of a conspiracy, and the Bush Justice Department never followed through with prosecution. Although President Barack Obama had previously praised whistle-blowers as “often the best source of information about waste, fraud, and abuse in government,” in April 2010—two and a half years after the original raid—the Obama Justice Department indicted Drake under the Espionage Act, putting him at risk of 35 years’ imprisonment on charges of “wilfully retaining” copies of documents he had provided to Congressional investigators. The case was halted on the eve of trial; the government dropped all of the major charges, the financially devastated Drake pleaded guilty to a single misdemeanor, and he was sentenced to community service and a year of probation.

(5)
At the time of writing, Manning has not been convicted of being the source of the WikiLeaks cables, nor has he confessed to the crime.

(6)
Substandard safety by
Massey Energy
is a similar example. In 2010, its Upper Big Branch mine exploded and killed 25 people. Sacrificing safety to save money was one of the causes.

(7)
Here's one example, from investment banker Jonathan Knee:

The bankers who pressed these
questionable telecom credits
at Morgan in their quest for market share, fees, and internal status coined an acronym that could well be a rallying cry for what the entire investment banking industry had become more broadly. “IBG YBG” stood for “I'll Be Gone, You'll Be Gone.” When a particularly troubling fact came up in due diligence on one of these companies, a whispered “IBG YBG” among the banking team members would ensure that a way would be found to do the business, even if investors, or Morgan Stanley itself, would pay the price down the road. Don't sweat it, was the implication, we'll all be long gone by then.

(8)
Famously, Henry Blodget of Merrill-Lynch
described dot.coms
as “crap” while at the same time talking them up to investors.

Chapter 13

(1)
There's a theory about which industries will attempt to fix prices in a free-market economy: mature industries where there are only a few major companies that have been lobbying together for a long time. Those companies are likely to have executives who have worked for all the other companies during their careers, and are personally friendly with all the other executives. They are also likely to have former regulators working for them, and former employees as regulators. At this point, there's enough trust amongst them for them to
band together into
a cartel. Another researcher wrote that the two features that are necessary for successful cartels are high seller market sales concentration and product homogeneity.
High barriers to entry
help ensure that a cartel is long-lived.

(2)
The only markets where we have routinely allowed for monopolies are utilities: power, gas, telephone, etc. The idea is that the cost of infrastructure is so high, and the potential for profit is so slim, that market economics will simply drive sellers out of business. Given that, society has given companies monopolies and then heavily regulated them. If technology changes the cost of infrastructure, it makes sense to deregulate those industries.

(3)
I am ignoring any effects from the garment going out of season, or out of style, as it hangs unsold on the rack.

(4)
The same societal dilemma exists in the labor market. Individual sellers—potential employees—are competing for buyers: jobs. And just as competition in the sandwich market results in the cheapest possible sandwiches, competition in the labor market results in the lowest possible wages. But in this case, society recognizes there is an inherent value to higher labor prices. So we allow sellers to organize themselves into cooperative groups: unions.

(5)
Of course, by this I mean the average customer. There will be customers who notice that the sandwiches are worse, and they'll either find it impossible to buy better sandwiches or they'll have to go to special “high quality” sandwich shops for their now-more-expensive sandwiches. Today, we now have to buy organic food, at higher prices, sometimes in high-end grocery stores, to get the same quality of food that was commonly available 50 years ago.

(6)
Calling it “medicine” allowed the company to exploit a loophole in the Prohibition laws.

(7)
Two examples: Rupert Murdoch and his News Corp. founded Fox News; and David and Charles Koch and their immense manufacturing and investment company Koch Industries were among the founders of the Tea Party.

(8)
There are exceptions
. The Patagonia clothing company is an example of socialist capitalism at its finest.

(9)
There was a big debate in the UK in the 19th century about whether limited companies should be easy to set up, or if an Act of Parliament should be required for each separate company. Much of the debate focused on the fact that companies don't have souls and thus cannot be guilty of treason. It's the same “immortal sociopath” argument.

(10)
Advertising can actually
implant false memories
.

(11)
The economic term
for this is
lock-in
. Think about your cell phone and cell plan, your computer and operating system, your game console, and so on. It's hard to switch to a competitor, because it involves things like losing months on a subscription service, buying new applications and having to learn how to use them, giving up your already-purchased stock of peripherals, and so on. Industries with low switching costs are very susceptible to changes in reputation. If you drink a Coke today and don't like it, you can easily switch to Pepsi tomorrow. Industries with high switching costs are more robust; if your cell phone company provides lousy service, you're much less likely to switch, because switching is hard and expensive. Raising switching costs is one of the ways corporations artificially limit the effects of a bad reputation on their sales—and another way a modern corporate economy tries to break the fundamental societal dilemmas of a market economy.