Wednesday, January 23, 2013

Do institutions create perverse incentives for those who work in them?

Something to chew on as we begin to consider the seeming dysfunction of Congress, and consider possible solutions. Do institution create situations where people have to act in ways contrary to their usual tendencies, or even in ways that woudl otherwise be simply wrong?

Here's a suggestion that they do, and the author uses an example we discussed briefly in one of the classes today when we talked about the need to form groups to provide mutual security. I used gangs, including prisons gangs, as an example. But these gangs - while rational in that context - require people to sometimes do things they normally would not:
Unfortunately, prisons are places of perverse incentives—in which the very norms one must follow to avoid becoming a victim lead inescapably toward violence. In most U.S. prisons, for instance, whites, blacks, and Hispanics exist in a state of perpetual war. This young man is not a racist, and would prefer to interact peacefully with everyone he meets, but if he does not join a gang he is likely to be targeted for rape and other abuse by prisoners of all races. To not choose a side is to become the most attractive victim of all. Being white, he likely will have no rational option but to join a white-supremacist gang for protection.

So he joins a gang. In order to remain a member in good standing, however, he must be willing to defend other gang members, no matter how sociopathic their behavior. He also discovers that he must be willing to use violence at the tiniest provocation—returning a verbal insult with a stabbing, for instance—or risk acquiring a reputation as someone who can be assaulted at will. To fail to respond to the first sign of disrespect with overwhelming force, is to run an intolerable risk of further abuse.

And this applies to society at large, including our legislative institutions:
in many other places in our society, we find otherwise normal men and women caught in the same trap and busily making life for everyone much less good than it could be. Elected officials ignore long-term problems because they must pander to the short-term interests of voters. People working for insurance companies rely on technicalities to deny desperately ill patients the care they need. CEOs and investment bankers run extraordinary risks—both for their businesses and for the economy as a whole—because they reap the rewards of success without suffering the penalties of failure. Lawyers continue to prosecute people they know to be innocent (and defend those they know to be guilty) because their careers depend upon winning cases. Our government fights a war on drugs that creates the very problem of black market profits and violence that it pretends to solve….

Somethign to consider while we begin to discuss rationality and its limits.