Ann E. Tenbrunsel is a professor of business ethics at the University of Notre Dame. Max Bazerman is a professor of business administration at Harvard Business School. The guest post below is adapted from their new book Blind Spots: Why We Fail to Do What’s Right and What to Do About It.
Launching into Unethical Behavior
By Ann E. Tenbrunsel and Max H. Bazerman
The 25th and last flight of the shuttle Endeavour has come and gone. Which means there’s just one shuttle flight left: July 8’s Atlantis launch will be the 135th and final mission for the program, 30 years after the first shuttle test flights occurred.
For anyone who was around on Tuesday, January 28, 1986, it’s difficult to watch a shuttle launch without remembering the Challenger disaster, when the space shuttle disintegrated 73 seconds after launch, killing all seven crew members. While the most commonly referenced explanation for what went wrong focuses on the technological failures associated with the O-rings, an examination of the decision process that led to the launch through a modern day “behavioral ethics” lens illuminates a much more complicated, and troubling, picture. One that can help us avoid future ethical disasters.
MIT turns 150, women prefer sad men to happy ones, an interactive map of wages in cities across the U.S., and more.
The answer is a firm yes, at least according to three IMF economists who studied the correlation between firms’ lobbying efforts, financial risk-taking, and default rates. Their findings (abstract here; full report here) show that:
[L]obbying was associated with more risk-taking during 2000-07 and with worse outcomes in 2008. In particular, lenders lobbying more intensively on issues related to mortgage lending and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing originations of mortgages. Moreover, delinquency rates in 2008 were higher in areas where lobbying lenders’ mortgage lending grew faster.
Stealing a truckload of goods in Sweden is apparently as easy as waiting for the driver to go on his lunch break. Each year, billions of euros worth of goods are stolen while in transit across Europe, but no one seems to be doing much about it. Dr Luca Urciuoli, a researcher in engineering logistics at Lund University has studied the problem and finds a transportation system ripe for criminal exploitation. From Science Daily:
Luca Urciuoli’s research shows that many haulage companies do not make any security investments at all, even though it is fairly easy to find security measures such as theft-proof doors or windows, truck alarms, track and trace systems and mechanical locks on the market.
Vincent R. Reinhart thinks so. Reinhart, an economist at the American Enterprise Institute and a former director of the Federal Reserve Board’s Division of Monetary Affairs, argues that the Fed’s quantitative easing program has raised the price of oil for American consumers:
Since the Fed firmly signaled in August its intent to launch the latest round of QE, oil prices have risen from $76 to around $100 per barrel.
Why does the Fed’s balance sheet matter for oil prices? The producers of oil as well as other commodities typically sell their output in a worldwide market priced in U.S. dollars. Thus, they care about the current and expected future purchasing power of the dollar and how that will translate into goods and services back home. But QE has been associated with higher inflation and dollar depreciation, which combines to erode the purchasing power of the foreign producers of commodities. Thus, some of the rise in the nominal price of oil has been to catch up with that erosion.
A new report from The Brookings Institution examining global poverty rates since 2005 notes two primary trends: poor people are increasingly found in middle-income countries and in fragile states.
Brookings notes the obvious success of the one:
Over the past decade, the number of countries classified as low-income has fallen by two fifths, from 66 to 40, while the number of middle-income countries has ballooned to over 100. This means 26 poor countries have grown sufficiently rich to surpass the middle-income threshold. Among those countries that have recently made the leap into middle-income status are a group of countries – India, Nigeria and Pakistan – containing large populations of poor people. It is their “graduation” which has brought about the apparent shift in poverty from the low-income to middle-income country category.
And troubling failure of the other:
A guest post from Jeff Mosenkis, on how empathy affects how we feel about torture. Mosenkis holds a Ph.D. in Psychology and Comparative Human Development from the University of Chicago. His research has focused on the intersections of social, cultural and organizational psychologies.
I Feel Your Pain: The Empathy of Torture
By Jeff Mosenkis
Senator John McCain re-entered the waterboarding/torture debate this month, first with an op-ed in The Washington Post, then on the Senate floor, taking issue with both the efficacy and morals of enhanced interrogation techniques, asserting that several of them are indeed torture. From McCain’s op-ed:
Much of this debate is a definitional one: whether any or all of these methods constitute torture. I believe some of them do, especially waterboarding, which is a mock execution and thus an exquisite form of torture. As such, they are prohibited by American laws and values, and I oppose them.
McCain’s anti-torture stance is well-documented and been consistent throughout his political career. But a new study adds some scientific insight into why he feels the way he does.
According to the National Weather Service’s Storm Prediction Center in Norman, Okla., there have been 1,151 tornadoes reported (though not confirmed) so far this year. By comparison, there were 1,282 tornadoes during all of last year, and a total of 1,156 in 2009. This is resulting in billions of dollars in damage claims across much of the South and Midwest. According to EQECAT, which provides disaster and risk models to insurance firms, weather-related losses could cost insurers upwards of $10 billion in the U.S. this year, up from an average of between $2 and $4 billion per year.
But while the short-term impact will obviously be difficult as insurance companies cover record losses, the recent rise in weather-related disasters could end up being good for their stock prices.
Back in 2005, Levitt wrote about Planned Parenthood’s clever strategy in response to people picketing one of its clinics in Philadelphia. The tactic, known as Pledge-a-Picket, worked like this: for every protester that picketed the clinic, people pledged to donate a certain amount of money (minimum 10 cents). The event raised a reported $40,000, and is now a part of the clinic’s annual calendar.
At the time, Levitt predicted that abortion clinics around the country would soon adopt the approach. It turns out, so has comedian Lisa Lampenelli. The Daily What reports:
Researchers at the University of Pennsylvania have conclusively identified a part of the brain that’s necessary for making everyday decisions about value. Previous magnetic imaging studies suggested that the ventromedial frontal cortex, or VMF, plays an evaluative role during decision-making. New research led by Joseph Kable, an assistant professor of psychology in Penn’s School of Arts and Sciences, shows that people with damaged VMF’s (victims of strokes, aneurysms, or brain tumors) are less able to choose things that are most valuable, and are also less consistent in their choices. The results were published in The Journal of Neuroscience.
Here’s an interesting piece from Yale Fox over at Darwinversusthemachine.com on how the fidelity we demonstrate in sexual relationships mimics the loyalty we have to brands.
Much research shows that if there are no consequences to cheating, or if we can get away with it, we are very likely to do so. However, brand conversion is more than having the user cheat on their product once. We want them to understand that they are trading up to the new brand. It’s always possible to convert someone to your brand permanently. This can be achieved if the right environmental pressures are in place to do so.
In 2004, Princeton professors Robert Socolow and Stephen Pacala introduced a strategy that made the large-scale reduction of carbon emissions actually seem feasible. Rather than looking for one big fix, their process, called stabilization wedges, broke the solution down into incremental pieces (increasing alternative energy, reducing energy use, improving efficiencies) that together could prevent billions of tons of new emissions over the next 50 years.
But in a new National Geographic article, Socolow is quoted saying that the wedges approach oversimplified the problem in the minds of many:
Econ profs rank Levitt as their fourth favorite economist under the age of 60, The New York Public Library’s brilliant new iPad app, and more.
The personal injury law firm Jacoby & Meyers (known for its TV commercials) is suing to overturn state laws in New York, New Jersey and Connecticut that prohibit non-attorneys from owning stakes in law firms. From The Wall Street Journal:
The firm, which has more than 60 lawyers and specializes in personal-injury cases, claims that the restrictions have hurt its ability to raise capital to cover technology and expansion costs, and have hampered it in providing affordable legal services to its working-class clients.
U.S. law firms typically are owned by their senior-most lawyers, called partners. The structure was designed to ensure that all the principals of the business were accountable for the firm’s work and that of their fellow partners.
Last November, when San Francisco effectively banned McDonald’s Happy Meals, we wondered what it would try to ban next. The answer? Circumcisions. From the AP:
A group seeking to ban the circumcision of male children in San Francisco has succeeded in getting their controversial measure on the November ballot, meaning voters will be asked to weigh in on what until now has been a private family matter.
City elections officials confirmed Wednesday that the initiative had received enough signatures to appear on the ballot, getting more than 7,700 valid signatures from city residents. Initiatives must receive at least 7,168 signatures to qualify.
If the measure passes, circumcision would be prohibited among males under the age of 18. The practice would become a misdemeanor offense punishable by a fine of up to $1,000 or up to one year in jail. There would be no religious exemptions.
Next Tuesday, May 24, SuperFreakonomics will finally be published in paperback in the U.S. It has already sold more than half a million copies in hardcover in the U.S. (with more than 1 million sold worldwide), and the Illustrated Edition has gone bananas too. The paperback cover, as you can see here, is not much of a departure from the hardcover.
The book itself has some key additions: a 16-page color insert with illustrations, photos, etc. from the Illustrated Edition; an author Q&A (which you helped write); a transcript of the first Freakonomics Radio podcast (“The Dangers of Safety”); and a pair of essays by Levitt and Dubner about what their fathers taught them.
We should probably give away a bunch of copies of the new edition, yes?
Economists may think there’s nothing for them on Etsy, the website that sells handmade and vintage arts and crafts items, usually made by grandmas or some overeducated Brooklyn mom. But they would be wrong. Dork out with these statistical distribution pillows: Log Distribution? Continuous Uniform? Even Chi-Square! It’s all here. And it also turns out, Normal Distribution makes a really good doorstop…
(HT: Flowing Data)
A new study (abstract here; description here) proves what many of us already suspected: musicians have more highly-developed brains than the rest of us. The research relates to the concept of high mind development, which is basically the potential to become really good at something.
New research shows that musicians’ brains are highly developed in a way that makes the musicians alert, interested in learning, disposed to see the whole picture, calm, and playful. The same traits have previously been found among world-class athletes, top-level managers, and individuals who practice transcendental meditation.
Do children behave like adults? Do they make economic decisions the same way we do?
That’s what German economist Martin Kocher has set out to determine. He’s collecting data to measure the utility curves of kids from 7-18 years old, in order to draw some conclusions about children’s attitudes toward risk, time and trust. Playing simple economic games, such as the ultimatum game and various public good games, he measured their risk and time preferences. The experiments were conducted with real money, because “incentivizing kids with money makes it a real decision for them” says Kocher.
From the Soapbox Science blog on Nature.com, here’s an interesting piece by risk consultant David Ropiek on the ways in which we perceive and react to risk. His basic thesis is that our interpretation of risk is almost always subjective rather than fact-based, which gets us into trouble.
We worry about some things more than the evidence warrants (vaccines, nuclear radiation, genetically modified food), and less about some threats than the evidence warns (climate change, obesity, using our mobiles when we drive). That produces what I have labeled the Perception Gap, the gap between our fears and the facts, which is a huge risk in and of itself.
A Walmart in Cleveland that’s more selective than Harvard. Deep budget cuts to “transform” scientific research in the UK. Japan cancels plans for more nuclear reactors. Sergey Brin says only 20% of Google employees use Windows. The Atlantic agrees with Levitt about Groupon.
According to a new study published in the medical journal Human Reproduction, there is a magic number of eggs for successful in-vitro fertilization: 15. Analyzing more than 400,000 IVF cycles in the U.K., the study found that:
There was a strong association between the number of eggs and LBR (live birth rate); LBR rose with an increasing number of eggs up to 15, plateaued between 15 and 20 eggs and steadily declined beyond 20 eggs. … The results showed a non-linear relationship between the number of eggs and LBR following IVF treatment. The number of eggs to maximize the LBR is 15.
Steve Levitt has a new working paper: “The Role of Skill Versus Luck in Poker: Evidence from the World Series of Poker,” with University of Chicago colleague Thomas J. Miles.
Using data from the 2010 World Series of Poker, Levitt and Miles found that high-skilled players earned an average return on investment of over 30 percent, whereas all other players averaged a 15 percent loss. This finding has serious implications on the legality of online poker, as that debate is heavily dependent on whether the game is based on skill or luck.
What happens when you match two guitar-playing economics students and a deep recession? Recession Sessions, an entire album of economics-themed songs by Ryan Stotland and Kyle Thompson-Westra, a.k.a. The Bull and the Bear. The two met at Tufts and now make music in the “financial folk” genre, with songs including “Central Banker’s Dilemma” and “Main Street Venting Blues.” Here are a few lines from “Dear Fiscal, Love Monetary”:
We’ll always be the heads of our nation
Can’t you see the way we killed stagflation
I never ever thought that I’d have this much fun
As when I watched you bring the rate down to one
We’re quite fond of Bill James in these parts. The baseball-stats guru and sabermetrics pioneer brought a level of scientific analysis to baseball that has changed the game. He’s appeared on this blog a number of times, including a Q&A in which he fielded your baseball questions. So you might be interested to know that James is now trying his hand at another field: crime writing. And he brings to it the same scientific zeal.
What’s next in public transportation? Urban gondolas? The most expensive textbook ever. Osama Bin Laden on InTrade: you could have made a fortune. Maybe. Someone actually yelled “Stop the Presses” in 2011. The real reason machines and the internet won’t replace secretaries. Space shuttle launch delay has a big price tag.
A new study of capital sentences handed down in first degree murder cases finds evidence of racial bias against minority defendants who killed white victims. The study (abstract here; pdf here) was conducted by Harvard economist Alberto Alesina and Eliana La Ferrara of Universita’ Bocconi. It finds that for sentences handed down to minority defendants convicted of killing white victims were as much as 9 percent more likely to be reversed than in cases involving a minority defendant killing a minority victim. The study examined the race of the defendant and of the victim(s) for all capital appeals that be came final in the U.S. between 1973 and 1995.
We’ve written about prostitution more than a few times on this blog, and in SuperFreakonomics, we devoted an entire chapter to the economics of prostitution. Now comes an interesting bit of new academic research from India that draws similar conclusions: once you put aside your moral views, it’s not hard to see that entry into the profession is driven by salary and career options.
There’s a growing sentiment among economists that GDP is a poor measure of a country’s well-being. (See our recent podcast on the topic; also, the research of Joseph Stiglitz.) The latest fad among European governments seeking to separate the overall health of citizens from sluggish economic data is to ask them if they’re happy. The results aren’t exactly encouraging. Less than half of British adults feel they are thriving. And France now ranks as the world’s most pessimistic country, with only 15 percent saying they expect things to get better in 2011.
A new Census report finds that for the first time, more women in the workforce have bachelor’s degrees than men (37 percent vs. 35). Women are gaining on the education front in general: for ages 25 to 29, 36 percent of women had a bachelor’s or advanced degree versus 28 percent for men. Women were also slightly more likely to have a high school diploma than men: for age 25 and above, it’s 87.6 percent versus 86.6 percent.
You want to listen to Freakonomics Radio? That’s great! Most people use a podcast app on their smartphone. It’s free (with the purchase of a phone, of course). Looking for more guidance? We’ve got you covered.
Stay up-to-date on all our shows. We promise no spam.
