Tag Archives: Money

Chapter 3 – Fairness and Inequality: What Money Can[‘t] Buy, Part 3

It’s been a couple of weeks since I last finished a chapter in Michael Sandel’s book, What Money Can’t Buy. I recently completed chapter 3 a couple of nights ago and there were some intriguing things to think about. Let’s get right to it!

For me, there were two important parts to the chapter. The first is the explanation of the two objections to markets. Prof. Sandel explains that the two kinds of objections to markets are fairness and inequality:

The fairness objection points to the injustice that can arise when people buy and sell things under conditions of inequality or dire economic necessity. According to this objection, market exchanges are not always as voluntary as market enthusiasts suggest… [The corruption objection] points to the degrading effect of market valuation and exchange on certain goods and practices. According to this objection, certain moral and civic goods are diminished or corrupted if bought and sold. [Emphasis added]

A few pages later, Prof. Sandel explains further what he means:

The fairness and corruption objections differ in their implications for markets: The fairness argument does not object to marketizing certain goods on the grounds that they are precious or sacred or priceless; it objects to buying and selling goods against a background of inequality severe enough to create unfair bargaining conditions… The corruption argument focuses on the character of the goods themselves and the norms that should govern them. So it cannot be met simply by establishing fair bargaining conditions. [Emphasis added]

Reading this was a bit tough to swallow. It seemed unlikely that all arguments against markets could be filtered into one of two categories. Then, I thought about his course that I watched last year, “Justice,” and how many of the students seemed to want to argue for nuance around the edges. While there was still nuance, the arguments they put forth still, for the most part, seemed to fall into a way of thinking that had already been espoused by a philosopher.

Later in the chapter, Prof. Sandel discusses three cases where the marketization of a good crowds out nonmarket norms. That was a bit wordy. Prof. Sandel shares cases where adding a market-like aspect (where there previously wasn’t), changed the way people interacted with the good. One of these cases I found particularly surprising (at least at first).

The case comes from Switzerland in the early 1990s. The country was looking for a place to store its nuclear waste. Of course, no town really wanted to house the nuclear waste, but there was a small village that was picked. Some economists surveyed the village to see if they’d accept it, if the Swiss parliament decided that it was the place to put the waste. Fifty-one percent of residents said they’d accept it. The economists then asked another question. If the parliament also paid each resident, would you then accept it? The idea being that, money is the king incentive for everyone, so adding money to this equation should only get more people accepting of the waste, right? Wrong. By adding the monetary sweetener, support collapsed from 51% to 25%! Even when they added more money, that didn’t seem to affect the outcome. Why?

For many villagers, willingness to accept the nuclear waste site reflected public spirit — a recognition that the country as a whole depended on nuclear energy and that the nuclear waste had to be stored somewhere. If their community was found to be the safest storage site, they were willing to bear the burden. Against the background of this civic commitment, the offer of cash to residents of the village felt like a bribe, an effort to buy their vote.

This seemed like an incredible story with an important lesson — money isn’t always the solution. There were two other examples, but none that were as powerful for me as this one.

~

The second important part of this chapter is the explanation of the “two tenets of market faith”:

The first is that commercializing an activity doesn’t change it. On this assumption, money never corrupts, and market relations never crowd out nonmarket norms… The second tenet of market faith is that ethical behavior is a commodity that needs to be economized. The idea is this: we should not rely too heavily on altruism, generosity, solidarity, or civic duty, because these moral sentiments are scarce resources that are depleted with use. [Emphasis added]

Prof. Sandel already showed earlier in the chapter that money can crowd out nonmarket norms. After this above quoted section, he goes on to show that things like altruism and generosity are not scarce resources and that they are not depleted with use. In fact, it’s quite the opposite. Fields like positive psychology have done research on these areas and shown that there’s almost a multiplier effect with things like altruism and generosity.

If you liked this post, you might like one of the other posts in this series:

 

Chapter 1 – When is it OK to Jump the Line: What Money Can[‘t] Buy, Part 1

I recently read a post from somewhere (I want to say that it was Farnam Street or Barking Up The Wrong Tree, but I’m not sure), that talked about “how” to read. That is, the essential point was that most of us don’t remember most of the things that we read. Instead, we read them and forget about them. To rectify this, the research shows that we need to engage with each chapter to really register the material with our memory. So, I thought what better way to experiment with this than to start a new series!

One of the books that I’ve started reading: What Money Can’t Buy. I already wrote something a few weeks ago about a passage from the introduction. Let’s call that the prelude or maybe the foreword? Today, however, I’m going to share thoughts on Chapter 1. In the coming weeks/(months?) I’ll share thoughts on the remaining chapters when I finish reading them.

The first chapter was all about jumping the queue. When is it fair to jump the line? Is budding never fair? There were some intriguing examples put forth about some people who purchase the services of people who are ‘handicapped’ to be their tour guide when they go to amusement parks, so that they can head straight to the front of the line. Is that ethical?

What about those towns/counties/states that allow cars to purchase stickers that permit them to drive in the carpool lane even though they’re driving solo? Is that ethical? How about doctors that sell their services to the highest bidder?

The first chapter was a good introduction to differences between markets and queues. I don’t know that I have anything profound to say about the first chapter, but some examples sure made me think about what I thought was right and wrong and what other people might think is right and wrong. It reminded me of Kohlberg’s stages of moral development. I wondered how people who were at different stages might react differently to the perceived injustices.

If I had to summarize chapter 1, it’d be that some “goods” are better suited for markets and others are better suited for queues. Though, I don’t know that it’s easy to tell the difference. That seems to depend on the person and the person’s philosophical bent. I presume that in future chapters, Sandel might help guide us to a solution.

What Money Can[‘t] Buy – Everything and Nothing

Now that the semester has concluded, I can get to some of the reading that I have put off for some time. One of the books I’ve been excited to read for a while, but wanted to wait until I had time to chew over the issues discussed is a book by Professor Michael Sandel: What Money Can’t Buy. I’ve previously talked about how much I enjoyed Prof. Sandel’s online course “Justice.” This is part of the reason I was excited to read his latest book. I just picked it up from the library yesterday and have already zoomed through the introduction. Here’s an excerpt that I thought was particularly on point for the subject:

If the only advantage of affluence were the ability to buy yachts, sports cars, and fancy vacations, inequalities of income and wealth would not matter very much. But as money comes to buy more and more — political influence, good medical care, a home in a safe neighborhood rather than a crime-ridden one, access to elite schools rather than failing ones — the distribution of income and wealth looms larger and larger. Where all good things are bought and sold, having money makes all the difference in the world. (p. 8).

There are certainly going to be other passages that I’ll want to talk about, so look for other posts on this book in the coming weeks/months.

Ignore Sunk Costs: List of Biases in Judgment and Decision-Making, Part 1

It can be really fun to write a series of posts on a particular topic. By my count, I’ve done this at least seven times so far. Today, I’d like to start what I hope will be an oft-read series on biases in judgment and decision-making (to some, cognitive biases). Because of my background in psychology and my interest in decision-making, I thought it would be wise to share with you the things that I’ve learned either through the classes I’ve taken (the classes I’ve taught!) or the research I’ve read. With each bias, my goal is to explain the bias and offer some possible avenues for not falling into the trap of the bias. Today, we start with one of the big ones: the sunk cost fallacy.

Sunk costs are those costs that have already happened and can’t be recovered. For instance, let’s say you buy an apple and bite into it. The money you used to buy that apple can’t be recovered — it’s a sunk cost. Now let’s say the apple doesn’t taste very good (maybe it’s inorganic). You might say, ‘well, I’ve already paid for the apple, so I might as well eat it.’ NO! That’s the sunk cost fallacy! Just because you’ve already bought the apple and paid for it, doesn’t mean you have to eat it. If it tastes bad, by golly, don’t eat it!

That’s a rather basic example of the sunk cost fallacy, so let’s look at one that might seem a bit more applicable. Sunk costs often come into the fray when they’re contrasted with future costs. Let’s say you’ve bought a subscription to a newspaper or a magazine. Because of your subscription, you get a discount when it’s time to renew your subscription. Now, let’s say that in that year of your subscription, you discovered that there was another newspaper/magazine that you preferred (maybe The Economist?). When it comes time to renew your subscription, you look at the two options to either subscribe to The Economist or continuing with your other subscription. You find out that the discounted price for your current newspaper/magazine will be the same price as The Economist. You say to yourself, “well, I’ve already subscribed to this newspaper and spent so much money on it, so I might as well keep subscribing to it.” NO! That’s the sunk cost fallacy. The money you’ve spent on the subscription for the other newspaper/magazine can’t be recovered! You can’t get it back. As a result, it shouldn’t affect the decision you make now about whether to choose it or The Economist

There’s one more quick example that I want to highlight: war. From a paper by a professor at Princeton:

The United States has invested much in attempting to achieve its objectives. In addition to the many millions of dollars that have been spent, many thousands of lives have been lost, and an even greater number of lives have been irreparably damaged. If the United States withdraws from Vietnam without achieving its objectives, then all of these undeniably significant sacrifices would be wasted. [Emphasis added]

Pay particular attention to that last sentence. That is the sunk cost fallacy in action.

Ways for Avoiding the Sunk Cost Fallacy

So, now that we’ve looked at the sunk cost fallacy, how can we avoid it? Well, the first step in avoiding the sunk cost fallacy is recognizing it. Hopefully, the above examples have given you an idea of how this bias can arise. There are a two other ways I want to highlight that you can use to avoid this trap.

1) What am I assuming?

The crux of the sunk cost fallacy is based on an assumption. That is, you’re assuming that because you’ve already spent money on X, that you should keep spending money on X. If you look at what it is that you’re assuming about a situation, you just might find that you’re about to step into the sunk cost trap.

2) Are there alternatives?

Related to the above example is alternatives. You’re not bound to a decision because you’ve made a similar decision in the past. Just because you bought the ticket to go to the movie, if another activity presents itself as more enticing, you’re allowed to choose that one instead. In fact, if when you sit down to watch the movie, it’s bad, you’re allowed to get up and walk out. Don’t fall into the sunk cost trap thinking that you have to stay because you paid for it. There are any number of things you could be doing: going for a walk, calling an old friend, etc.

Wealth Distribution in America: It’s Not What Americans Think or Want

There were some interesting enlightening findings published last year from two well-respected researchers (Norton and Ariely) on the topic of wealth distribution. I remember seeing it last year when it came out and it being rather startling. I came across it again a couple of weeks ago and had it bookmarked to see if I could glean any other insights from it. I stumbled across the bookmark this morning and thought I’d post it here, in case any of you had any thoughts you wanted to offer on the research findings.

Specifically, I’m referring to a chart that came from the article the two researchers published and was reproduced by Mother Jones (political magazine). Here’s the chart from Mother Jones (note: the chart from the published journal article is the same in content):

Average Income by Family, distributed by income group.

A bit startling, huh? I find it fascinating that Americans want the top 20% to have ~32% and that they actually have almost triple that much!

Some important things to think about from the authors [emphasis added]:

Given the consensus among disparate groups on the gap between an ideal distribution of wealth and the actual level of wealth inequality, why are more Americans, especially those with low income, not advocating for greater redistribution of wealth? First, our results demonstrate that Americans appear to drastically underestimate the current level of wealth inequality, suggesting they may simply be unaware of the gap. Second, just as people have erroneous beliefs about the actual level of wealth inequality, they may also hold overly optimistic beliefs about opportunities for social mobility in the United States, beliefs which in turn may drive support for unequal distributions of wealth. Third, despite the fact that conservatives and liberals in our sample agree that the current level of inequality is far from ideal, public disagreements about the causes of that inequality may drown out this consensus. Finally, and more broadly, Americans exhibit a general disconnect between their attitudes toward economic inequality and their self-interest and public policy preferences, suggesting that even given increased awareness of the gap between ideal and actual wealth distributions, Americans may remain unlikely to advocate for policies that would narrow this gap.

The ironic piece to this entire discussion is that conservatives and liberals agree that the level of inequality is ideal. However, as with just about everything in politics these days, these two ideologically different groups of people disagree about the best way to resolve it.