Markets and Fairness

Markets and Fairness

Research from Daniel Kahneman’s book Thinking Fast and Slow may help explain some of the anger and anti-capitalism sentiment that has cropped up in the United States in the last several years. Senator Bernie Sanders is incredibly popular among a segment of the population and he is not afraid to categorize himself as anti-capitalist and as a socialist to a degree that would have been unthinkable just a decade ago. From my perspective, many people feel that they have been treated unfairly by markets, and this lack of fairness contributes to the Sanders support, especially among young people.

 

Kahneman’s writes, “a basic rule of fairness, we found, is that the exploitation of market power to impose losses on others in unacceptable.”

 

My experience is that people are feeling the forces of market power in many different areas, and becoming discontent with their own economic standing and with feeling as though they are being treated unfairly by large market players. It may be that most people can still afford to buy more than what they need and to live comfortably, but on a daily basis they are faced with a barrage of unfair market practices. There may not be anything legally wrong with a market practice, and the market practice may be adjusting for real value rather than just collecting rents, but nevertheless, the exploitation of market power still feels unfair.

 

I spend a lot of time thinking about healthcare in the United States, and for many years the costs of healthcare and health insurance has risen much quicker than employee wages. With employees feeling their wages stagnate, unfair exploitation of market power can become a major outrage. This has been seen with drug prices as some individuals and companies have specifically targeted pharmaceutical mergers and acquisitions with the intention of increasing drug prices. Some medications have risen dramatically in price at the same time that many deductibles for health plans have shot up beyond the savings levels of most Americans. Even though a drug may provide an incredible value like saving a life or dramatically improving the quality of a life, an increase in price while wages stagnate feels deeply unfair to people. This could be a basis for our discontent with markets and capitalism (at least on the healthcare front), and a source of support for Bernie Sanders and his socialism lean.

 

When I think about it, I see this type of market exploitation beyond the world of healthcare. Ice cream cartons continually get smaller, the fun-sized candy is a depressingly small size now, good quality razors seem to be unreasonably costly with the cheap alternatives being effectively useless. Outside of smartphones, most markets seem to be providing less value for higher costs, and it is not hard to understand the frustrations that so many people may feel with markets and market solutions, even if they can still afford to live a comfortable lifestyle. For any given firm, exploiting market power is a rational and reasonable thing to do, but for customers, this adds up to an untenable sensation of loss, and a deep feeling that markets are unfair and should not be trusted. In a global market sense, it is as if we face a universal tragedy of the commons problem, but instead of a habitable grazeland being decimated, it is our economic wellbeing that is destabilized as each player in the market flexes more market power to impose marginal losses on each consumer.
Teamwork Contributions

Thinking About Who Deserves Credit for Good Teamwork

Yesterday I wrote about the Availability Heuristic, the term that Daniel Kahneman uses in his book Thinking Fast and Slow to describe the ways in which our brains misjudge frequency, amount, and probability based on how easily an example of something comes to mind. In his book, Kahneman describes individuals being more likely to overestimate things like celebrity divorce rates if there was recently a high profile and contentious celebrity divorce in the news. The easier it is for us to make an association or to think of an example of a behavior or statistical outcome, the more likely we will overweight that thing in our mental models and expectations for the world.

 

Overestimating celebrity divorce rates isn’t a very big deal, but the availability heuristic can have a serious impact in our lives if we work as part of a team or if we are married and have a family. The availability heuristic can influence how we think about who deserves credit for good team work.

 

Whenever you are collaborating on a project, whether it is a college assignment, a proposal or set of training slides at work, or keeping the house clean on a regular basis, you are likely to overweight your own contributions relative to others. You might be aware of someone who puts in a herculean effort and does well more than their own share, but if everyone is chugging along completing a roughly equivalent workload, you will see yourself as doing more than others. The reason is simple, you experience your own work firsthand. You only see everyone else’s handiwork once they have finished it and everyone has come back together. You suffer from availability bias because it is easier for you to recall the time and effort you put into the group collaboration than it is for you to recognize and understand how much work and effort others pitched in. Kahneman describes the result in his book, “you will occasionally do more than your share, but it is useful to know that you are likely to have that feeling even when each member of the team feels the same way.” 

 

Even if everyone did an equal amount of work, everyone is likely to feel as though they contributed more than the others. As Kahneman writes, there is more than 100% of credit to go around when you consider how much each person thinks they contributed. In marriages, this is important to recognize and understand. Spouses often complain that one person is doing more than the other to keep the house running smoothly, but if they complain to their partner about the unfair division of household labor, they are likely to end up in an unproductive argument with each person upset that their partner doesn’t recognize how much they contribute and how hard they work. Both will end up feeling undervalued and attacked, which is certainly not where any couple wants to be.

 

Managers must be aware of this and must find ways to encourage and celebrate the achievements of their team members while recognizing that each team member may feel that they are pulling more than their own weight. Letting everyone feel that they are doing more than their fair share is a good way to create unhelpful internal team competition and to create factions within the workplace. No professional work team wants to end up like a college or high school project group, where one person pulls and all-nighter, overwriting everyone else’s work and where one person seemingly disappears and emails everyone last minute to ask them not to rat them out to the teacher.

 

Individually, we should acknowledge that other people are not going to see and understand how much effort we feel that we put into the projects we work on. Ultimately, at an individual level we have to be happy with team success over our individual success. We don’t need to receive a gold star for every little thing that we do, and if we value helping others succeed as much as we value our own success, we will be able to overcome the availability heuristic in this instance, and become a more productive team member, whether it is in volunteer projects, in the workplace, or at home with our families.
Rivalry Results in Strife

Rivalry Results in Strife

“Rivalry results in strife,” writes Seneca in Letters From a Stoic. A quick Google search of strife gives us the definition:
angry or bitter disagreement over fundamental issues; conflict. Rivalry heightens our disagreements, it clouds our judgments, and creates enemies who will oppose us. When we give in to rivalrous forms of thinking, we compare ourselves, our power, our social status, and our possessions to others, and we also make ourselves vulnerable to others.

 

Seneca explains that life is better when we live without too great a concern over our things, our influence, and our power. If we focus on being the best person we can be, on being actively engaged in a meaningful way in the world, and on how we can be there for other people, we will live well and cultivate relationships instead of rivalries. Focusing instead on what we own and how many people know our names puts us in competition with others. It creates mini rivalries between us and other people who could instead be friends and allies. It creates the conditions for disagreements and struggles for dominance and assertion. Struggles that are often meaningless and harmful to all those involved.

 

Instead of actively castigating others and pushing against anyone we disagree with, Seneca would encourage us to live on our own path. He would encourage us to define ourselves without material possessions, without important titles, and without power. All of those can be taken from us, especially in the face of a bitter adversary. Creating a life that is dependent on the few things we realistically can control (like the faculties of our mind and our kindness toward others) gives us a foundation that can’t be taken away by enemies or rivals.

 

This is not to say that we should treat those who would otherwise be our rivals with undue respect. We should acknowledge them, interact with them, and respectfully disagree with them when necessary. We should not actively avoid them in all respects, or we will inadvertently create the rivalries that we are hoping to avoid. We should work with such people when necessary, and strive for ways to have healthy conversations and compromises where necessary. We must build relationships even with those we dislike, otherwise we risk creating polarized camps which devolve to strife, where everyone loses through rivalry, competition, and argument.

Different Angles

In his book How to Win Friends and Influence People, Dale Carnegie quotes Henry Ford on seeing things from another person’s perspective: “If there is any one secret of success, it lies in the ability to get the other person’s point of view and see things from that person’s angle as well as from your own.” 

 

I am fascinated by the mind, our perception of the universe, and how we interpret the information we take in to make decisions. There is so much data and information about the world, and we will all experience that information and data in different ways, and our brains will literally construct different realities with the different timing and information that we take in. There may be an objective reality underlying our experiences, but it is nearly impossible to pinpoint exactly what that reality is given all of our different perspectives.

 

What we can realize from the vast amount of data that is out there and by our limited ability to take it all in and comprehend it is that our understanding of the universe is woefully inadequate. We need to get the perspectives of others to really understand what is happening and to make sense of the universe. Everyone will see things slightly differently and understand the world in their own unique way.

 

Carnegie’s book addresses this point in the context of business. When we are trying to make a buck, we often become purely focused on ourselves, on what we want, on how we think it is best to accomplish our goals, and on the narrow set of things that we have identified as necessary steps to get from A to B.

 

However, we are always going to be working with others, and will need the help of other people and other companies to achieve our goals. We will have to coordinate, negotiate, and come to agreement on what actions we will all take, and we will all bring our own experiences and motivations to the table. If you approach business thinking purely about what you want and what your goals are, you won’t be able to do this successfully. You have to consider the perspectives of the other people that you work with or rely on to complete any given project.

 

Your employees motivation will be different than the motivation of the companies who partner with you. Your goal might be to become or remain the leader in a certain industry, but no one cares if you are the leader in your space. Everyone wants to achieve their own ends, and the power of adopting multiple perspectives helps you see how each unique goal can align to compound efforts and returns. Remember, your mind is limited and your individual perspectives are not going to give you the insight you need to succeed in a complex world. Only by seeing the different angles with which other people approach a given problem or situation can you successfully coordinate with and motivate the team you will be working with.

Recognize Your Thinking When You Are Displeased

A great challenge for our society is finding ways to get people to think beyond themselves. We frequently look for ways to confirm what we already believe, we frequently think about what we want and, and we frequently only consider only ourselves and how things make us feel in the present moment. Shifting these mindsets in the United States is necessary if we are going to find a way to address major problems that impact the lives of every citizen, and in some cases impact the entire globe.

 

In his book How to Win Friends and Influence People, Dale Carnegie provides advice for people who want to better connect with others and have a greater impact with their lives. We are social creatures, and understanding how to improve our social connections with others is important if we want to be successful, take part in meaningful activities, and enjoy living with other people. Early on in the book, he provides a warning about how we will often fall short of the advice he recommends in the following chapters.

 

“You will probably find it difficult to apply these suggestions all the time. … For example, when you are displeased, it is much easier to criticize and condemn than it is to try to understand the other person’s viewpoint; it is frequently easier to find fault than to find praise; it is more natural to talk about what you want than to talk about what the other person wants; and so on.”

 

Remembering these points where our minds go astray is important if we want to avoid them. Most people probably won’t systematically make an effort to be considerate and to change their behavior towards others, but for those who do want to improve their social interactions and create new companies, groups, and social events that bring people together, remembering the points that Carnegie highlights as potential failures for being more considerate are important.

 

First, when we are upset or displeased with something, we will simply condemn others. However, a more constructive approach to improve the situation and treat the other person with more respect is to think about and try to understand why they did what they did and how they understand the world. We might not agree with their decision in the end, but hopefully we can find a point of common humanity from which we can have a better discussion than simply telling the other person who has upset us that they are an awful monster.

 

Second, finding ways to provide others with praise, thinking about what other people want, and understanding their viewpoints helps us have better conversations and develop better relationships. If we are engaging with other people in social endeavors then we will need to cooperate with them and hopefully work with them in some capacity for the long term. This requires that we find ways to motivate, develop real connections, utilize the strengths of others. To do that, we have to think about what others want and what motivates them. Allowing ourselves to be self-centered prevents us from doing this, and will lead to us criticizing those who we think fail to measure up, and ultimately won’t help us build great things. Thinking about the ways that our minds default toward this negativity will help prepare us to be more considerate and help us drive toward better outcomes for ourselves and our society.

Segregation of Trust and Opportunity

“Very often the United States deals with its problems by sending them away to a different part of the country or a different part of town or, saddest of all, by sending them to jail,” writes Tyler Cowen in The Complacent Class. Cowen addresses our problems of segregation and incarceration in his book and looks at the strange reality in the United States where we have several booming metropolitan economies across the country and regions with high trust, cooperation, and philanthropy, but nevertheless we lead the world in the number of people incarcerated. Cowen sees our incarceration problem and this split between productivity and apparent moral/social failure as a consequence of American complacency in our modern age.

 

He writes, “Alexis de Tocqueville originally visited the United States to study its prison system, noting that [i]n no country is criminal justice administered with more mildness than in the United States. That has not been the case for some time.” We arrest a large number of people, many of whom have had high exposures to lead, have mental illnesses that have not been diagnosed, or have been implicated in implicit bias. Rather than confronting difficult realities and striving to improve society for those of us who are the worst off, there are some senses in which we have chosen to jail those of us who fall short rather than striving toward a better society.

 

“Cooperation is very often furthered by segregating those who do not fit in. That creates some superclusters of cooperation among the quality cooperators and a fair amount of chaos and dysfunctionality elsewhere.”

 

Complacency is taking the challenges and the hard parts of life and society and putting them in a box. We take the people who have failed, those who were not brought along through progress and development (often due to explicit exclusion), and set them aside. We physically locate them in prisons, run away from them to suburbs, or push them out of the downtown spaces we want to revitalize. Rather than working with these individuals and figuring out how we can help them connect with our globalized economy to find a way to be productive and engaged in the world, we shut them out and ignore them.

 

Cowen complains that we have lost a sense of betterment. We don’t believe we can solve big problems anymore, and instead of trying, we burrow into our own niches and push aside those who don’t fit with the narrow vision we want to realize. To get beyond this complacency requires inclusionary thinking that asks big questions about making the world better for everyone as opposed to just making ourselves better. Complacency segregates and ignores while the ambition we need to jump-start productivity acknowledges, innovates, and includes.

Cogoverning

A key aspect of new localism, as described by Bruce Katz and Jeremy Nowak in their book The New Localism, is cooperative governance. The national government and many state governments today are characterized and plagued by partisan gridlock, however local governments are able to function and get beyond gridlock through principles of new localism. Cogoverning is a term that the authors use to describe the new system of governance that is in action at city and metropolitan levels across the nation today, and that seems to be able to help communities thrive in a globalized world.

 

The authors write, “Cogoverning also helps explain why New Localism is nonpartisan. The regular engagement of business, civic, and academic leaders elevates pragmatic thinking and commonsense discourse and crowds out the inflammatory rhetoric associated with partisanship and ideology. This creates a healthy group psychology that rewards creative tinkering (the essence of problem solving) rather than obstructive action (the essence of partisanship). Localities, in other words, engender group innovation; legislatures reward groupthink.”

 

At a local level, our common interests are more clear. We can more clearly see that a rising tide in our city or metro will lift all boats, and we can get on board to make big advances. Having the leaders of businesses, civic groups, and academic research facilities coordinate together helps bring elements that might normally oppose each other and cause friction into alignment to GSD (get shit done). On a national level, we lose our common interest, and we revert to a form of tribalism where we look for the group that reflects our identity, and lose an ability to GSD as we become recalcitrant partisans, only favoring legislation if we gain without the possibility of a loss.

 

A key distinction at the local level between new localism and business-as-usual is that new localism brings together leaders from different arenas. It is not just a single business leader who dominates or a single industry that holds the loudest voice. Placemaking requires the input of people living in the place, and it requires that those with money and authority also work with those who can bring a civic perspective and cultivate local support for initiatives. By incorporating these voices and working together, business leaders can find new innovative solutions to problems that will actually be supported and aligned with the spirit and interests of the local community. Creative tinkering cannot be a top-down process that is guided by business and government agencies alone, it requires a bottom-up element that incorporates the desires and values of the local population. New localism incorporates this bottom-up element in a constructive way, by bringing the top leaders of organizations and groups together in structures and situations that demand decision-making and not just deliberation.

Factionalized

“Whenever and issue becomes factionalized,” write Kevin Simler and Robin Hanson in The Elephant in the Brain, “framed as Us against Them, we should expect to find ourselves behaving more like an apparatchik competing to show loyalty to our team.”

 

The human mind is exceptionally good at creating in-group and out-group perspectives. There are Ford Drivers versus Chevy Drivers. Raiders fans versus non-Raiders fans. Runners versus cross-fitters. Country folk versus urbanites. For whatever reason, we have a tendency to look for division across many areas of our lives, even when those areas are completely meaningless and inconsequential. Naturally, we assign good qualities to the groups that we belong to, and we start to assign all kinds of negative qualities and traits to the out-groups to which we don’t belong.

 

There is no meaningful difference between Ford and Chevy trucks, but talk to a guy who just bought a new truck and they will explain all about the positive qualities of their truck and people like them who buy their particular brand of truck. There is no way they could ever buy the other brand of truck and it is not a long jump for them to describe people who do buy other brands to be described as dumb, lazy, or lacking taste.

 

In politics we see this behavior the most clearly. When a president or party leader raises a particular item on the agenda and states that something is very important to them, the party loyalists (the apparatchiks) will instantly congeal to their opinion. The opposing party, meanwhile, will align themselves staunchly against the other party and their opinions. Any middle ground will get gobbled up by our in-grouping and out-grouping. This trickles down to the public and we don’t think deeply about issues, but simply recognize which line we are supposed to adopt to be on the correct team.

 

In the world of politics this can have disastrous consequences. In our personal lives, the stakes are not as high, but the consequences can still be ugly and should be pushed against. There is no reason to be pressured into feeling that you can or cannot eat something simply because people who are not like you also enjoy (or dislike) eating that thing. There is no reason our vehicle purchasing decision needs to be influenced by these meaningless groups that we create. We can take these pressures off our shoulders and try to be more connected with all people, not just with a small group that has something in common with ourselves. If we do better at recognizing these biases and pushing against them, then maybe we can build up to having more constructive relationships and build more cooperation into high stakes environments like politics.

Prestige

Yesterday I wrote about using dominance to gain status by intimidating, bullying, and bulldozing ones way to prominence. Driving people’s fears, pushing them to submission and capitulation, and using others to attain what you want are part of the strategy for dominance. While dominance may increase an individual’s status, it is not a great approach for a larger society that needs to operate well together.

 

Prestige is an alternative form of status seeking behavior that seems like it may help societies mesh together better. As Kevin Simler and Robin Hanson write in The Elephant in the Brain, Prestige, however, is the kind of status we get from doing impressive things or having impressive traits-think Meryl Streep or Albert Einstein. Our behavior around prestigious people is governed by approach instincts. We’re attracted to them and want to spend time around them.”

 

We can certainly have problems with prestige, in the forms of celebrity worship and out of control egos, but the authors argue that our prestige desire is part of what drives humans and progress forward. With our large brains and political societies, we want to develop status not by just dominating others, but by showing that we can do difficult and complex things. That we have the resources necessary to spend our time, energy, and attention on things that would otherwise be trivial or meaningless to a hunter/gatherer’s survival.

 

Our art work is impressive, even if it is not that useful. Developing the iPhone is certainly useful, but it is also a hard thing that requires insight, creativity, and persistence, skills that are hard to display unless you do something unique and challenging. We want to associate with the people who attain prestige because they demonstrate qualities helpful allies that may benefit us in the future. Obviously, if we are of the opposite gender, then mating with these high prestige individuals will help us ensure that the genes we pass along also receive some of the status benefits from our mate’s prestige, helping them find more allies for more help further off in the future. Prestige seems to encourage the things that helps society stick together and be successful in a world where we may otherwise have just preferred to bulldoze our way over others to take what we want directly by force.

The Challenge of Trying to Enlarge the Pie

I often feel that we are moving so fast toward the future that we are advancing beyond our means. I think we are in some ways exceeding the capacity that we have evolved to fit, and this is creating great challenges for humans across the globe. We have new technologies, new social structures, and new understandings of our places in the world and in the universe more broadly that exceed the type of living that we evolved to succeed within.

 

A passage from Kevin Simler and Robin Hanson’s book The Elephant in the Brain highlighted this for me. They write, “Despite the fact that it’s possible to cooperate, politically, in ways that “enlarge the pie” for everyone, this is the exception rather than the rule – especially for our distant ancestors. In most contexts, for one coalition to succeed, others must fail. Importantly, however, members within a coalition can earn themselves a larger slice of the pie by cooperating – a fact that makes politics such an intoxicating game.”

 

The line about our ancestors being incapable of expanding the pie for everyone is important. Without much technology, without shared languages and translation, and in a state of constant threat from nature, it is easy to see why our early ancestors were limited to a state of competition with each other for social status, sex, and resources. There simply were too few humans, too few easily accessible resources, and too few scalable technologies for everyone to be sufficiently comfortable and connected.

 

We now live in a new world, where literally 7.5 million people in the San Francisco metropolitan statistical area are constantly thinking about ways to build new technology to scale to improve the lives of all people, not just the people they are connected with. We understand that our actions can have global manifestations, and that we need global solutions to address climate change and other existential threats. Our technology and ways of thinking have surpassed the world our ancestors lived in, and have created a new game for us to play, however, we are still stuck in the zero-sum mindset of our ancestors, asking what we can do to get a bigger share of the pie for our narrow coalition.

 

Understanding why we fall into thinking about narrow coalitions is important. Recognizing the way our brains work and why they are limited helps us see new potentials. Understanding how we can change our thoughts and how we and others will react in a world that offers so much more is key to actually living up to our new potential as a global species.