Ever wondered why "Jumia Force" faked orders of around €16 million ($17.5 million) in gross merchandise volume (GMV) value between the last quarter of 2018 and the first two quarters of 2019? Or why your bank doesn't care about taking whatever little you have as long as they hit their sales targets?
It likely has to do with what Nassim Taleb wrote about in his book, Skin In The Game. If one has no incentive to protect themselves, they do a lot of things that harm others.
In the above examples both the bankers and the sales agents did not have any incentives to protect themselves, therefore their actions won't come back to hurt them directly, the harm goes to others.
Now, we all don't feel safe with bankers, it's a forced marriage of convenience, we know they don't care about us, but somehow we still need them. They are more interested in taking from us so they can get their bonuses. Contrast that with pilots, we feel safer with pilots, because we know that, if the plane crashes, then the pilot also goes down.
This brings a sense of calm, knowing that the pilot also doesn't want to die. Pilots can be said to have skin in the game.
What the current pandemic and global recession is showing us is that, as a society, incentives are not aligned to risk. It is showing us that, again, people and corporations take crazy risks without bearing the downsides for it, but enjoy all of the upsides.
There are bailouts happening all over the world, corporations who mismanaged funds and systems are getting bailed out, while people lose their jobs. The CEO's will still get their bonuses regardless, as you go down the ladder, the purchasing power of each dollar you hold increasingly goes down. See Cantillon effect(will cover this in another post).
We are seeing lots of cases where companies are publicly donating to relief efforts and at the same time, laying off staff. This is an example of the scenarios I painted above. Even in the time of crisis, they are not truly humanitarian but still looking out for themselves alone. Most of these donations are with the expectations of maybe tax relieves? It doesn't make sense that you get bailed out, make donations and still cut off your workforce. A more beneficial thing to do would have been to keep the staff and not donate.
Once again, people are realizing that we need to build a society where incentives are symmetrically aligned in both positive and negative ways. If as a builder, I build a house that collapses and kills people, then I should be put to death for doing a shoddy job. This way, as espoused by Hammurabi, might seem too extreme but actually works in aligning incentives. The builder does their best job, the client gets a very decent job and both parties are happy.
Hammurabi's code #229
If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.
Take this vs what we have today, in consulting, in construction, in banking, in politics, all over, the downsides are less risky than the potential upsides.
Going back thousands of years ago, when Hammurabi became the King of Babylon in 1792 BC , he instituted laws that were basically replicas of "an eye for an eye, a tooth for a tooth", and I dare say there is no better incentive than avoiding death.
By the time everyone has equal upsides and downsides for every action taken, we will have a better society, a society where everyone optimizes for the best outcomes and even in Black Swan events, the effects don't become too devastating.
Will human greed let us do this?