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When a statistic isn't just a statistic
Like many, I was saddened by the news of the Texas flooding and the girls who were in the path of the engorged river. Natural disasters happen, but they don't always victimize school aged girls at a summer retreat. Yet I mentally filed the disaster in the way I do most disasters: the optimal quantity of flooding deaths is not zero, the odds of something bad happening to somebody somewhere is quite high, children need to do things in the outdoors even if there is some risk. And this framing, while dispassionate, isn't incorrect.
Yesterday, one of the bodies was discovered and identified. She wasn't some no-name in a far-flung state. Her family lives three streets over from mine. Her brother and my oldest daughter were in the same class last year. These are neighbors, and in our close-knit community, something akin to extended family. Suddenly, this feels personal.
A number of years ago, I was teaching my oldest to ride a bike. She was a natural, balancing and peddling within minutes of first riding. Within an hour she was shifting gears, accelerating and decelerating, making turns with adroitness. After several hours of practice in a parking lot I decided she was ready for the hilly streets near our house. Unfortunately, there was one thing I had forgotten to teach her in the flat safety of the parking lot: how to brake. She went down the hill outside our house, increasing in speed and with no ability to stop herself. Finally, she hit the curb and somersaulted into the grass of a yard. Despite the relatively soft landing she was scraped and bleeding over most of her body.
So many things could have gone wrong. She could have hit a car. She could have landed in the street and been flayed by the asphalt.
Life is fragile and can be snuffed out at any moment. The day she crashed her bike I hugged her as tightly as her scrapes would allow. Not all parents are so lucky.
"Lying For Money" is a good book, but this turn of phrase is bad. The optimal quantity of [bad thing] is 0; the question is what trade-offs are optimal, given the available options for reducing bad things.
I disagree. I think the book presents a convincing case that, impossible utopias excepted, a world with no fraud would be worse than a world with some amount of fraud. Some amount of fraud is the price you pay for living in a high-trust society (and all the economic and social benefits that entails); a few iatrogenic deaths is the price you pay for a national healthcare system; a few murders is the price you pay for living in a free society etc.
The ideal or perfect amount of [bad thing] is zero. But we don't live in a perfect world, and it's pointless wasting our time on pie-in-the-sky fantasies of what it would be like if we did. As long as there is division of labour in a scarcity economy, people will need to trust each other to get anything done, and where there is trust there are opportunities for fraud.
Not having read the book, explain this to me? A world with no fraud would have to be a high-trust society, would it not? People are honest, keep their word, and don't exploit loopholes or take unfair advantage of the vulnerable and uninformed. Aren't low-trust societies the ones riddled with fraud and corruption? I'm taking from how you put this that a world without fraud would be a low-trust society, or one so heavily monitored by Big Brother that other freedoms would all be lost.
No, it could be a panopticon. No trust at all, but everything is verified.
That's one way, and the less desirable way, of doing it.
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In the sense of people voluntarily parting with their money or goods in the expectation of being paid back at a later date, no, I think this is a common misconception. You can't defraud someone without an expectation of trust, which means that fraud only happens in societies in which most people are assumed to be trustworthy, which means that bad actors in low-trust societies are forced to resort to cruder methods (theft, armed robbery etc.) to extract money from their victims.
My view was that con artists prey on greed and stupidity, and in a low-trust society there's plenty of people who are greedy and willing to bend the rules, so a shady proposition isn't an immediate turn-off so long as you set it up right: let's you and me profit off this dumb government initiative to give free money to people with curly hair; here's a secret deal that only a few insiders know which will make them hugely rich and you can get in on the ground floor; shoplifting isn't theft, insurance covers it, the big stores expect it and price it in, and besides we're striking back against the big fatcats of capitalism. It's a lot easier to sell "I got this hot tip from my inside contact in the government department" when everyone knows bribery and corruption are what makes the world go round and it's expected that you have to grease palms and give presents to the right people to get anything done.
Then the sucker ends up losing the shirt on his back, because he might have been venal enough to be willing to do something dishonest but he wasn't smart enough to work out some things are too good to be true.
By definition, shoplifting isn't fraud, and hence isn't relevant to this debate.
Part of the entire mindset, though; doing this thing isn't really a crime, it's... [fill in the blanks] and only the sheeple keep the dumb rules.
You seem hellbent on attacking an argument I've never made and a worldview I've never endorsed.
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Contrarily, high social trust societies are notorious for calling for scams a lot- Mormons in particular.
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At a guess: A high-trust world would be singularly susceptible to fraud, since people needn't be on their guard at all. Turning a high-trust world into a zero-fraud world requires extremely invasive surveillance. So zero-fraud implies extreme totalitarianism.
Ricky Gervais even made an obnoxious movie about that.
The only crime of that movie is that it sets up a metaphysical science fiction story that's much more interesting that it with its ending and never delivers on it.
I want to see that world 2000 years in.
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Yes, but then we have to explain how a high-trust world has that many fraudsters. Maybe they don't, maybe it just takes one. But in our conditions, you get a high-trust society by cracking down on fraud, teaching kids that fraud and stealing is bad and that honesty is the best policy (yes, all the old saws), punishing fraudsters when you catch them, instructing people to be vigilant about scams, and the likes.
You don't get a high-trust society by shrugging off "well some people are gonna steal, that's just how it goes". Even less with an attitude that "we need some people to be scammers, else we don't get vigorous economic development!" That's simply asking for systemic African nation levels of corruption, bribery, and stealing from the public purse when you're in power. After all, if I, General Warlord Tsombé, don't rob the treasury blind, then my people will not be reduced to abject enough levels of poverty to trigger Western aid, and that means in turns the NGOs and USAID-type bodies can't employ all the college-degree activists to deliver said aid!
"We need scammers to get vigorous economic development" is such a weirdly cargo cult reading of that story.
I frequently stop at a local convenience store, and buy an Arizona diet iced green tea, which costs $1. The store is tiny, normally there is only the owner or his wife present, and when I walk in they're frequently making a sandwich at the counter, stocking something, etc. When they're somewhere else I wave the tea at them and the dollar bill, tell them I'll leave it by the register, and leave.
Now I could definitely steal the tea once, maybe twice. I could probably steal a candy bar or something a few times.
But I would definitely go there less if buying the tea took me three minutes longer.
Which would probably also reduce my purchase of higher profit items like Zyns and hoagies and ice cream at the store.
The way you get a high trust society is because when people trust each other, there's so little friction in economic transactions that you become so rich that the odd scam can be ignored, societally, without serious consequences.
I'm going to assume that alongside whatever native honesty you have in your nature, you were raised not to do something like that: that stealing is wrong, that you pay for the goods, and the rest of it.
That's how we get high-trust societies.
Some people, though, weren't raised like that and/or aren't basically honest. We've all seen the videos, and that's how you get toothpaste has to be locked away and retailers close down because the professional shoplifters aren't afraid of the law since the law won't go after them.
Sure, I think of myself as a fairly honest person. But in my life I have shoplifted, perhaps three or four times, by accident or out of pure cussedness. Certainly if the owners of the store maintain a policy to trust people similarly situated to me, they will suffer additional losses over time compared to what they would if they sought a "zero shoplifting" policy. But they will probably lose more business than it's worth.
We aren't arguing that shoplifting isn't bad. We're arguing that some risk of shoplifting is better than no risk of shoplifting, because in order to achieve zero shoplifting, the convenience store must undermine it's own raison d'etre: convenience. Hence the optimal amount of shoplifting for a convenience store isn't zero. More shoplifting isn't better than less shoplifting, but as the amount asymptotically approaches zero there's a point where the security procedures become too much, where the juice isn't worth the squeeze.
We see this all around us. Self checkout leads to massively increased losses, but not enough to balance avoiding paying a cashier. EZ Pass and toll by plate on highways leads to significant lost revenue compared to toll booths, but reduced costs and increased traffic flow make it worth it. If I put on a pink polo shirt and a white baseball cap with a finance logo on it and throw my golf clubs in my truck and drive to a nice country club and walk out and start hitting balls on the range, no one will stop me, because staff can't constantly be harassing members and it's not worth the risk.
The optimal point isn't zero.
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In the book, Dan Davies cites numerous examples in which fraud became common in a particular community (whether that's a religious affinity group or a website for trading drugs), the community dutifully responded by implementing anti-fraud protections, but because these protections imposed some kind of cost (typically monetary, but potentially also an opportunity cost in terms of time and effort), some of the people in the community elected not to use the anti-fraud protections and instead take their chances without - and because most people in the community were trustworthy, this gamble paid off most of the time. There comes at a point at which the cost of protecting oneself against being defrauded exceeds the expected return.
Consider how much documentation you have to provide when applying for a mortgage. Now imagine if you had to go through that process every time you were buying or selling something through a webshop (e.g. eBay). With such a policy in place, it would be nearly impossible to defraud someone (or be defrauded) via this webshop: but because the process is so onerous, no one would use this website and it would go out of business, departing for competitors with less rigorous protections against fraud - which, inevitably, unavoidably means that some of the people who use the competitors' websites will get ripped off.
That's the point I'm trying to make. If you tolerate fraud, or even promulgate "well the chance of fraud is better than a world with no fraud" (which is different from "there will always be a risk of fraud"), then what is tolerated becomes commonplace. Once the water changes, the fish change too. Once the bedrock assumptions of "be honest not criminal" are weakened by lack of social reinforcement and no longer passed down, you'll get more and more people willing to be scammers, which in turns mean fewer people opting to put their trust in others, and the costs of protecting yourself against fraud rise because now you have to either spend time and effort on not being scammed, or risk being scammed and losing very badly what you can't afford to lose.
"There's always going to be fraud out there, just be careful and be aware" is not the same as "we need a certain amount of fraud to happen, otherwise it's the Panopticon and economic stagnation". That second message is an encouragement to be fraudulent - after all, everyone else would do it too if they could, and you are just filling your role in the ecosystem!
I think you really aren't understanding the argument I'm making. I'm not saying "we need a certain amount of fraud to happen, otherwise there would be economic stagnation"; I'm saying "a certain amount of fraud is unavoidable, and the price we pay for a functioning economy". Claiming that the latter is equivalent to the former, or that the latter is an encouragement to defraud people, seems to me tantamount to saying "a small number of car accidents every year is an unavoidable byproduct of widespread car ownership" or "carbon emissions are an unavoidable byproduct of an electrified society". No one would say that by acknowledging that you can't create electricity without producing carbon dioxide, you are therefore encouraging the production of additional carbon dioxide - likewise with the argument I'm making.
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I think this is backwards. No one pays with fraud or murder to create a higj-trust / free society. A high-trust / free society comes about when the amount of fraud and deaths is so low, they're not worth bothering with to preempt.
No, and the book quite lucidly explains why this counterintuitive assertion is actually true. Fraud is only possible in a society in which most people are assumed to be trustworthy. Montreal was for years known as the scam capital of the world, specifically because the number of trusting investors eager to invest in promising new startups made it catnip for scam artists. By contrast, in a society where nobody trusts anyone else, people are famously unwilling to lend out their money, which results in low rates of fraud but also sluggish economic development.
How much economic development can you have when all the trusting investors hand over money to scam artists who don't produce the goods/services/returns on investment they promised but instead decamp to the Bahamas to live the high life?
I get the point about trust being necessary, but if everyone is so trusting they can be plucked like pigeons, then eventually there won't be any trust. Montreal or other Scam Capitals are going to become notorious, investors won't invest even in legitimate proposals because the risk this is a plausible scammer is too high, and economic development will slow down anyway.
The optimum is to have as little fraud as possible. No fraud at all may be impossible to achieve, given human nature, but surely trying for "as close to zero as possible" is the better option than "eh, shit happens, let the fools who fall for scams be weeded out by natural selection, it's nature's way".
Yes, and as described in the book, this is exactly what happens without sufficient protections against fraud.
"as close to zero as possible" sounds pretty much like Dan Davies's preference for how much fraud there should be in an economy.
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This hasn't been my experience coming from a low-trust society, where everyone quickly learns to keep their hand on their wallet, and grow extra eyes all around their head.
Did this happen, by any chance, because there was very little fraud in Montreal in years prior, and people were much less cautious with their money because their priors about trustworthiness were outdated? Did they start being more cautious about fraud specifically after it turned out that the expected cost of preempting fraud is lower than the expected cost of falling victim to it?
The book is not counter-intuitive. It's wrong. At best it's doing the old gimmick of phrasing something true in a deliberately counter-intuitive way, to make it's reader feel smart, but the way you're describing it, it sounds just plain wrong.
And in this society, if a stranger approached you, introduced themselves as an entrepreneur, and offered to let you in on the ground floor of their operation for a small loan of million dollars, would you consider taking them up on the offer? Of course not - you'd assume they were a scam artist trying to rip you off. The only place someone would take them up on the offer is in an environment in which most people are assumed to be trustworthy, which in turn means the only place a scam artist would attempt it is in an environment in which most people are assumed to be trustworthy: in other words, fraud is impossible in a low-trust society.
Of course, and the book catalogues many examples of boom-bust cycles of the type you're describing. A high-trust society (or subculture, or community) is founded -> scam artists get wind of this and exploit it for all the alpha it's worth -> after a few successful frauds, people start getting a lot more cautious and risk-averse -> realising that it's no longer a high-trust society, the scam artists depart for greener pastures. None of this even seems counterintuitive to me, it just seems like basic economics.
This is completely false. It doesn't surprise me, as westerners don't really grok low-trust societies, even the ones that acknowledge their existence (because hilariously there's quite a few who think doing so is racist).
What you're saying is the equivalent of believing that a predator can only successfully hunt if you transfer him it to Quokka Island. Quokka Island will appear to one as an all-you-can-eat buffet, but It's obvious predators survive and thrive quite well in environments where the prey is adapted to it's existence, it's just that they're subject to "you win some, you lose some" dynamics. In the case of scams, all it means is that they have to put more effort into appearances of legitimacy. To someone from a low-trust society, a high-trust one does not appear as "the only place where fraud is possible", it appears as one where the population hasn't bothered to put up the most basic defenses.
The part that's counter-intuitive, and perhaps deceptive, is where you/he claims that tolerating fraud is the price for a high-trust society. No amount of tolerance will turn a low-trust society into a high-trust one. What needs to happen is the purging scammers, once that's done, people lower their guard naturally. They don't "tolerate" fraud, it just happens so rarely, it hardly ever enters their thoughts.
I think we might be talking past each other. I've been using "high-trust society" and "high-trust country" kind of interchangeably, but I think more specificity is called for. What I'm really arguing (and what I take Davies to be arguing) is that fraud can only take place within a high-trust community. That is, a country might be low-trust on the whole, but there might be enclaves within that country in which the members enjoy a presumption of trust with one another (social clubs, religious communities, voluntary organisations etc.). It is within these communities in which fraud and scams will occur in countries which are otherwise low-trust. This, I think, is what you're getting at with "putting more effort into appearances of legitimacy": scam artists must consciously infiltrate these high-trust communities, and this may be more difficult in a low-trust country than in a high-trust one (as the members of a high-trust community within an otherwise low-trust country will be doubly suspicious of outsiders).
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If a total stranger walked up to me and offered me this amazing chance to get in on the ground floor, but I have to take it up now or the opportunity will be gone, of course I'd assume they were a scammer and I don't live in a country that is particularly corrupt.
Or greedy. This is how con artists work, after all: appealing to the greed and cupidity and stupidity of the mark, who thinks they are too smart to be easily fooled and who is just venal enough that they won't look a gift horse in the mouth when the prospect of easy riches is dangled before them.
Yeah, that's common sense. But (at least by this example) the book seems to be trying to sell itself by dressing up common-sense observations in 'counter-intuitive' ways in order to seem edgy and new and worth buying for its insights.
Old boring way of putting this: A fool and his money are soon parted Fancy new pop-business book way of putting this: Did you know the best amount of fraud is "some"? Bet ya didn't!
EDIT: Reading the reviews on the Amazon site, it seems to be less that this author has a deep economic theory and more that he's concluding "since fraud of some sort always happens, and has always happened throughout human history, then it must have some sort of purpose":
There may be some point there about evolutionary history and why we are wired to take advantage of others, but it is less to do with economics and more to do with "this is how humans are". You could make the same point about "it is highly unlikely the optimal level of murder/rape/beating children to death is zero". Some small fraction of people throughout history have always beaten children to death! This is just the price of living in a high-trust society!
yes_chad.png. See this sketch: there comes a point where the marginal cost of further investment in child protection is greater than the expected return, and those resources would be better allocated elsewhere. No one thinks that spending the entire annual budget to ensure that not a single child dies a premature violent death is a sensible way to allocate resources, which implicitly means that there is some amount of premature violent death of children we are collectively willing to tolerate as the price of doing business. Alternatively, a country in which child murder literally never happens probably curtails its citizens' liberties so aggressively that it would be profoundly undesirable to live there for other reasons.
Maybe you think this point is so trivial and obvious as to be hardly worth mentioning, but I actually don't think it is. During Covid, I encountered plenty of people who really did claim to believe that there was no amount of economic hardship they didn't think it was worthwhile enduring if it meant a few people in their eighties got to live an extra year or two.
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At some point, the cost of increased marginal fraud avoidance exceeds the cost of the marginal fraud. Acknowledging this dynamic in any given domain is important. However, the rhetorical statement "The optimal amount of [bad thing] is not zero" is silent on the reason for why "not zero," failing the rhetorical goal of delivering concise, memorable, and clear insight.
Contrast "Motorsport can't be safe enough:" The double meaning of an endless pursuit of risk reduction and the impossibility of completely eliminating risk is a related concept, but the nuance behind the rhetoric is much more memorable and transferable between domains.
Well, the reason for why "not zero" is due to inescapable facts about the human condition, so describing this situation as "optimal" seems entirely apt to me.
I understand that there are inescapable parts of the human condition which make it so. But I still think that by eliding that (very important) part of the argument, the phrase becomes incorrect as it gets stated. Something like "the cost of reducing fraud to zero is too high to be worth it" would be more accurate, and the extra few words is not really a significant amount of verbosity.
I disagree. I think that part of the argument isn't being elided, it's being summarized with the word "optimal." At least, it's being summarized at least as well as in the phrase "the cost of reducing fraud to zero is too high to be worth it," and I also think that the that latter phrase is far less elegant and beautiful than the much simpler and pithy "the optimal amount of [bad thing] is not zero" while not really adding any extra meaning or explanation.
But it is adding extra meaning, is my point. "Optimal" does not carry an asterisk that says "given other constraints not mentioned here", you have to add those constraints if you intend to communicate them. As far as beauty goes that's subjective, but IMO obscuring meaning precludes beauty. The point of communication is to be clear first and foremost, and "the optimal amount of fraud is not zero" isn't clear (as proved by the very fact that this discussion is taking place).
I don't think "optimal" needs such an asterisk. That's encoded in the word itself. I think the beauty in the phrase is in how it obscures; it is, on its face, offensive in a way that gets cleared up when the reader or listener slows down and considers what "optimal" actually means and how that challenges the black-and-white thinking that tends to be typical in discussions relating to things that are almost universally considered "good" or "bad."
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The two phrases scan as synonymous to me, no different from "men are taller than women" vs. "the average man is taller than the average woman".
They aren't at all synonymous imo (nor are the two you cited, for that matter). That bit of elision significantly changes the meaning of each variant.
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