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Consensus Incentives matter, but frenemies might matter more…

Community Consensus: The Enemy of My Enemy Is My Friend

A short review on Balance Theory, Schadenfreude (pleasure at someone’s misfortune), Gluckschmerz (suffering from someone’s good fortune) and how to maintain consensus in Blockchain

Much has been written about blockchain incentive structures and the importance of economic design on community behavior. Such a design determines investor interest, developer engagement and user adoption. (For additional material I highly recommend reading from the Prysm Group).

As I have published earlier, financial self-interest alone does not explain economic behavior. Therefore economic design (or in the case of blockchain - tokenomic design) must take into account behavioral, as well as professional and cultural elements into consideration (see below).

Examples of non-financial incentives in healthcare for physicians (source)

However beyond the economic rules that shape current ecosystems, I want to review Heider’s Balance Theory of social dynamics and specifically look at the roles of Schadenfreude and Gluckschmerz in the creation and maintenance of social consensus.

What is Balance Theory?

Balance Theory, proposed by the Austrian psychologist Fritz Heider in 1946, is a conceptual framework that hypothesizes on how people interpret, explain and predict others’ behavior. In this framework, intentional concepts (like beliefs, desires, purpose) play a central role in driving common-sensical behavior of individuals toward others; how one perceives their own condition, as well as other people’s; and what is their relation to it.

In this Social Network Theory we are able to analyze any socio-economic system and describe how and how long it will take to a sentiment relation among individuals to evolve into a balanced state of solidarity (i.e. consensus) or initiate a separation into network subgroups (i.e. forking) (below).

Through simulation, a community of three (triad) require 100 interactions to reach steady state or split (source)

More importantly Balance Theory describes two very strong motivational behaviors that drive or dissolve consensus, namely: Scahdenfruede and Gluckschmerz.

What are Schadenfreude and Gluckschmerz and when do we feel them?

(an extensive review is found here)

Gloating is probably the closest English word to Schadenfreude, a German compound word of Schaden-, meaning harm, and Freude-, meaning joy. However as opposed to gloating, schadenfreude is a more passive, less appropriate to perceive or express emotion and is linked to feeling inferior rather than superior to the suffering person.

Gluckschmerz is also a compound term of two German words: Gluck-, meaning luck, and Schmerz-, meaning pain. It represents being displeased by an event presumed to be desirable for someone else. English has no equivalent word for this discrete emotion (perhaps the closest being disappointment), however as Schadenfreude, it has a passive character where we have done nothing to prevent the others person’s good fortune from happening.

Like, dislike, perceived deservingness and rivalry determine the intensity of schadenfreude and gluckschmerz

Generally, thanks to mirror neurons, emotions arising from witnessing others elicits a reflexive, rough synchrony between other people’s emotions and our own. Previous ‘likes’ and ‘dislikes’ can exacerbate or attenuate these reactions. In Balance Theory parlance schadenfreude develops when a dislike toward another person (a negative balance unit) who feels negatively toward his or her misfortune (another negative balance unit) is “balanced” by our own positive feeling (a positive balance unit) toward this misfortune.

Similarly, in the case of gluckschmerz, a dislike toward another person (a negative balance unit), who feels positively toward his or her good fortune (a positive balance unit) is “balanced” by our negative feeling toward this good fortune (a negative balance unit).

Another external factor that impacts schadenfreude and gluckschmertz is the perceived deservingness of others’ good or bad fortune. Because we are sensitive to issues of justice and fairness we are likely to react to others’ deserved misfortune with schadenfreude and others’ undeserved good fortune with gluckschmerz. Also when we combine like/dislike and perceived deservingness with public exposure (“he/she had it coming”) pleasure from good or bad fortune seems inevitable, out in the open and joyous.

Finally, much of our emotional lives follow from how events affect our own goals, motives and concerns, which may be unaligned with the goals, motives and concerns of others. When experiencing schadenfreude, we, in some way, appraise another person’s bad fortune as good for us and therefore we are pleased. Similarly, when experiencing gluckschmerz, we appraise the good fortune of others as bad for us and we feel pain.

Why does this matter?

First, thinking in terms of schadenfreude or gluckschmerz towards Blockchain may clarify many of the hostile reactions we receive. Bad events happening to others may boost our reputation and narrative, while good events happening to others may weaken our status, shrink our self-esteem and impact our social standing. Also when competition increases and there is a sense of a zero-sum situation, our reactions to others become even more tribal (“us vs. them”) and less empathic (Brambilla & Riva, 2017).

Second, schadenfreude and gluckschmerz despite their dubious moral reputations, are in fact ordinary, prevalent human emotions that reflect the complex, multifaceted nature of human experience. Sometimes, as Balance Theory predicts, both emotions follow from prior attitudes we hold toward others who are suffering or gaining.

For example, using economic incentives alone has created a very dysfunctional Healthcare system in the US (read Elisabeth Rosenthal here). Hospitals, Insurers and Pharmaceuticals are over-charging and patient fraud, estimated between $68–$230 Billion annually, is rampant. Since we may dislike a person or group of people (like insurers or pharma), their suffering may bring schadenfreude and their gain gluckschmerz

These dynamics must be taken into account in the tokenomic and consensus design.

In addition, concerns over justice and fairness drive our reactions to others’ suffering or gain.

We sense that others “deserve” their misfortunes, resulting in our schadenfreude whereas if others seem “undeserving” of their good fortune, our gluckschmerz results.

Finally, in competitive situations and when envy arises, other’s bad fortune is pleasing and their good fortune is displeasing.

How to maintain a consensus in Blockchain

As we worry of unemployment, corruption and social injustice (below), the Blockchain community is building a culture of collaboration and trust without the need for intermediaries. By maintaining a single source of truth, Blockchain businesses are creating rules and consensi across legally separate entities without anyone able to alter or control them.

“What Worries the World Survey” of 20,202 individuals from 27 countries (Ipsos, 2018)

However as we design incentives and consensi for Blockchain solutions and Decentralized Autonomous Cooperations and we must remember that:

Economic gaps become empathy gaps, which become respect gaps. Therefore we must learn to recognize and resist the temptation of Schadenfreude and Gluckschmerz

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