Member preview

Moral Hazard, Moral Luck

Changing standards of moral judgment

In their new book Coddling of the American Mind, Greg Lukianoff and Jonathan Haidt make the argument that judging another’s actions on the basis of their intent, rather than the effect that their actions have on others (i.e, outcome), is a good way to deescalate the exaggerated sense of harm that some students on American campuses feel when they experience a “micro aggression” or some other slight or offense.

This is very good advice for interpersonal relationships between students on campus.

Nonetheless, in off campus situations, judging others exclusively by their intent raises the problem of moral hazard, which is a type of error in moral judgment that is opposite to the problem of moral luck.

Moral Luck, the Error of Judging Character on the Basis of Outcome

In my previous post Moral Luck, I described the problem with making moral judgments on the basis of outcome (what Lukianoff and Haidt would call “effect”). Because no one is in complete control of the outcome of their actions, moral judgments based on outcome are subject to luck. That is, we might misattribute to good moral character what was actually the just result of dumb luck.

To understand moral luck, imagine two friends, both of whom are driving on the same highway, at almost the same time, both of them exactly the same velocity — 12 mph over the speed limit. One of your friends might be pulled over and cited with a speeding ticket, and be compelled to pay a fine. The other might escape notice of the police altogether. They both took the same risks and exhibited the same behavior. Why should one be punished and the other go free? Why should one pay higher insurance premiums, or even have a lower credit score, and the other be judged as an excellent driving risk?

The answer, in this case, is just luck.

And moral judgments based on luck are not reliable judgements of character.

Moral Hazard, the Error of Judging Character on the Basis of Intent

Lukianoff and Haidt’s proposal to focus on intent, rather than outcome, seeks to avoid the error of moral luck. However, if we judge others on the basis of their intent, they might argue, “Well, I never meant to harm anyone, so I should still be consider a good person.”

In Apologies Are Not For the Aggrieved, I detailed the importance of communicating intent to those whom we have offended, because if they are able to make accurate judgments of our intentions, they can factor those into their moral judgments of our character in a way that might mitigate the sting of a negative outcome. Nonetheless, when we judge exclusively on the basis of intent, we run the risk of overestimating the moral character of those who take imprudent risks that wind up harming other people — i.e., moral hazard.

We can never have perfect knowledge of another’s intent. We can only make inferences based on our interpretation of their behavior, and their own self-reported explanations. And where ever their explanations are contradicted by our interpretation of their actions, their arguments will be unsatisfactory. Regardless of their intentions, sometimes actions reveal an irresponsible aspect of another’s character — i.e., the willingness to put others at harm for the sake of their own convenience.

Imagine the same two friends, driving on the same freeway. Except now, the one that got away with speeding was texting at the same time. The dangers of driving while distracted are well documented. But they are not absolute. That is, it is still possible, through luck, that our distracted friend might speed home from a party without crashing. (Jed Lea-Henry describes a real example in Sympathizing With Monsters? The Problem of Moral Luck. Josh Rosen talks about his own lucky driving experiences in Moral Luck).

But should we judge these drivers on the basis of their outcome? I certainly would not. In my judgment, they have been irresponsible and imposed serious risks onto others.

For example, in the 2007 financial crises, we can be sure that the Chief Executives of Lehman Brothers and Bear Stearns never intended to go bankrupt. Yet, they made irresponsible investments using borrowed money that put their investors and their employees at risk. This is a classic example of moral hazard.

Antifragility and Skin in the Game

In ‘The Coddling…’ Lukianoff and Haidt cite Nassim Nicholas Taleb’s book Antifragile as an argument for why the insults, indignities, disagreements, and misunderstanding known as “microaggressions” are not harmful for American college students, because the challenge of ideas or perspectives that make them uncomfortable will allow them an opportunity become more resourceful — i.e., stronger. But despite the fact that all three authors are faculty at New York University, Lukianoff and Haidt evidently missed Taleb’s most recent release Skin In The Game. In it, he argues (without emphasizing either moral hazard or moral luck) that the resolution of these competing moral errors is to ensure that decision-makers share in their consequences of their actions. That is, that the outcome decision-makers create for others should also be the outcome that they experience themselves. Only in this way can we be sure that their intentions and outcomes will be aligned.

For example, suppose one student on campus should make an accusation of bigotry or malice against another. Should the accusation be proven false, baseless, or libelous, then the principle of Skin In The Game would suggest that the false accuser should face the same consequences as people found guilty of the crime. In this way, only real accusations, supported by evidence, would be brought forth.

Taleb’s experience in the financial markets have no doubt give him an extraordinary view of moral hazard, as financiers in New York and other centers of capital allocation (i.e., trading) profited from the risks they imposed on ignorant borrowers far from the financial marketplace. Without excusing those homeowners who took on too much debt to buy homes they couldn’t possibly afford (although it might be said that they never intended to default on their mortgages), it is easy to see how the financial contagion of defaults during the 2007/2008 Great Recession dragged down the fortunes of innocents, while in many cases the guilty profited handsomely, despite their failures. Taleb’s Skin In The Game proposal might go a long way to curbing the rapacious behavior of Wall Street usurers. (freest one asks, “How quickly should reform happen?” Immediately, I’d say).

But does it solve the problem that Lukianoff and Haidt are talking about? Will it repair the polarization of American campuses, and institute policies that challenge students in the classroom instead of coddle them with trigger warnings?

Judging on intent introduces the error of moral hazard. Judging on outcomes introduces the error of moral luck. Taleb’s solution is to ensure that behaviors are attached to outcomes — a principle he calls “skin in the game.” In practice, this discourages risk-taking, and from Taleb’s point of view, that’s probably a good thing in the current financial climate.

Lukianoff and Haidt don’t mention policy prescriptions or principles with the same specificity as Taleb. Instead, they point out that a lack of intellectual diversity on campus may have contributed to selective enforcement of existing policies. For example, they describe several instances in which campus protesters were excused from enforcement of campus codes of conduct when they disrupted speaking events, blocked exits to trap administrators, or harassed and beat other students who expressed opposing views. Allowing these rule violations, and especially those that resulted in harmful outcomes, established an expectation on campus that those with insufficiently progressive political views will face sanctions, while those with politically correct views operate without sharing in the harmful, violent consequences of their own actions.