Psychological tools for public policy

Munger in his talk on World Wisdom, Revisited. Talk three from Poor Charlie’s Almanac.

It can’t be emphasized too much that issues of morality are deeply entwined with world wisdom considerations involving psychology. For example, take the issue of stealing. A very significant fraction of the people in the world will steal if (A) it’s very easy to do and (B) there’s practically no chance of being caught.

And once they start stealing, the consistency principle – which is a big part of human psychology – will soon combine with operant conditioning to make stealing habitual. So if you run a business where it’s easy to steal because of your methods, you’re working a great moral injury on the people who work for you.

Again, it’s obvious. It’s very, very important to create human systems that are hard to cheat. Otherwise, you’re ruining your civilization because these big incentives will create incentive-based bias and people will rationalize that bad behaviour is OK.

Then, if somebody else does it, now you’ve got at least two psychological principles: incentive-caused bias plus social proof. Not only that, but you get Serpico effects: If enough people are profiting in a general social climate if doing wrong, then they’ll turn on you and become dangerous enemies if you try and blow the whistle.

It’s very dangerous to ignore these principles and let slop creep in. Powerful psychological forces are at work for evil.


Let’s say you have a desire to do public service. As a natural part of your planning, you think in reverse and ask, “What can I do to ruin our civilization?”. That’s easy.  If what you want to do is to ruin your civilization, just go to the legislature and pass laws that create systems wherein people can easily cheat. It will work perfectly.

Take the workers’ compensation system in California. Stress is real. And its misery can be real. So you want to compensate people for their stress in the workplace. It seems like a noble thing to do.

But the trouble with such a compensation practice is that it’s practically impossible to delete huge cheating. And once you reward cheating, you get crooked lawyers, crooked doctors, crooked unions, etc., participating in referral schemes. You get a total miasma of disastrous behaviour. And the behaviour makes all the people doing it worse as they do it. So you were trying to help civilization. But what you did was create enormous damage, net.

So it’s much better to let some things go uncompensated-to let life be hard-than to create systems that are easy to cheat.


You must stop slop early. It’s very hard to stop slop and moral failure if you let it run for a while.

Great stuff from Munger.

This goes to explain the psychological reasons why India is besieged by corruption and laws which provide opportunity for more corruption and cheating.

Bureaucrats continue to use these methods to pass laws and create systems of licensing and corruption.

In a way, a emissions trading scheme provides many opportunities to not pay for carbon through lobbying, by carbon saving projects which would have been implemented anyway etc. A tax is a more simpler system to implement and hard to cheat at least in the developed countries like Australia.


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