Why Each One Should Eat His Own Turtles: Equality in Uncertainty

Why Each One Should Eat His Own Turtles: Equality in Uncertainty

Taste of turtle—Where are the new customers?—Sharia and asymmetry—There are the Swiss, and other people—Rav Safra and the Swiss (but different Swiss)

You who caught the turtles better eat them, goes the ancient adage.

The origin of the expression is as follows. It was said that a group of fishermen caught a large number of turtles. After cooking them, they found out at the communal meal that these sea animals were much less edible than they thought: not many members of the group were willing to eat them. But Mercury happened to be passing by—Mercury was the most multitasking, sort of put-together god, as he was the boss of commerce, abundance, messengers, the underworld, as well as the patron of thieves and brigands and, not surprisingly, luck. The group invited him to join them and offered him the turtles to eat. Detecting that he was only invited to relieve them of the unwanted food, he forced them all to eat the turtles, thus establishing the principle that you need to eat what you feed others.

A CUSTOMER IS BORN EVERY DAY

I have learned a lesson from my own naive experiences:

Beware of the person who gives advice, telling you that a certain action on your part is “good for you” while it is also good for him, while the harm to you doesn’t directly affect him.

Years ago I received a letter from a lecture agent. His letter was clear; it had about ten questions of the type “Do you have the time to field requests?,” “Can you handle the organization of the trip?” The gist of it was that a lecture agent would make my life better... As is typical with people who volunteer unsolicited advice, I smelled a rat: at no phase in the discussion did he refrain from letting me know that it was “good for me.”

As a sucker, while I didn’t buy into the argument, I ended up doing business with him, letting him handle a booking in the foreign country where he was based. Things went fine until, six years later, I received a letter from the tax authorities of that country...

Indeed, in the dozen or so cases I can pull from memory, it always turns out that what is presented as good for you is not really good for you but certainly good for the other party.

I worked once for a U.S. investment bank... Salesmen hawked how a given security would be perfect for the client’s portfolio... One of the top salesmen at the firm... was once asked whether customers didn’t get upset when they got the short end of the stick. “Rip them off, don’t tick them off” was his answer. He also added, “Remember that every day a new customer is born.”

THE PRICE OF CORN IN RHODES

So, “giving advice” as a sales pitch is fundamentally unethical—selling cannot be deemed advice.

But there is an associated problem in the course of the transactions: how much should the seller reveal to the buyer? The debate goes back to a disagreement between two stoic philosophers, Diogenes of Babylon and his student Antipater of Tarsus... The question was presented as follows, retailed by Cicero in De Officiis. Assume a man brought a large shipment of corn from Alexandria to Rhodes, at a time when corn was expensive in Rhodes because of shortage and famine. Suppose that he also knew that many boats had set sail from Alexandria on their way to Rhodes with similar merchandise. Does he have to inform the Rhodians? How can one act honorably or dishonorably in these circumstances?

We traders had a straightforward answer... There were people with whom we had a relational rapport, others with whom we had a transactional one. The two were separated by an ethical wall.

Diogenes held that the seller ought to disclose as much as civil law requires. As for Antipater, he believed that everything ought to be disclosed—beyond the law—so that there was nothing that the seller knew that the buyer didn’t know.

Clearly Antipater’s position is more robust... Take for now that

The ethical is always more robust than the legal. Over time, it is the legal that should converge to the ethical, never the reverse.

Hence:

Laws come and go; ethics stay.

EQUALITY IN UNCERTAINTY

Which brings us to asymmetry, the core concept behind skin in the game. The question becomes: to what extent can people in a transaction have an informational differential between them?

Sharia, in particular the law regulating Islamic transactions and finance, is of interest to us insofar as it preserves some of the lost Mediterranean and Babylonian methods and practices... I hence view Sharia as a museum of the history of ideas on symmetry in transactions. Sharia establishes the interdict of gharar, drastic enough to be totally banned in any form of transaction. It is an extremely sophisticated term in decision theory that does not exist in English; it means both uncertainty and deception—my personal take is that it means something beyond informational asymmetry between agents: inequality of uncertainty. Simply, as the aim is for both parties in a transaction to have the same uncertainty facing random outcomes, an asymmetry becomes equivalent to theft. Or more robustly:

No person in a transaction should have certainty about the outcome while the other one has uncertainty.

RAV SAFRA AND THE SWISS

Jewish ethics on the matter is closer to Antipater than Diogenes in its aims at transparency. Not only should there be transparency concerning the merchandise, but perhaps there has to be transparency concerning what the seller has in mind, what he thinks deep down. The medieval rabbi Shlomo Yitzhaki (aka Salomon Isaacides), known as “Rashi,” relates the following story. Rav Safra, a third-century Babylonian scholar who was also an active trader, was offering some goods for sale. A buyer came as he was praying in silence, tried to purchase the merchandise at an initial price, and given that the rabbi did not reply, raised the price. But Rav Safra had no intention of selling at a higher price than the initial offer, and felt that he had to honor the initial intention.

It may not be ethically required, but the most effective, shame-free policy is maximal transparency, even transparency of intentions.

MEMBERS AND NON-MEMBERS

For the exclusion of the “Swiss” from our ethical realm is not trivial. Things don’t “scale” and generalize, which is why I have trouble with intellectuals talking about abstract notions. A country is not a large city, a city is not a large family, and, sorry, the world is not a large village.

So we exercise our ethical rules, but there is a limit—from scaling—beyond which the rules cease to apply. It is unfortunate, but the general kills the particular. The question is whether it is possible to be both ethical and universalist. In theory, yes, but, sadly, not in practice.

NON MIHI NON TIBI, SED NOBIS (NEITHER MINE NOR YOURS, BUT OURS)

Let us get into the gut of Ostrom’s idea. The “tragedy of the commons,” as exposed by economists, is as follows... What Ostrom found empirically is that there exists a certain community size below which people act as collectivists, protecting the commons, as if the entire unit became rational. Such a commons cannot be too large. It is like a club.

The skin-in-the-game definition of a commons: a space in which you are treated by others the way you treat them, where everyone exercises the Silver Rule.

ALL (LITERALLY) IN THE SAME BOAT

Greek is a language of precision; it has a word describing the opposite of risk transfer: risk sharing. Synkyndineo means “taking risks together,” which was a requirement in maritime transactions.

The Acts of the Apostles describes a voyage of St. Paul... It stipulates that the risks and costs for contingencies are to be incurred equally, with no concern for responsibility. Justinian’s code summarizes it:

It is provided by the Rhodian Law that where merchandise is thrown overboard for the purpose of lightening a ship, what has been lost for the benefit of all must be made up by the contribution of all.

TALKING ONE’S BOOK

I went on television once... I repeated my dictum from Prologue 1: Don’t tell me what you think, tell me what you have in your portfolio.

There are two types of “talking one’s book.” One consists of buying a stock because you like it, then commenting on it (and disclosing such ownership)... Another is buying a stock so you can advertise the qualities of the company, then selling it... My argument is that the latter (market manipulation) and conflicts of interest are more benign than impunity for bad advice.

A SHORT VISIT TO THE DOCTOR’S OFFICE

The doctor doesn’t have the Antaeus problem... And attempts at putting skin in the game there have brought a certain class of adverse effects, in shifting uncertainty from the doctor to the patient.

The legal system and regulatory measures are likely to put the skin of the doctor in the wrong game.

How? The problem resides in the reliance on metrics. Every metric is gameable...

A doctor is pushed by the system to transfer risk from himself to you, and from the present into the future, or from the immediate future into a more distant future.

Some metrics can actually kill you...

In sum, both the doctor and the patient have skin in the game, though not perfectly, but administrators don’t—and they seem to be the cause of the troubling malfunctioning of the system.