The benefit of specialization is that we can diversify tasks and achieve more as a group. Ha! Human nature is not so altruistic. We are finding that when left unchecked, people will take advantage of others and not perform their duty to operate in the best interest of clients or the public at large. The less connected we feel toward others, in our communities etc., the more likely we are to take advantage of others. Dan Ariely has showed in simple experiments the factors that influence our likelihood to cheat.
Take Adjustable Rate mortgages: It’s likely that in the United States, you or many people you know have a ARM. I don’t know how much research people do before accepting this type of load, but US government has an info packet to help consumers, that is 40 pages long. In the document, it states what you should know when considering an ARM. “To compare two ARMs, or to compare an ARM with a fixed-rate mortgage, you need to know about indexes, margins, discounts, caps on rates and payments, negative amortization, payment options, and recasting (recalculating) your loan.” Who understands all of these financial matters?
Sounds like people with money are creating a complicated product (the mortgage) and hoping the general public blindly buys this product without understanding the risk or influencing factors. That’s essentially the crux of the sub-prime loan issues. We will never agree on who is to blame, those who create sophisticated products and sell them to people lacking the knowledge to understand the decisions, or people who make these decisions without doing enough research?
Which leads back to diversification. In western civilization, we are not expected to be an expert on everything. We take our car to a mechanic, go to financial advisers to invest for retirement, hire a contractor when repairs or changes are desired on our homes, etc. We need enough basic information to keep these employees honest, but cannot reasonably master each of these subjects to know when these employees are not working for our best interest.
So what we need is more honesty. How do we promote altruistic behavior? It’s challenging to incentivise honest behavior. Step one is to build a strong sense of community as referenced above in the studies by Dan Ariely. I’d love to hear your thoughts and experiences on this subject.
Well this should not be considered the most reliable study, performed by the makers of Honest Tea. Check out the results.