Tuesday, March 10, 2009

Perverse incentives

Bruce Schneier has written an article on perverse security incentives. The concept of a perverse incentive comes from economics, where it refers to an incentive that, deliberately or accidentally, rewards inefficient or bad behaviour.

Such "perversely" inefficient behaviour isn't necessarily bad. It's an economic term focusing on a single aspect of the human condition: a rather narrow view of economic efficiency. Spending money on taking Granny to the doctor instead of selling her to the glue factory would, according to some definitions, count as inefficient, and therefore love, loyalty, affection and kindness might be counted as "perverse incentives". This isn't a bad thing -- we'd all be a lot happier if we admitted that we're all pervs in one way or another, and besides it's not the job of economists to make value judgements. Their job is to tell us how efficiently we're spending, or making, money, and it's our job to make the value judgements that, all things considered, Gran's got a few more years left in the old bird, and besides one day we'll be that old too.

So remember that while perverse incentives are often harmful as well as inefficient, this isn't necessarily the case. Schneier discusses the case of a store who fired an employee for stopping a shop-lifter escaping with hundreds of dollars of stolen food. Sounds ridiculously stupid, yes? But not if you look at the big picture: a few hundred dollars worth of food is nothing compared to the tens or hundreds of thousands of dollars the store could be liable for if the staff member tackled and injured an innocent customer, or if the thief pulled out a weapon and killed somebody. As Schneier explains (and so many of the commenters on the blog fail to grasp), "You Will Not Attack Shop-Lifters" is a security measure: it protects the store against worse consequences than a backpack full of groceries being stolen.

For the same reason, banks typically have a strict No Heroics rule. It's not worth the life of a teller to save the insurance company from suffering a slightly lower profit in one quarter. This sort of economic reasoning comes hard to most people. It comes hard to me -- even knowing all the reasons why it would be stupid to put yourself in danger for somebody else's profit, the very thought that thieves are getting something for nothing offends every fibre of my being[1]. As a species, we have a deep hatred of cheaters who break the social contract (unless it is Us breaking the contract against Them -- we're a moral species, but also a hypocritical species).

[1] As a 19 year old, when I was young and invincible, one of my fellow uni students and I almost walked into a bank robbery in progress at a bank on Melbourne University campus. We saw these two masked gunmen, and came *this close* to deciding to tackle them when they came out of the bank. Fortunately, we decided to walk around the building once first, and if the robbers were still there, then we would tackle them. They weren't. Back

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