Home > data science, finance, musing > Everybody lies (except me)

Everybody lies (except me)

May 27, 2012

There’s an interesting article in the Wall Street Journal from yesterday about lying. In the article it explains that everybody lies a little bit and, yes, some people are serious liars, but the little lies are the more destructive because they are so pervasive.

It also explains that people only lie the amount they can get away with to themselves (besides maybe the out-and-out huge liars, but who knows what they’re thinking?).

When I read this article, of course, I thought to myself, I don’t lie even a little bit! And that kind of proved their point.

So here’s the thing. They also explained that people lie a bit more when they are in a situation where the consequences of lying are more abstract (think: finance) and that they lie more when they are around people they perceive as cheating (think: finance). So my conclusion is that finance is populated by liars, but that’s because of the culture that already exists there: most people just amble in as honest as anyone else and become that way.

Of course, every field has that problem, so it’s really not fair to single out finance. Except it is fair to single out any place where you can cheat easily, where there are ample opportunities to lie and profit off of lies.

One cool thing about the article is that they have a semi-solution, namely to remind people of moral rules right before the moment of possible lying. This can be reciting the ten commandments or swearing on a bible, which for some reason also works for atheists (but wouldn’t stop me from lying!), or could be as simple as making someone sign their name just before lying (or, even better, just before not lying) on their auto insurance forms.

Can we use this knowledge somehow in setting up the system of finance?

The result where people are more likely to lie when they know who the victim of their lie is may explain something about how, back when banks lent out money to people and held the money on their books, we had less fraud (but not zero fraud of course). The idea of personally knowing who the other person is in a transaction seems kind of important.

The idea that we make people swear they are telling the truth and sign their name seems easy enough, but obviously not infallible considering the robo-signing stuff. I wonder if we can use more tricks of the honesty trade and do things like make sure each person signing is also being videotaped or something, maybe that would also help.

Unfortunately another thing the article said was that having been taught ethics some time in the past actually doesn’t help. So it’s less to do with knowledge and more to do with habit (or opportunity), it seems. Food for thought as I’m planning the ethics course for data scientists.

Categories: data science, finance, musing
  1. Michael C
    May 27, 2012 at 11:39 pm

    I hate to be a one trick pony all the time, but this is too timely to pass up.

    SOX exists because even Congress finally came to the conclusion that there actually is a point where even jaded and hardcore professional liars retch a little, especially when their collective deniability can’t be defended against kindergarterners, and their seats are at stake.

    So bowing to human nature Congress passed a law a decade ago that said if you are a lying sack of shit CEO or CFO, we really must draw the line when you sign a certification in your financial statements that puts you at risk of jail time if your truthiness goes too far beyond beyond the pale. Lie all you want in your daily dealings, but when it comes time to put pen to paper, think twice about making those really egregious lies old time CEOs used to call mistakes, or better yet mistakes your minions made behind your back. Your minions mistakes are now legally your mistakes, and have been for at least a decade..Technically they can’t do it behind your back, since you’re supposed to have an anti-liar task force on staff to protect you from your grasping and venal acolytes. If they lie to you, tough shit. You’re simply an idiot if you didn’t catch them and you deserve to get the boot ( and some jail time plus some hefty civil penalties ) if they bamboozled you.It’s tough being the CEO, but its a lot tougher being and old granny depending on her dividend check,

    The beauty of its design is that the liars at the top regulate the liars down the chain. This is self regulation I can believe in.Tony Soprano meets the Justice dept. Leave it to Tony to send the liars on his team to swim with the fishes, and the old ladies can cash their checks without having to bother the SEC to ask Tony if his thugs are messing with him.

    So what went wrong here?

    Jamie didn’t bother to have his anti-liar squad in place. What a dumb capo. Or not.
    He (and his loser rivals at BS, Leh, ML BOA) didn’t really need to fear the wrath of the grannies or the SEC too much.

    (Odd though , since Banker’s Trust’s CEO, Newman, a full decade before, (pre-SOX) had a main man on his team who, unabashedly, unself-consciously and proudly advertised himself (in the press for god’s sake.The NYT reported the consigliere role without irony , They consistently identified him by that title as though it was equivalent to Managing Director of ‘covering BTs ass till it couldn’t be covered no mo’) .It worked for Newman, He ran the bank into the ground, (the FIRM became a convicted felon just as they were taken over by Deutsche Bank, but that’s another story.) and he walked away with 100m.

    Granted, BT was a seedy shop operating in a seedier time. And even though Deutsche was one of Enron’s chief facilitators that led to SOX, JD seems to have failed to heed Newman’s lesson: Every bank, at all times needs a consigliere. In a post SOX (and hopefully a post Dimon) world that position will be staffed by folks that insist on warning the CEO that he’s being lied to.

    So Zoom ahead to 2012. Dimon is a liar and no one at the Sec has the gall to call him on out.
    So we must do it for them.

    Join me .



  2. May 27, 2012 at 11:51 pm

    This theory of lying seems related to apparently successful efforts to thwart serious criminal behavior by cracking down on minor crimes. The theory has redefined policing in the last couple of decades and led to extraordinarily high incarceration rates in the U.S. when compared to other industrialized countries both now and historically.

    Serious crime rates have dropped – no doubt about that. However, other explanations seem plausible, including Levitt’s “Freakonomics (Ch. 4)” theory that the legalization of abortion leads to lower crime rates two decades later. According to this theory, legal abortions substantially reduce the proportion of serious criminals in society. The law and order crowd seems unwilling to give this a real world test by lightening up on the minor offenses to see if serious crime jumps back to the levels of the 1970s.

    Perhaps the logical solution to the lying problem is to have all of our lies tracked and held in databases with public on-line access. Treat liars like child molesters and watch how quickly we can end the scourge 😉


  3. Jacob
    May 28, 2012 at 4:27 am

    This seems to me to miss the point that small lies often serve a useful social function in interpersonal relationships, from the ubiquitous “how are you?” – ‘I’m fine” greeting and response, where frequently truth would be too much information – to the more sophisticated lies that couples tell each other because relationships often require tact, diplomacy and a certain amount of self-delusion. Given that a small amount of dishonesty is almost impossible to avoid, it’s easy to see how someone with sufficient incentive could justify scaling the continuum and justify (to themselves) the idea of telling bigger lies.


  4. Bobito
    May 29, 2012 at 7:02 am

    It is fair to single out finance. As a collective the banking/finance sector behave psychotically, in a way that damages the rest of society for its own benefit. Surely its behavior reflects that of the individuals constituting it.


  5. JM
    May 29, 2012 at 10:49 am

    “Unfortunately another thing the article said was that having been taught ethics some time in the past actually doesn’t help.”

    (1) The idea that anyone can be ‘taught’ ethics is obscenely naive.
    (2) Tangentially: Apparently no one has read their Aristotle.
    (3) The upshot of any ethics course that aims to ‘teach’ students ethics should be that, in a non-trivial sense, ethics don’t exist.

    Roughly speaking, (3) implies, at a minimum, the necessity of selecting for ethical behavior when considering promotions and of establishing profession-specific ethics boards with broad leeway to prosecute breaches of established ethics codes (juridical law always being an “incomplete contract”).

    More broadly, it leads to considerations (regarding religion’s effects on people’s utility functions in particular) left-liberals may find discomforting but nonetheless ought to reckon with.


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