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Moral arbitrage

January 10th, 2009
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I posted this in response to some discussion at Crooked Timber on the Iraq war, Gaza and so on.

Looking at the discussion, it seems as if nearly everyone is concerned about the (foreseeable) consequences of their actions, but there are a lot of claims that some consequences should be treated differently from others (intended vs unintended, direct vs intermediated by the predictable reactions of others, and so on).

To an economist, what this naturally suggests is the possibility of moral arbitrage.

Opportunities for arbitrage arise when the same good (or financial asset, or moral consequence) is priced differently in different markets. Someone who can buy in a market where the good is cheap and sell where it is dear has the opportunity for arbitrage profits.

So, if you want to raise the moral value of a particular action, what you need to do is make sure that the positive aspects of the action are valued in markets where the price is high, and the negative aspects where the market is low. For example, an advocate of the Iraq war can be a virtue ethicist as regards their own heroic standard against Ba’athist dictatorship, a deontologist regarding obligations to punish the criminal behavior of their enemies, regardless of the unintended effects on the millions of people living in the general vicinity, and a consequentialist regarding the necessity to excuse the criminal behavior of their leaders for fear of subsequent bad effects on the polity.

As this example shows, with arbitrage opportunities, all sorts of things can be made possible. A consistent virtue ethicist (for example, a Jeffersonian) might reasonably conclude that the criminal behavior inevitable in a long occupation of a largely hostile country is unacceptable to someone who wants to maintain a virtuous disposition. A deontologist would object to violations of well-established principles of just war theory. A consequentialist would certainly conclude that the foreseeable costs of a war exceed the benefits. But a moral arbitrageur can mix and match these principles to reach a conclusion none of them would individually support.

The trolley-crash toy examples seem perfectly designed to encourage moral arbitrage of various kinds. By shifting consequences between direct and indirect, intended and unintended, close and remote, it seems as if moral virtue can be claimed for any course of action you like.

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  1. January 10th, 2009 at 17:51 | #1

    What is the “trolley crash toy” you are referring to? I Goggled it and got nothing.

    Can you give a specific example of where moral arbitrage has occurred and the resulting payoff?

  2. January 10th, 2009 at 18:11 | #2

    The resulting pay-off is self-satisfaction, belief in one’s moral superiority, avoidance of cognitive dissonance, ability to adhere to the party line, avoiding confronting one’s biases, etc.

    We all indulge to some extent, it’s just that some are expert exponents of the art, while a few others have a freakishly rigid moral code that makes them completely consistent philosophically and also depressive bores with no friends.

  3. jquiggin
    January 10th, 2009 at 19:44 | #3

    hc, I’ve added a link for trolleys. As I say, the Iraq war provides excellent examples.

  4. January 10th, 2009 at 21:32 | #4

    The ‘trolley problem’ looks like the ‘ticking bomb’ problem. Here again you are asked to take a harmful action to avoid something that seems on the face of it worse.

    There are various grounds here for rejecting a utilitarian assessment that involve questioning the assumptions under which the problem is posed.

    So you get can rid of Saddam to avoid that evil but cause another evil. I still don’t follow the ‘moral arbitrage’ argument.

  5. January 10th, 2009 at 22:57 | #5

    PrQ,
    Looks like the trolley problem was a rather extended link.

  6. BilB
    January 10th, 2009 at 23:36 | #6

    The trolley problem is a crock. The person who debates the choices is going to kill by failure to act. Flipping the switch is at the very least an attempt to save something, whereas a conscious choice is manslaughter. However flipping the switch after the first wheels have crossed the switch will derail the carriage as the second axle will take a different track to the first axle throwing the trolley on its side. Even if the sliding carriage cleans up all of the victims in its random path, that is accidental and considered to be fate. Or the timing is missed with a random consequence, equally accidental and fate.

    Anyone who contemplates a method of minimising moral damage for their immoral actions is doubly guilty. Anyone who further attempts to write down their actions with an immunity from prosecution in exchange for discontinuing the immoral act is quadriply guilty (Mugabe for instance).

    The problem with your argument is that an “act” is not a “good”. An act, once done, is a historical artifact which can be viewed in judgement from all philosophical stand points at once, and be re-evaluated many times. Perception of an action could be described by a bell curve, but there can be spontaneous recurrent bell curves for the same action with each curve potentially having different properties.

  7. BilB
    January 10th, 2009 at 23:51 | #7

    On further thought, an “act” particularly where an act is performed as a service does indeed have the properties of a “good”. But it also has other properties including moral consequence and it is this property that departs from the general boundaries of a “good”. Whereas an an “act” can be traded as a “favour”, generally only once, moral consequence can be re-evaluated many times. That is what Hell, or Heaven (for some), is all about.

  8. sean
    January 11th, 2009 at 00:37 | #8

    So the price of the “moral good” is subject to the value that can be obtained from the market you bought and/or sold the “moral good”, that’s relativism in its purest sense is it not? once again mixing Materialism up with the metaphysical.
    (No wonder Hamas get such good press in the West.)

    A imperfect Human being, living an imperfect life in an imperfect world, faced with an imperfect choice, chooses imperfectly, and is judged by the imperfect. That world be objectivism would it not?
    (or more perfectly Metaphysical objectivism,”

    which in short is what Kant came up with 250 years ago, “structures of the mind bring forth the world (reality)” which seems to have been lost in the academic world in the sea of relativity of dialectic materialism or Marxism to give it, its proper name.

  9. BilB
    January 11th, 2009 at 01:02 | #9

    @7 that should have been..a conscious choice to not get involved where involvement could have made a difference is a form of manslaughter.

    Anyway, I can’t see “Moral Arbitragist” replacing “Publicist” any time soon.

  10. charles
    January 11th, 2009 at 08:09 | #10

    Ummm, wasn’t it about access to oil.

  11. Ikonoclast
    January 11th, 2009 at 08:26 | #11

    JQ’s post on moral arbitrage resonates with me. For some time, I have been considering what morality, including ethics, is in essence (if there is such a thing) and in operation. I have come to the tentative conclusion that morality as a value system is both an “exchange system” and a “power system”. We should take the proposition that morality is about values and view it in the most literal fashion. Namely, that these values are traded and used like any values in economics and politics. Only moral vanity can prevent us from seeing that we trade in ethical values in a quasi-economic manner and that we constantly use morality as a power lever in a political manner.

    Indeed, in trying to understand George Bush, John Howard, the US Christian fundamentalists and the Moslem fundamentalists (to name a few), I have come to the conclusion that moral vanity is one of their key linking (and explicatory) characteristics. It is moral vanity which allows the mental gymnastics of ‘moral arbitrage’ and which permits a person to ‘mix and match the principles’ to reach a desired conclusion.

    Attraction to absolute belief systems (monotheism, neo-conservatism) arises, in the great majority cases, from the desire to be powerful. How can one fail to be powerful when one is allied to the Most Powerful? Following on from the desire to be powerful is the desire to feel right about it. To be powerful and to feel vindicated is the essence of this ‘moral’ position.

    Utilising a set of explanatory and legitimising beliefs, such people are able to start with the premise “I am right”. Therefore it follows that “what I wish must be right”. Therefore, it follows that “the set of most convenient and (superficially) convincing explanations of my position must be right”. Hence there occurs the moral arbitrage, the mix and match reasoning which JQ has correctly identified.

    We all suffer from moral vanity. I could not write the above unless I was morally vain myself. Is there some saving method which can be used to cut the ground from under moral vanity and moral absolutism? Here, I will reveal myself as true conservative in some matters. I think the theory is an empirical moral philosophy and the practice is our body of law (common and legislated).

    Let me give an example. I am sure you noticed how quickly that the general principle of “innocent until found guilty” disappeared from the thinking of Bush, Blair and Howard. When it became expedient this principle was selectively jettisoned; another example of mix and match morality. The inmates of Gitmo were “guilty and the (show) trials will confirm it”. One can imagine that had any of the offspring of Bush, Blair or Howard suddenly been found in a holding cell accused of some traffic, civil or criminal matter then no stronger defenders of “innocent until found guilty” could have been found than these three erstwhile gentlemen.

    Despite all their flaunted absolutism these three gentlemen could not adhere to one of the central philosophic and legal principles of western justice; that is they could not adhere to one of the closest things we have to a generally agreed absolute principle. The principle makes sense in logical, philosophical and legal terms. Legally speaking, innocence is general and guilt is particular. You can only be guilty under law if you are found guilty of some particular offence. Innocence cannot be proved. Downer expected Saddam to “prove that he did not have WMD”. This is impossible of course. Saddam could have shown a hundred locations where he did not have WMD. The comeback is of course, “well you’ve just got it hidden somewhere else”.

    In summary, the only antidote to moral vanity and abuse of power is adherence to law and proper process. Our body of law has grown up as the practical expression and recognition that morality is an exchange system and a power system and that its operations must be regulated in a fashion that provides (hopefully) a reasonable guarantee of justice to all citizens. I know we still fall well short of even the “reasonable” but that is grist for another post.

  12. BilB
    January 11th, 2009 at 09:10 | #12

    The more you think about this the more flesh there is on this bone. In “ten things I hate about you” Michael (future MBA) trades the promise of access to Bianca to Joey Donner (bad guy) for access to “being cool by association” with Joey’s “cool guy” reputation. A true arbitragist. He then goes on to broker finance for the deal with Joey’s money to entice Patrick Verona to seduce Kat (the key obstacle to success) to date thereby paveing the way for Joey to date Bianca. Something that is never really going to happen but by the time the realisation is made Cameron, the good guy, has swept Bianca off the scene to happy dating bliss. Only Shakepeare could have thought out a plot like this one. So not surprisingly he did, which suggests that Moral Arbitraging has been around for a long time. And now that I think back trough my Jane Austen, MA was probably far more prevalent in centuries past than it is today. Who today counts their “connections” as a measure of their worth?

  13. TerjeP (say tay-a)
    January 11th, 2009 at 09:15 | #13

    My problem with the trolley example is primarily with the physics of using fat people to stop run away trains (or trolleys). Fat people are simply not fat enough for this to work, and if they were fat enough then I probably couldn’t throw them off a bridge.

    Ignoring the physics I think utilitarians that wouldn’t throw fatty off the bridge have admitted that they sometimes defer to rights based ethics.

  14. Ikonoclast
    January 11th, 2009 at 09:45 | #14

    Bilb asks (rhetorically) “Who today counts their “connections” as a measure of their worth?”

    We all, consciously or unconsciously, count our “connections” as part of the measure of our worth. I mean connections in the widest sense of family, neighbourhood, social, religious, collegiate and political connections.

    Though if you are a social misfit and misanthrope like me you will have immediate family connections but few enduring connections of any other kind. In fact, due to my inverse snobbery on the issue of social influence, I count it as a great indicator of my worth that I have no significant extra-family social connections and no political connections whatsover.

  15. BilB
    January 11th, 2009 at 10:35 | #15

    You make the point well, Ikonoclast. I did say that, knowing full well that with age my connections become more meaningful. But this is completely contrary to a performance based system of values. The trading of favours and manipulation of influence is very much the currency of enslavement, and totally at odds with our democratic ideals. One person, one vote, nothing more. A true level field for interaction.

    My greatest hero from history would be Alfred of Wessex, King Alfred the Great. This is a guy who in the midst of absolute anarchy took his teenage memories from a visit to Rome and built the basis of what is modern Brittain and by extension Australia. One of his basic tenets and a key for his success was individual equality. With this ideal Alfred took abject defeat in the face of overwhelming odds and created great civility. I’m guessing that the power of social inclusion gave Alfred the advantage against brute force.

    The alternative is a world where individuals can be traded by dark figures with secret arrangements. “Honour” is the value of this world and human life is its currency.

  16. jrbarch
    January 11th, 2009 at 13:48 | #16

    Consider a human being as an unit of energy utilising 3 main streams of energy (there are others): vis power, love, intelligence – comprising what we call consciousness.

    Arbitrage is generally the use of power and intelligence (for self) with love in the descendant. Wisdom is the use of all three in the ascendant (for all).

    People (or nations) generally undervalue kindness because they are not able to see beyond self.

    A course of action must arise from wisdom to be recognised as virtuous. People aren’t silly!

  17. rabee
    January 11th, 2009 at 13:50 | #17

    This leads to the moral arbitrage opportunities associated with the following problem:

    An ethnic group has suffered centuries of pogroms genocide and dispossession. Despite this they have made enormous contributions in sciences, philosophy, and the arts. These contributions are so significant that they essentially define values and scholarship.

    To absolutely guarantee the survival of this extraordinary group of people one proposal is to dispossess an equally sized group of people. These people are improvised and rather mediocre. They have no achievements preferring to eternally squat in the hot sand next to their camel herds drinking brutally bitter coffee and ordering their women folk around. They are an unattractive incoherent mob to boot. No one will miss this fly ridden lot should they disappear.

    A scholar is asked to take a moral stand on the proposal.

  18. Socrates
    January 11th, 2009 at 14:50 | #18

    Ethics is simply a set of principles by which we may make value judgements about right and wrong. If you are a realist about ethics (I am) then the judgements are universalisable. If you are not then the judgements are worthless. It is not that there is arbitrage potential in ethics – that is like saying that there is arbitrage potential in mathematics.

    I take it JQs intention was that the (moral) arbitrage potential arises from people putting different (moral) values on the same actions, or placing the same (moral) value on different actions.

    Thus in this case, if people value Palestinian militias firing rockets that kill five civilians equally with an invasion and air strikes that kill 800+, then there would appear to be arbitrage potential accruing to the side that kills 800+ (Israel). Perhaps it is time we valued their actions in a more objective light.

  19. BilB
    January 11th, 2009 at 16:26 | #19

    Gee Rabee, I hope that that is not your perspective outlined there. So much blind arrogance, and hatred. It just may be that in a few short years those very desert servival skills and instincts may be what is required to survive on the newly shaped planet. A planet altered by those very clever people with their excessive need for energy to drive their ambitions.

    http://news.bbc.co.uk/1/hi/sci/tech/7817684.stm

    The real tradgedy here is that if people cannot agree to live next door to each other how will they ever agree to save the planet. In that situation my money is on the desert people to best survive the next 100 years. No amount of moral arbitrage can change the reality of no food to eat.

  20. Ernestine Gross
    January 11th, 2009 at 16:27 | #20

    The interpretation in #19 corresponds roughly to what is known as a ‘dirty arbitrage’ in Finance applied.

  21. Ian Gould
    January 11th, 2009 at 18:14 | #21

    “These people are improvised and rather mediocre. They have no achievements preferring to eternally squat in the hot sand next to their camel herds drinking brutally bitter coffee and ordering their women folk around.”

    Racist garbage – and I speak as a member of the racial group you praise so highlyh.

    Ironically, for several hundred years up until 1945, your moral equivalents said much the same thing about us. (Except I don;t think we were called “improvised”.)

  22. Ian Gould
    January 11th, 2009 at 18:18 | #22

    I may have misread JRBarch’s comments.

    It’s possible he’s not referring to the arab/Irsaeli conflict but engaging in a defence of the Lebensraum policy of Germany circa 1941.

    If we insert the words “Aryan” and “slav” at appropriate points that’s what it reads like.

  23. January 11th, 2009 at 19:08 | #23

    I am certain that Rabee’s views are anything but racist.

  24. GreekAmongRomans
    January 11th, 2009 at 20:46 | #24

    Ikonoclast@12,

    You have correctly described what is known in the research community, under the field of psychology on prejudice, as the Right Wing Authoritarian (RAW) personality trait [(Adorno et al. 1950), "The Authoritarian Personality", (Altemeyer et al. 1988) "Enemies of Freedom: Understanding Right-Wing Authoritarianism", (Altemeyer et al. 1996) "The Authoritarian Specter"].

    Findings suggest that authoritarians tend to be self-righteous and mean spirited and have a comparmetalised mind (Robert Altemeyer, 1996), they view the world as a fearful place (Robert Altmeyer 1988). Furthermore, researchers have also found that RWA personalities do not ‘infer’ accurately or well. That is, as a class of people, they lack critical thinking skills, that is, they seldom correctly execute syllogisms!

    Altemeyer also identified that the conservatives have an inability to be quantifiable. He states that conservatives have a problem with “evidence” in general.

    This last point is particularly pertinent to the debate regarding torture under Bush’s conservative defense, which is absolutely reprehensible.

  25. Ian Gould
    January 11th, 2009 at 21:15 | #25

    :Thus in this case, if people value Palestinian militias firing rockets that kill five civilians equally with an invasion and air strikes that kill 800+, then there would appear to be arbitrage potential accruing to the side that kills 800+ (Israel). Perhaps it is time we valued their actions in a more objective light.:

    It’s a wonderful illustration of the sheer complexity of the situation that two of the five Israelis killed by missiles from Gaza were themselves Arabs (one, a Druze, was on active service with the IDF at th time).

  26. Ian Gould
    January 12th, 2009 at 00:26 | #26

    Rabee, if your comments were meant ironically and I have misinterpreted your intent, I apologise.

  27. January 12th, 2009 at 09:35 | #27

    The population of the crazy right, in the light of the financial dieoff, is way beyong carrying capacity,hence the lemming like search for a cliff.

  28. Michael of Summer Hill
    January 12th, 2009 at 16:33 | #28

    John, in the real world the majority could not afford to throw away their God’s penny whilst those with deep pockets couldn’t give a stuff.

  29. AdamcC
    January 12th, 2009 at 22:28 | #29

    Insert here] arbitrage has become popular terminology for the intellectually lazy. The best example of moral (by which we seem to mean geopolitical/killing people) arbitrage I can think of is the fact that Israel’s fairly limited assault on Gaza receives front page coverage across the world but the more strategically important current campaign by the government of Sri Lanka against the LTTE gets merely a news brief. I suppose that would be better described as “blood libel arbitrage”. (Perhaps the Zionist entity should outsource its Gaza action to Sri Lanka so it can fly under the radar.)

    Avoiding the easy shots, this doctrine has some merits. However, arguing that one can ignore factors such as intention seems insupportable. Thinkers need to address the concept of necessary evil in this case (by which I mean both Gaza and Iraq) to have anything useful to add.

  30. Ubiquity
    January 13th, 2009 at 23:17 | #30

    “A Disproportionate response” , is a “necessary evil” when your personal livelihood is threatened. It is moral arbitrage from the perspective of a third person that is not part of the war between two parties of variable military capacity. However from the waring parties perspectives it is about obliterating the opposition so it never threatens its livelihood again with minimum loss of resources and persons.

  31. BilB
    January 14th, 2009 at 07:02 | #31

    That is a good example of moral arbitraging there, Ubiquity. Now all you have to do is make a buck for your effort and you’re the full commercial deal.

  32. Ubiquity
    January 14th, 2009 at 08:13 | #32

    Your response was proportionate BilB.

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