“Avarice” by Jesus Solana. Source: Wikipedia
In Hollywood, the amoral business person is a standard trope – the greedy capitalist who only cares about increasing the bottom line, no matter what the cost to workers, communities, or the environment. But markets need to have standards – like trust, honesty, and fairness – in order to work. It’s bad business to deceive people. If I buy a bag of potato chips and find mostly air inside, I won’t buy that brand again. Reputation matters. And online reviews can be devastating.
Hayek called our shared standards “tradition.” Tradition, he says, captures the accumulated wisdom of previous generations in a way that we couldn’t discover for ourselves. By practicing these traditions and passing them on, we avoid costly mistakes. Ironically, societies with strong traditions make the best environment for innovation. Property rights, the rule of law, and sound money are essential to sustain a market economy.
But each of us can make cognitive errors that take us down the wrong road. We’re self-interested: we make excuses for little mistakes when they benefit us. And little things add up to big things. We’re all in denial: we don’t like to look at things that challenge our prior assumptions. It’s the flip side of confirmation bias. And there’s social proof, a type of herd-mentality, where a questionable practice becomes acceptable because it seems to be commonplace. It’s why terrible behavior spreads, and some companies seem like ethical and moral sewers: a herd of lemmings running off an ethical cliff.
People try to do the right thing because we have to live with ourselves. But it’s also good business practice to take the high road: it’s far less crowded.
Douglas R. Tengdin, CFA