"The success of most people ... almost always depends upon the favour and good opinion of their neighbours and equals; and without a tolerably regular conduct these can very seldom be obtained."In other words, as Hassett puts it, stigma matters. People will be affected in their economic decision making by the views that their peers have about them. He goes on to explore the ways in which ethical stigmatization may affect conduct by analyzing an experiment he devised to look at this phenomenon. The results were fascinating and are relevant not only to the purpose of this blog, but to the question of a possible coming economic catastrophe.
In the ethics experiment, several MIT students were given a simple math test to complete in a fixed amount of time, and given a reward for each correct answer they gave. The students were divided into two groups: a control group that handed in their tests to be graded, and another group that reported their own scores (and could therefore change their answers).
Here's the catch. The second group of students (who had the opportunity to cheat) were again divided into two groups. One of those groups was asked to make a list of 10 books they remembered reading from high school. The others were asked to write down as many of the 10 Commandments as they could recall. Here are the results ... and also where it gets scary:
- The control group (who couldn't cheat) averaged 3.1 problems right
- The group who simply listed 10 books from high school (and could cheat) averaged 4.1 problems right
- The 10 Commandment group did not cheat, and reported only 3.0 problems right
And that's the rub. Remember from the last post that: "80% of individuals believe it would be "morally wrong" to strategically default on their mortgages." But there is another side to the data and it is this:
People were 82% more likely to state an intention to default if they knew someone who had already defaulted.
Do you see the correlation to the MIT study cited above? Once the mortgage defaults begin, it will become much easier for others to justify choosing the same escape route. Their "10 Commandment" morality will quickly give way to a declining standard that finds it more difficult to absorb the pain of an economic struggle than to simply throw in the towel like the neighbors did.
Lack of stigma matters too.
It is hard to imagine that there is any wrought iron fence strong enough to stop the resulting economic avalanche. I hope I'm wrong, but you tell me: In a society that has already proven its propensity for disregarding rising debt levels in favor of an "entitlement" to have a more comfortable life, more toys, more gadgets and houses they cannot afford; in a society whose political "leaders" will go to great lengths to avoid telling the economic truth, admit to the required economic pain and continue to pass the buck to the next (several) generations; in a society that is perfectly comfortable mortgaging its future at unprecedented levels -- do you think the trend will get reversed or simply continue to accelerate?
For some reason, I'm not optimistic.