Author: Lisa Herzog

I work on various questions at the intersection of economics and philosophy, currently focussing on ethics and organizations and ethics in finance. Methodologically, I sit between many chairs and I have come to like the variety. I think of my work as critical, empirically informed social philosophy.

Does systemic injustice justify Robin Hood Strategies?

By Lisa Herzog

On 15 June, 2014

In Duties, Economics, Gender, Old Blog

Does systemic injustice justify Robin Hood strategies?

Many injustices arise because of patterns of behaviour, single instances of which seem harmless or at least pardonable. For example, if professors help the kids of their friend get access to university programs – and given the fact that professors and their friends tend to come from the same socio-economic background – this can lead to structural discrimination against applicants from other backgrounds (as discussed by Bazerman and Tenbrunsel here, p. 38-40). Other examples concern implicit biases against women and ethnic minorities. Much work has been done recently that helps us to understand how these mechanisms work (see e.g. here). Given how pervasive these mechanisms are, it is understandable that they cause moral outrage. The question is, however, what individuals should do in reaction to them.

Imagine that you are in a situation in which you have some amount of power, for example as a reviewer or as a member of a search committee. You might be tempted to use a “Robin Hood strategy”, i.e. a strategy that breaks the existing rules, for the sake of supporting those who are treated unjustly by these rules. Given how structural injustices work, many such “rules” are not formal rules, but rather informal patterns of behaviour. But it is still possible to work against them. For example, could it be justified to reject male applicants not because of the quality of their applications, but because they are white and male and come from a rich Western country?

One has to distinguish two levels of what such a strategy could imply. The first concerns correcting own biases that one might have, despite all good intentions (to check them, the various tests offered by Harvard University on this website can be helpful). The best way to do this, if possible, seems to be anonymity. When this is not feasible, the alternative is to scrutinize one’s patterns of thought and behaviour as best one can. The more power one has, the more it seems a requirement of justice to do this.

This is different from a second level of Robin Hood strategies, for which the name seems more appropriate: these concern not only own biases, but biases of the system. The idea is to work against them on one’s own, in one’s little corner, maybe hoping that if enough of us do this, the problems can be solved or at least attenuated. Could this be a defensible strategy?

The problem is, of course, that one risks introducing new injustices. One consciously deviates from what are supposed to be the criteria of selection, for example a candidate’s performance in previous jobs or the likelihood of being a good team member. In some cases, however, it is reasonable to assume that if a candidate comes from a group that suffers from discrimination, achieving the same level of merit as a candidate from another group takes much more effort. So according to this argument, and as long as these problems are not recognized by the official selection criteria, it seems defensible to privately factor in these previous structural inequalities.

But one’s epistemic position in judging such cases is often a weak one. For example, standard application material for many jobs includes a CV and some letters of reference. These materials are often insufficient for understanding the details of a specific case and the degree to which discrimination or stigmatization might have had an impact on the candidate’s previous career. One risks making mistakes and importing one’s own subjective biases and prejudices; taken together, this can make things worse, all things considered.

Robin Hood strategies do not provide what seems most needed: good procedures and public accountability. They do not get at the root of the problem, which is to create collective awareness of the issues, and to find collective mechanisms for addressing them (the gendered conference campaign is an example). Collective mechanisms are not only likely to be more effective, they also bring things out into the open, and create a public discourse on them. Although public discourses also have their weaknesses, there is at least a chance that the better argument will win, and there are opportunities for correcting what end up misguided strategies. Robin Hood strategies, in contrast, fight fire with fire: they remain within a logic of power, trying to find ways in which one can use counter-power to subvert the dominant power elites. But this does not change the fundamental logic of the game.

Thus, our preferred strategies should be different ones: strategies that really change the logic of the game, openly addressing problematic patterns of behaviour and looking for collective – and maybe formally institutionalized – solutions. Nonetheless, and despite all the reasons mentioned above, I cannot bring myself to thinking that Robin Hood strategies can never be justified in today’s world. Of course one has to be very careful with them, not only with particular cases, but also with regard to the slippery slope one might get onto. But are they ruled out completely? What do you think?

Scoring For Loans, or the Matthew Effect in Finance

By Lisa Herzog

On 16 February, 2014

In Distribution, Economics, Old Blog

Scoring for loans, or: the Matthew effect in finance

source: wikipedia

Last year, we moved to a lovely but not particularly well-off area in Frankfurt. If we applied for a loan, this means that we might have to pay higher interest rates. Why? Because banks use scoring technologies in order to determine the credit-worthiness of individuals. The data used for scoring include not only individual credit histories, but also data such as one’s postal code, which can be used as a proxy for socio-economic status. This raises serious issues of justice.

Sociologists Marion Foucarde and Kieran Healy have recently argued that in the US credit market scoring technologies, while having broadened access, exacerbate social stratification. In Germany, a court decided that bank clients do not have a right to receive information about the formula used by the largest scoring agency, because it is considered a trade secret.

This issue raises a plethora of normative questions. These would not matter so much if most individuals, most of the time, could get by without having to take out loans. But for large parts of the population of Western countries, especially for individuals from lower social strata, this is impossible, since labour income and welfare payments often do not suffice to cover essential costs. Given the ways in which financial services can be connected to existential crises and situations of duress, this topic deserves scrutiny from a normative perspective. Of course there are deeper questions behind it, the most obvious one being the degree of economic inequality and insecurity that a just society can admit in the first place. I will bracket it here, and focus directly on two questions about scoring technologies.

1) Is the use of scoring technologies as such justified? The standard answer is that scoring expands access to formal financial services, which can be a good thing, for example for low-income households who would otherwise have to rely on loan sharks. Banks have a legitimate interest in determining the credit-worthiness of loan applicants, and in order to do so cheaply, scoring seems a welcome innovation. The problem is, however, that scoring technologies use not only individual data, but also aggregative data that reflect group characteristics. These are obviously not true for each individual within the group. The danger of such statistical evaluations is that individuals who are already privileged (e.g. living in a rich area or having a “good” job) are treated better than individuals who are already disadvantaged. Also, advantaged individuals are usually better able, because of greater “financial literacy”, to get advice on how they need to behave in order to develop a good credit history, or on how to game the system (insofar as this is possible). The use of such data thus leads to a Matthew effect: the have’s profit, the have-not’s lose out.

There are thus normative reasons for and against the use of scoring technologies, and I have to admit that I don’t have a clear answer at the moment (one might need more empirical data to arrive at one). One possible solution might to reduce the overall dependence on profit-maximing banks, for example by having a banking system in which there are also public and co-operative banks. But this is, admittedly, more a circumvention of the problem than an answer to the question of whether scoring as such can be justified.

2) Is secrecy with regard to credit scores justified? Here, I think the answer must be a clear “no”. Financial products have become too important for the lives of many individuals to think that the property rights of private scoring companies (and hence their right to have trade secrets) would outweigh the interest citizens have in understanding the mechanisms behind them, and in seeing how their data are used for calculating their score. In addition, social scientists who explore social inequality have a legitimate interest in understanding these mechanisms in detail. It must be possible to have public debates about these issues. Right now, the only control mechanisms for scoring agencies seems to be the market mechanism, i.e. whether or not banks are willing to buy information from them. But one can think of all kinds of market failures in this area, from monopolies and quasi-monopolies to herding behaviour among banks.

One might object that without trade secrecy there would be no scoring agencies at all, and hence one could not use scoring technologies at all (note that this only matters if one’s answer to the first question is positive). But it seems simply wrong that transparent scoring mechanisms could not work. After all, there is patent law for protecting intellectual property, and in case this really doesn’t work, one might consider public subsidies for scoring agencies. The only objection I would be worried about would be a scenario in which transparency with regard to scoring agencies would reinforce stigmatization and social exclusion. But the problem is precisely that this seems to be already going on – behind closed doors. We cannot change it unless we open these doors.

Is Luck in Labour Markets an Issue of Justice?

By Lisa Herzog

On 21 September, 2013

In Distribution, Economics, Old Blog

Labour markets can be just and unjust in many ways that go beyond the distribution of income. One is luck and predictability. Their distribution is highly unequally, and I think that this raises issues of justice.

First, take individual predictability. In order to plan your life (where you want to live, with whom, whether/when to have children etc.) it is helpful to know what kind of job you can expect to have over the next few years. If job markets are to a high degree based on luck, rather than other criteria such as merit or age, they are less predictable. Now, whether or not labour markets could or should be structured around merit (and in what sense of merit) is a controversial question. But one Union? advantage is that you can have a reasonable guess, based on your prior achievements, of what your job prospects for the next few years will be. Psychological tendencies such as over-optimism or cognitive dissonance can of course kick in, but even more so if there is less predictability.

Second, collective predictability. There are factors in the legal and social set-up of labour markets that determine, for societies as a whole, how predictable labour markets are. For example, a government can take anti-cyclical measures in a depression that keep people in jobs. Or, as Albena Azmanova has recently pointed out, the welfare state can be Classic: designed in ways that increase or decrease individuals’ flexibility, maybe offering “universal minimal employment” as a fallback option.

My impression is that much goes wrong in these respects today, and that this raises issues of justice (in addition to many other forms of injustice in labour markets).

First, unpredictability gives greater power to employers, because employees will reasonably be more risk averse, and will try to keep jobs they have, even if the conditions are such that they would otherwise want to quit. This looks like an issue of justice as such, and it can have harmful consequences if it prevents people from 11 standing up to injustices within their job, blow the whistle, etc. Secondly, and more importantly, issues of unpredictability hit different groups in society with differential force. Depending on whether you have inherited wealth or not, marketable or less marketable human capital, a family rooted in one place or full geographic flexibility, etc., unpredictable labour markets make your life more or less difficult to live.

Nonetheless, it would not be worth raising these issues as issues of justice if they could not be changed, or only at the cost of violating other values. In designing policy instruments that make job markets more predictable, one would have to be careful – otherwise one might end up, for example, with an in-group with 100% predictability and an out-group with 0% predictability. Or one might, in the long run, stifle markets so much that the economic wellbeing of the worst off is endangered. But it seems worth experimenting with different models, and learning from the experiences in other countries, in order to see what can be done (maybe we can discuss examples below). And I think there can also be cases micro-injustices about predictability, for example if a boss tells three people that they have “good chances” to be promoted, while only one can really be promoted.

One thing, however, can and should change, in my view. The role of luck in the job market should be acknowledged, and professional success (or the lack of it) should not be seen as a sign of personal worthiness (or the lack of it). We are equal as human cheap jerseys beings and as citizens, and while some may work harder than others, or be more talented than others, these things do not determine our value. So while there might be arguments in favour of de facto trying to tie job market structures more to achievement, for the sake of predictability (although I think that collective measures are far more important), we should stop fetishizing professional success. The role of luck is always going to be there, and acknowledging it might lead to a bit more solidarity among co-citizens and fellow human beings.