CHEATING ECONOMICS

In a previous post I had outlined a specific situation from my life to which I had applied common economic sense. To recap: 1. Our domestic help was highly irregular. 2. She was also deep in debt. I thought these two aspects were connected and that the latter was the cause of the former. Thinking that if her debt problems were solved she would be more regular, I paid off her usurious debt. She stopped working for me the very next day.

Consider the facts: her crushingly usurious debt was cancelled and replaced with one at a modest rate of interest. Even this cost would be refunded to her once the principal was repaid to me. In short she was getting a interest-free loan without any collateral. Furthermore, by giving her this loan I rendered her employment with me secure at least until the loan was repaid, for if we fired her anytime before, there was no way I could recover the loan. To sum up, she got an interest free loan, a bonus at the end, and job security. Some fall-out benefits too: no more threats from the loan shark and possibly no more beatings from her husband. Why then did this "rational" economic agent act in a patently irrational manner?

Classical economics has no answer.

Let us see if the "Game Theory" can explain it. The most famous example of this theory is the Prisoner's Dilemma. In short, two political prisoners are each offered a deal by their captors. By confessing and betraying his friend he will get a lenient sentence and the friend will go to Siberia. Refusal to betray the friend will attract a stiffer punishment. I will not burden you with the detailed logic of it, but suffice it to say that in a situation involving only two prisoners the better strategy is to betray the friend. But In situations involving more than two, it is better to clam up and not betray any one. The latter is like a prison for the real baddies where, if you betray anyone, the others will get you and the best option is maintaining a code of silence.

The maid situation is somewhat similar. By betraying our trust, she has ensured we will never lend money to any other maid, however dire her situation and howsoever trustworthy she would turn out to be. Actually this is now one of the very first conditions we stipulate in discussions with potential employees. As our story spreads, more and more employers would be put off by the possibility of a loss and would avoid lending any money to their domestics; this in turn would put off the other maids in the market who would turn on the one who was the cause of it all. So according to Game Theory, the maid made the wrong choice.

You might argue that the maid was ignorant of von Neumann, Nash et al and the theory they developed. You will be right there. But game theory has got embedded in many societies as part of social norms and mores (in order that the collective interests are not affected by the acts of individuals). The above example has a parallel in almost all societies. Simply put, do good unto others so that others can be good to you. There is a negative form of this: don't do bad unto others so nothing bad is done unto you. The maid may have been ignorant of Game Theory but not this injunction which is very strongly inculcated in our communities down south.

So why did she do what she did?

"The poor cannot afford finer sensibilities like loyalty, gratitude and the nicer things of social intercourse", I hear you say. Not true. Recent research suggests altruism is hard-wired into human brains. Given that the class of people who do domestic duty all live in urban slums - possibly as one another's neighbours - they are likely to know each other and thus there is a very good chance that their common codes are enforceable quite easily. This should discourage deviant behaviour inimical to the common interest.

All the more reason for wondering why she did a bunk with my money.

Recent research (http://www.sciencedaily.com/releases/2013/09/130905085913.htm) has the answer: people get a "high" when cheating. Cheating may not be necessitated by want or desire. The act of cheating, doing what is not expected, getting something without paying for it, depriving someone else, or outsmarting another gives the perpetrator a high it seems. Which is why billionaires renege on agreements and cheat on taxes; why the powerful are corrupt, etc. Alcohol high costs money and women in this part of the world generally do not imbibe. Cheaper forms of intoxication like grass and weed are youth fad amongst upper classes, but not the lower classes. The only high my ex-maid probably could afford in her problem-prone life was to take off with my money. So when the opportunity presented itself, she did.

She had the added benefit of having her debts wiped off so she could borrow again, perhaps to buy a flat panel TV.