#87 Fairness and Ethics in Decision Making
In this post we will cover why perceptions of fairness must be considered before taking decisions - if others view our actions as unfair they will punish us. We will also cover psychological processes that lead people to engage in ethically questionable behaviors that are inconsistent with their own preferred ethics (this referred to as bounded ethicality).
Perceptions of Fairness
When the Consequences of Supply and Demand Seem Unfair
Fairness considerations can dominate economically rational choices in decision making. For example, if a hardware store increases the price of shovels after a bad snowstorm - customers may punish the retailer for the perceived unfairness of an economically rational action.
A similar sentiment makes it difficult for employers to reduce wages when economic conditions change for the worse. Individuals are concerned with departures from the status quo and that economically justifiable actions will often be perceived as unfair.
Choices Inconsistent with our Own Economic Self-Interest
Ultimatum games reinforce the importance of fairness. In these games, a proposer divides a known, fixed sum of money any way he chooses by filling out a form stating "I demand X". The responder either accepts the offer and receives her portion of the money as allocated by the proposer or rejects the offer, leaving both parties with nothing. Responders reject profitable but unequal offers routinely; offers for less than 20% are usually rejected. Traditional (rational) models predict that the proposer will offer the responder only slightly more than zero and that the responder will accept any offer greater than zero.
When we are Concerned about the Outcome of Others
We care about what happens to others. People may willingly pay in order to harm an adversary or forgo gains to help a loved one. People are concerned about how their own rewards compare to the rewards of others. Hence, we have job grade systems to specify the compensation available to employees at each level within the organization. Smaller the gap between the highest paid and the lowest paid member, the better the team as a whole works together.
Why do Fairness Judgments Matter?
People will use fairness and social-comparison information to judge your actions. Thus, understanding how people judge fairness may help you make better decisions in both your personal and professional life.
Bounded Ethicality
Bounded ethicality refers to the psychological processes that lead people to engage in ethically questionable behaviors that are inconsistent with their own preferred ethics. Below are six examples of bounded ethicality:
Overclaiming Credit: Everyone believes they contributed more to an enterprise than they actually did. This arises from the self-serving biases. This tendency is very harmful for teams - greater the magnitude of overclaiming, the less parties wanted to work together in the future
In-group favoritism: We tend to identify with people who are a lot like us. We tilt toward helping people who share our nationality, religion, race, gender, or alma mater. However, such actions could harm the opportunities of out group members
Implicit Attitudes: When we meet someone, our minds automatically activate stereotypes of the person's race, sex, and age. We are likely to take decisions based on the assumption that the stereotypes are real
Indirectly Unethical Behavior: This relates to the issue of camouflaging the intentionality behind exploitative actions. People do this to protect their self-perception and to influence the perceptions of others
When Values Seem Sacred: Moral issues produce emotional reactions, which then drive our more cognitive assessments. Our moral objections were driven primarily by emotion rather than reason
Psychology of Conflicts of Interest: Conflict of interest will distort our judgments in ways that we are not even aware are occurring. Conflict of interest can lead to motivated blindness - when people have an incentive not to notice data, they are able to overlook it
This post is a summary of a chapter from the book - Judgment in managerial decision making by Max Bazerman and Don Moore