(via mcgill.ca)

The moral hazard of Birks

a/Opinion by

I was sitting in a conference in the basement of the Birks building, staring through the floor as the TA mumbled something about critical thinking… and I suddenly noticed that one of my classmates was still wearing his boots.

As a rule-following person in general, I’ve followed the Birks rule of removing my shoes upon entrance since hearing about it in first year. I had assumed it was to protect what look to me like nice marble floors in a beautiful building, but it wasn’t until earlier this year that I noticed the posters about the risk of slipping on wet stone floors and the ambulance ride that might follow. “Ah,” I thought to myself, “how sensible! If all of us wear our boots inside, the floors will be slippery from the snowmelt, and someone could break their neck while coming down the stairs. What smart staff we have.”

The risk of slipping and the clearly-displayed posters about it make the decision to remove my boots obvious, to me. So, why hadn’t my classmate? There, in my political science conference, the economics side of my brain switched on and delivered the answer: moral hazard.

After the 2008 financial collapse, everyone was talking about moral hazard. Technically speaking, moral hazard is the “lack of incentive to guard against risk where one is protected from its consequences.” In other words, if I’m gambling with someone else’s money, I will care less about the risk of losing it than I would if it was my own.

This is especially true where there is a cost to caution. Taking off your boots takes effort and time, two things not easily parted with for a harried student late to conference. There are also the risks of theft and of stepping in someone else’s icy snowmelt while protected by nothing but soft, absorbent cotton.

At the same time, my still-shod classmate is guarded against the consequences of leaving his boots on. Because few people do so, there isn’t much snowmelt for him to slip on, and slipping on his own wet footprints would require a walk of Monty Python-esque silliness. The discomfort of squelching through cold water in socks is also avoided, as is the risk of theft. So, he saves the ‘costs’ of caution and experiences none of the consequences by clunkily tip-toeing around the rules.

This idea, call it moral hazard or whatever else you will, explains why there are always a few that work against the interests of the whole in group settings. Whether it’s leaving an insured car unlocked in a sketchy parking garage, taking up smoking after taking out health insurance, or selling bundles of worthless loans to elderly pensioners, moral hazard is everywhere. It is enabled by global commerce and perpetuated by self-interested hunter-gatherer brains mismatched with collectively-minded societies—though to be fair to capitalism, it also makes communism unworkable.

To solve moral hazard, we need to catch transgressors, whether red-handed or red-booted, and punish them to dissuade further offences. Monitoring can be tricky; thankfully, punishment is quite easy. Legal measures may spring to mind first, but public shaming is sometimes even more effective—hence historical combinations like stockades and tomatoes. Modern forms of shaming exist as well, though usually in more whimsical forms. For example, the aptly-named Antanas Mockus, former mayor of Bogota, hired mimes to ridicule jaywalkers and litterers. His program was a massive success, dramatically improving traffic flows and tidiness in the city.

Once we have that sorted out, maybe we could take off our boots without fear once again.