Ethical failures: Where they come from and how to address them

A review of

Gentilin, Dennis. The Origins of Ethical Failures. Lessons for Leaders. A Gower Book. Routledge (2016). ISBN: 978-1-138-69051-6

Ethical failures were in the press big-time in 2017. Prominently, creeps like Harvey Weinstein, James Toback, Bill Cosby, Larry Nassar, etc. were accused of sexual transgressions of various sorts (and in some cases admitted them to varying degrees). The sheer number of accusations leaves little doubt that, in their substance, they are correct. One thing that was truly shocking, on top of the specifics of many of the allegations, was that some of these transgressions went on for literally decades, that many people seem to have known about them for years (if not decades), and that the perpetrators did get away with them for an unconscionably long time. It is clear that organizational failures must have played a major role. This was implicitly acknowledged in the name of  The Royal Commision (RC) into Institutional Responses to Child Sexual Abuse, established under the Gillard government in 2013 and which reported all 17 volumes of its findings on December 15, 2017. The RC also laid out recommendations.

It did not really come as a surprise that once again massive organizational failure, in particular of the Catholic Church, was identified as a major finding. It did not come as a surprise because for years there had been a never-ending stream of trials, not just in Australia, suggesting just that, and providing plenty of evidence that the Catholic Church – in its (continued) belief that it is a law and world unto itself — had engaged for decades in what might generously be called economy with the truth.

Two weeks earlier, after another year of numerous reports of questionable practices, and record profits of the four major banks, the Turnbull government saw itself forced — by its own backbenchers, no less — to announce that it would establish a RC into misconduct in the banking industry. It was a step that Labor and the Greens had urged for more than a year. (The recent draft report of the Productivity Commission has made clear that some such RC is indeed overdue.) The Turnbull government’s acceptance of something that it could not prevent, and its subsequent attempts to undermine the effectiveness of the RC by simultaneously widening its scope and imposing an essentially unrealistic timeline, demonstrates, at the minimum, the kind of myopic opportunism that Australian politics seems drenched in.

Having graduated in 2001, Gentilin became a member of the FX trading desk of the National Australian Bank (NAB), one of the four major banks.  In 2004 that trading desk became involved in a trading scandal that rocked NAB and led, within a couple of weeks, to the resignation of both its chairman and CEO, the reconfiguration of the board of directors, and significant financial and reputational losses. Gentilin was the young trader who blew the whistle. Contrary to many other whistleblowers (who are typically harrassed out of the organizations on which they blew the whistle), he stayed with NAB for more than a decade – as head of the institutional sales team and a member of the corporate strategy team — before he resigned in January 2016 to found Human Systems Advisory, a name meant to be programmatic. The foreword of his book was written by the current chairman of NAB who states: “There are no simple answers in this book. But there are answers. And there are important truths, supported by deep and rigorous analysis. These should be of interest to all corporate leaders, in both executive and non-executive roles.” (p. xvi).   One such truth, says the chairman – apparently quoting Gentilin – is that “leaders must strive to articulate a meaningful social purpose for their organizations that is underpinned by a virtuous set of values.” That’s quite a mouthful, and the impending Royal Commission on the banking system suggests strongly that the major banks (that tried at first to fight off the RC until they realized that fight had been lost) have continuing trouble to understand that particular message, as does the recent draft of the related Productivity Commission report.

Below, I am interested in both the depth and rigor of the analysis and the truths that Gentilin establishes.  I am also interested in the implementability of the measures that he proposes.

In his Introduction, Gentilin states that he draws his evidence from “behavioural business ethics” which he defines as the intersection of business ethics and psychology (p. 5). While he is credited on his website with a degree in psychology, Gentilin makes clear that he wrote this book as a “practitioner” rather than “an academic, a philosopher or an ethicist” (p. 4). He does so in four chapters that explore “The Power of Context”,  “Group Dynamics”,  “Our Flawed Humanity”, and “What We Fail to See”.  A conclusion follows.

Gentilin relies heavily on summaries of articles from psychology that explore human nature and the circumstances under which nice behaviour might turn into, well, not so nice behaviour of different shades. While there is brief perfunctionary nod (p. 3) to the replicability crisis that has afflicted psychology, throughout the book there is little discussion of relevant laboratory design and implementation issues such as incentivisation, experimenter expectancy effects, external validity, and so on (Hertwig & Ortmann 2001; Ortmann 2005). Never mind the fact that much of the evidence on unethical behaviour paraded in this book has been produced with deceptive practices, arguably an unethical practice itself (Ortmann & Hertwig 2002; Hertwig & Ortmann 2008). There is no discussion of statistical issues such (lack of) power computations, p-hacking, publication biases, and what not here either.

Claiming that “explanations of unethical conduct rarely give proper consideration to the system within which people operate … (and) tend to focus on identifying ‘bad apples’ or ‘rogues’” (p. 7), in Chapter 1, Gentilin explores how the environment can impact human (mis)behaviour and, on balance, concludes that “the ‘barrel’ within which the ‘bad apples’ operate must be given as much (if not more) attention as the ‘bad apples’ themselves.” (p. 8). Before he reviews the lessons to be learned from the Stanford Prison Experiment, Gentilin reviews literature on social norms and how they affect behaviour.  The well-known Cialdini et al. littering and Mazar et al. (dis)honesty studies are paraded, as is an interesting lab study by MacNeil & Sherif (1976) in which the authors demonstrate generational transfer of (questionable) practices, and a related field study by Pierce & Snyder (2008). Distinguishing between descriptive (“derived from what is”) and injunctive (“derived from what ought to be”) norms, Gentilin documents cases where unethical descriptive norms tear to smithereens injunctive ones. He relates this to his reading of what led to the FX trading scandal at the NAB: “young people in particular are vulnerable and endorsing immoral social norms … In the FX trading scandal that engulfed the NAB, immoral social norms emerged that promoted excessive risk taking and misstating the true value of the currency options portfolio.” (pp. 18 – 19). This is hardly surprising, and indeed Gentilin mentions the LIBOR rate-fixing scandal and the professional cycling drug-taking as other high-visibility events. He could have also mentioned the lending practices of major US banks before the housing and mortgage crises (e.g., Gjerstad & Smith 2014), the despicable transgressions at Abu Ghraib, or zillions of other real-world examples.  After having reviewed the Stanford Prison experiment in some detail, Gentilin identifies two important take-home lessons from it: first, a specific context “can cause people of sound character to behave in totally uncharacteristic and inappropriate ways.” (p. 24) and, second, the emergence of such contexts is possible only when leaders allow it. Drawing on more experimental evidence (such as Bandura’s children imitating adults’ behaviour experiments), he suggests the obvious parallel for what happened at NAB: “Just as the adults were the role models in Bandura’s experiments, leaders that control the bases of power are the role models in large organizations. For these leaders there will inevitably appear some key moments where, through their actions, choices and decisions, they will send powerful messages that shape the ethical climate for their organizations and types of social norms that emerge.  … how a leader responds in these ‘defining moments’ shapes the ‘character of their companies’.” (p. 30). Only leaders who are veritable role models will be able to prevent formal mechanism being eroded by informal mechanisms that hammer away at them. Again, Gentilin suggests that such failure of leadership is what happened at NAB and at the Barclays Bank during the LIBOR rate-fixing schedule, and for that matter in the phone-hacking scandal that led to the demise of News of the World. Gentilin concludes the chapter with a list of “ten questions for senior leaders within any organization” (pp. 37 – 38). Presumably, these questions are unlikely to be answered in an honest manner where it matters. It is the evidence accumulated in this chapter but also elsewhere (Dana et al. 2007 comes to mind, or Miller & Ross 1976) that suggests that much.

Gentilin starts off Chapter 2 with a Nietzsche quotation that sets the stage: “Madness is the exception in individuals but the rule in groups.” (p. 45). The basic point made is that group membership can reinforce – cue social media echo chambers – the drifting away from injunctive norms to descriptive ones. Writes he: “In my experience at the NAB, dysfunctional group dynamics in the currency options business played a significant role in promoting the emergence and maintenance of immoral social norms and unethical behaviour [such as flagrant and persistent limit breaches or excessive risk taking, AO]”.  To buttress the case, Gentilin presents Milgram’s 1974 obedience studies, as well as Gina Perry’s recent critique of them (Perry 2012) which, in light of considerable supporting evidence of the original studies (e.g., Haslam et al. 2014), he dismissesin their substance. He then highlights what we learn from Milgram’s inclusion of a variation that drew on the group paradigm.  That motivates a discussion of the conformity experiments through which Asch (1956) tried to identify the conditions under which participants would contradict a majority.  In this context, Gentilin also briefly discusses a between-subjects study by Woodzicka & LeFrance (2001) who had a male interviewer ask female applicants inappropriate questions. The basic result was that 6 out of 10 subjects claimed they would object (hypothetically) but none in the control group refused the answer in a “real-life” scenario.  That seems the kind of pattern that allowed the Weinsteins of this world to get their way for too long. Only in the case of Weinstein and similar assholes (here used in the technical sense of Sutton 2007), the stakes were arguably considerably higher. People’s lack of willingness to stand up and be counted is, unfortunately, so widespread that it is well documented and it is a recurrent theme of great movies such as Hidden Figures.  Gentilin makes clear that, based on his experience at NAB, “facing in the fork in the road in a hypothetical scenario is vastly different from facing it in reality.” (p. 67) He also states, “I am personally sceptical of other research into whistleblowing that focuses on ascertaining the types of personality or dispositional characteristics that may predict whether an observer of wrongdoing will take action and report it. …This line of enquiry fails to properly consider the power of the situation.” (p. 67). Gentilin concludes the chapter with another list of “ten questions for senior leaders (and followers) within any organization” (pp. 73). I doubt that these questions will be answered in an honest manner where it matters, for essentially the exact reason that Gentilin has identified in the chapter.

In Chapter 3, Gentilin – notwithstanding his, in my considered opinion, sensible stand on the relative importance of context and dispositional characteristics – dives into “our flawed humanity”. Programmatically, he starts with an epigraph featuring a quotation from Kant, “Out of the crooked timber of humanity, no straight thing has ever been made.” (p. 80).  Gentilin then tries to answer questions such as “Are Humans Self-Interested?”, cursorily sampling evidence from experimental economics, neuroscience, and evolutionary biology. Predictably he concludes that this research shows that “human nature (is) far different from the one suggested by the axiom of self-interest” (p. 86), though he qualifies the statement with the caveat that we are not always altruistic and cooperative.  This alleged “paradigm shift” (p. 87) is, unfortunately, the major bone of contention between those marketing Behavioural Economics (and often shamelessly benefitting from it) and those doing Experimental Economics, and I believe that the social-preferences literature that has created it has as much merits as the IN oxytocin, ego depletion, and power poses research now, for all I can see, thoroughly debunked. Better not plan your life, or organization, on such flimsy evidence. From an evidence point of view, and also a theory point of view (e.g., the important insights stemming from repeated game situations), this chapter is the weakest.  Gentilin’s sampling of the evidence strikes me as scattershot and unsystematic. After discussions of issues such as power and its corrupting influence and fear and awareness of our own mortality that feeds into it, Gentilin concludes the chapter with a list of “eleven questions for senior leaders within any organization” (pp. 118)  I fear, these questions, again, are unlikely to be answered in an honest manner where it matters.

In Chapter 4, Gentilin starts with a quotation from Kahneman’s best-seller Thinking Fast and Slow: “We can be blind to the obvious, and we can also be blind to our blindness.”  This double-whammy – a variant of the Dunning – Krueger effect — is why questions to senior leaders are unlikely to be answered honestly and self-critically.  After a brief mention of another persistent bone of contention – the System 1 / System 2 delineation  – and our alleged propensity to rely too much on automatic system 1 which makes us, presumably, liable to various biases (in this chapter loss aversion, framing, overconfidence, moral disengagement, euphemistic labelling), Gentilin lays out the slippery-slope argument that in his view was at the heart of the events that led to the NAB trading scandal: “The FX trading incident at the NAB classically illustrated the slippery slope in action. Not only did ethical standards erode over time, but the seriousness of the ethical transgressions accelerated … “ (p. 130). Laboratory evidence is provided to  make that point (e.g., the interesting Gino & Bazerman 2008 study) along with field evidence from the NAB case (pp. 131). An intervention discussed here is to give people more time and essentially get them to break out of their System 1 mode: “There are now numerous studies that illustrate how providing a person with more time whenever they are confronted with an ethical dilemma tends to lead to a more virtuous decision being made.” (pp. 146-7). I have serious doubt about the relevance of, say, the Good-Samaritian study mentioned here for real-world decision making and suspect that a theoretical grounding in organizational economics and repeated game theory would really help to address the challenges that organizations and their leaders face.

Gentilin concludes his book with a plea for more (business ethics) education, a call for the installation of Chief Ethics Officers, and more Lessons for Leaders. He wants business schools to challenge their students intellectually, emotionally, and spiritually. That sounds like something straight out of a high-gloss advertisement such schools produce. The reality, however, of Australian business schools (and undoubtedly business schools everywhere) is that they are rarely intellectually demanding. Their inability to challenge their students emotionally and spiritually is shown effectively by their treatment of casuals and staff. What business schools typically do not have are, in particular, truly independent ethics officers, and HR departments, that could hold the feet of currently widely unaccountable senior leadership to the fire. So, while the idea of a Chief Ethics Officer, who has “a genuine ‘seat at the table’” (p. 161), and is independent, able to freely raise matters of concern, and able to freely “speak truth to power” (p. 161), is conceptually on the money, realistically it is very unlikely to be implemented any time soon, as are truly independent HR departments. As to Lessons for Leaders, Gentilin wants them to be virtuous in the sense of having some community-oriented values.  There is a lot of wishful thinking on display here (e.g., that others are willing to take the same risks that he took in 2004) but I think, after everything we learned through the flurry of recent examples mentioned at the beginning of this review, there is not much reason for hope. Even something that should have been uncontroversial, such as the Royal Commission on banking, and the way it came about, demonstrates that common ground is hard to find and cannot be relied on. I fear much harder thinking will be needed to address ethical failures and I fear some strategies will be of the innovative kind provided by the #MeToo campaign that not only has brought down some true monsters but is likely to have changed power and gender relations in the working world irreversibly.

In summary then, Gentilin tackles arguably the most important issue of our times – ethical failures within organizations and for that matter ethical failures more generally. His book is strongest where he illustrates the emergence of his insights with examples from his own NAB 2004 experience. His illustration of various arguments he makes with evidence from behavioural business ethics is wanting. As pointed out above, to his credit Gentilin himself – although unaware of important methodological debates among psychologists as well as between psychologists and economists – grasps intuitively the lack of external validity of some of the evidence that he presents and it is clear that his NAB 2004 experience has been a good guide to identify which laboratory evidence has some external validity, and which does not. I think the book could be considerably improved with a more even-handed and complete assessment of the evidence from psychology and other social sciences (and here in particular economics) as well as an additional focus on incentive-compatible organizational design.  To rely on business ethics education in business schools (whether in Australia or elsewhere) or a sense of community oriented-ness of business leaders is just not going to cut the mustard, as the widely perceived need for the Royal Commission in the banking system demonstrates.

Having recently interacted with NAB, once again, with mortgage related issues, I have no doubt that NAB culture is pervaded with everything but a meaningful social purpose that is underpinned by a virtuous set of values (e.g., the loan officer I dealt with did everything to prevent me from comparison shopping, and essentially gave me misleading information about the rates that I would be getting), and I have little doubt that the same applies to each of the other three major banks. There is a reason why the major banks in Australia have had outsized profits and some of the highest returns on equity in the world. The recent draft of the related Productivity Commission report spells them out.

 

I appreciate Dennis Gentilin’s comments on a draft of this review.

 

4 thoughts on “Ethical failures: Where they come from and how to address them”

  1. It is a fine thought that we should all behave ethically. Furthermore, I agree with the general sentiment that stressing the importance of ethical behaviour is necessary at a personal and organisational level.

    However, the policy questions that came to me after reading your post are: (a) what to do when we find people behaving unethically, and (b) what can be done to stop such bad behaviour in the future?

    Since this is an economics blog, let’s keep the discussion to finance and banking. Your other examples were in religion.

    I am prompted to write because of the last paragraph in your blog post:
    “Having recently interacted with NAB, once again, with mortgage related issues, I have no doubt that NAB culture is pervaded with everything but a meaningful social purpose that is underpinned by a virtuous set of values (e.g., the loan officer I dealt with did everything to prevent me from comparison shopping, and essentially gave me misleading information about the rates that I would be getting), and I have little doubt that the same applies to each of the other three major banks.”

    When was the last time any of us bought a car, a computer, a new suit of clothes, fruit at the grocery store, whatever, and the sales person told you that there was a better deal at some other shop? The social purpose of that sales person is to “sell”, and to sell at the best margin. It is not to advise you on competitor products and prices. Why should we think otherwise?

    False information, i.e. a lie, is a different matter. If you think you received misleading information then complain. Complaints happen all the time – it is the control mechanism in the sales process.

    You should know that at a big bank staff person found to be providing misleading information is indeed cautioned and penalised. Why? Because the bank is heavily invested in its brand, and it puts enormous effort into managing and maintaining the trust in that brand. All big organisations, not just banks, worry about their brand.

    So, if I’m correct, and banks do have extensive internal compliance training and control mechanisms, why do these ethical failures occur, even in banks?

    The answer is simple, it is because the big banks are enormously large and complex in comparison to almost all other businesses, and most people deal with banks with high frequency (BHP is big also, but it is not dealing with millions of customers every day). Once a company is employing 30,000 staff it is nearly inevitable that – no matter what training and precautions are in place – some misbehaviour will occur. Forrest Gump got it: s### happens. Banks spend hundreds of millions of dollars on compliance and compliance training every year in order to stop misbehaviour by the few.

    You should also recognise that the customers of banks are not a uniformly virtuous group. Every day banks must deal with literally thousands of attempts to defraud them. This might be news to some, but there are a lot of people who tell lies to banks on loan applications and credit card applications, engage in identity theft, scam teller and credit card machines, etc.

    On top of those fraudsters, there are lots of people who have a poor understanding of the obligations associated with taking someone else’s money, i.e. borrowing from the bank’s depositors. That poor understanding of obligations comes from lack of education, lack of language skills, and lack of intelligence. Such folk frequently feel discriminated against if they are denied loans, and aggrieved when it comes time to repay their debt. Furthermore, they complain a lot.

    There is no Royal Commission into why there are so many dishonest people in the world.

    What happens if bank staff misbehave, and the bank does not want to recognise its own misbehaviour? Then you can go to Australian Prudential Regulatory Authority (APRA), the Australian Securities and Investment Commission (ASIC), the Financial Ombudsman Service (FOS), the Superannuation Complaints Tribunal (SCT), the Credit and Investments Ombudsman (CIO), and the last three soon to be superseded by a new, bigger and better Australian Financial Complaints Authority (AFCA). The Australian Parliamentary Senate can and does hold enquiries into the banking and finance industry. Then there is Australian Transactions Reports and Analysis Centre (AUSTRAC), the Reserve Bank of Australia (RBA) and the Australian Stock Exchange. Finally there is the court system.

    I’m then led to ask, what is the use of a Royal Commission looking into past misbehaviour in the finance industry? I think that most people believe more extensive regulation of the industry will stop future misbehaviour. Or maybe it is just that voters get a warm feeling from raking over the old coals of previous enquiries and investigations. In days gone by, big crowds gathered for public hangings. I’m not sure.

    It seems inevitable that the Royal Commission will cause more regulation of the finance industry, particularly the big banks (the deep pocket in the game).

    However, this industry is already extremely heavily regulated (if not over regulated) with many complaints management mechanisms. More rules and regulations can do little (probably nothing) to improve behaviour, but will make the cost of operating a bank higher, and hence less efficient.

    The main stream media and part of the legal profession will also feed well for a while!

    None of what I have said in any way reduces the importance of the main thrust of your blog post, that ethical behaviour at the personal and organisational level is essential for the proper operation of society.

    Finally, if your real concern is that banks in Australia are unreasonably profitable, then I am a very sympathetic ear. The profitability stems from the structure of the industry, and there are lots of structural changes that can be considered to improve competitiveness, lower costs and improve efficiency. For some reason, this is not a topic that interests the Australian economics profession. And usefully for bank shareholders, it also is not the topic of the Royal Commission’s investigation.

    Casey

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  2. (a) what to do when we find people behaving unethically, and (b) what can be done to stop such bad behaviour in the future?
    Yes, these are the questions that both Dennis and I are interested in.

    My examples were in finance and banking as well as organized religion. And I think the questions to be answered are pretty much the same across these domains.

    Yes, the purpose of a sales person is arguably to sell (used to be that s/he also was an expert but I guess those times are gone). I did not argue that they were to advise on competitor products and prices. But, then, they also should not actively prevent me from making those price comparisons. Same is true for big companies that engage in schmeduling and related strategies (product proliferation; see pp. 14 – 16 in the recent PC draft report on Competition in the Australian Financial System to which I linked in the original blog entry) to make their pricing schemes hard to compare.

    Can regulation address these issues? I am as sceptical as you seem to be. But surely there are ways to start addressing these issues (e.g., sufficent time for buyers to beware, reducing the marketpower for the big banks and insurance companies, reputational feedback mechanisms that have been shown to be very effective in a number of contexts even for fairly complicated products, etc.)

    You should read the draft report of the PK because it documents clearly how necessary a Royal Commission is and that the people that run those businesses seem to think that they get away with a lot. Yes, I know, s### happens, and there is always bad apples (among employees and clients) but the key argument of Gentilin is that the problem really goes beyond a few bad apples and that many of the problems that are documented in his book, as well as in the recent draft report of the PC on the Competition in the Australian Financial Business, are systemic. Did I mention you might want to read that draft report?

    Yes, I can file a complaint here and there but, frankly, who needs that kind of additional aggravation? It’s a very unpersuasive threat point.

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  3. It is not a joy to be on the receiving end of a customer complaint in the finance industry. It is awful. Banks spend millions of dollars and massive amounts of staff time dealing with customer complaints (for all the reasons I mentioned in my first post). Even when complaints are settled before going to regulators, banks must maintain registers of all complaints (even the trivial nonsense), and these registers are routinely examined and queried by auditors and regulators.

    If you have not already read “Naked Among Cannibals: What Really Happens Inside Australian Banks” (2001) by Graham Hand, I expect it is a book that will appeal to your sensibilities. The book is voyeuristic fun, but the industry has moved a long way from that short historical episode in a government owned bank.

    I have read the Productivity Commission report (though only the 55 page version), and it contains many excellent findings and recommendations. The report is excellent because it deals with a lot of structural issues, and some of those issues are quite important. However, nothing in the report suggests to me that we need a Royal Commission with the terms of reference laid out for our current RC.

    As an aside, the material in the report on asset risk weighting is important, and deserves much more attention. Also, the report beautifully exposes and lays bare the consequences of the bizarre APRA decision to tell banks to limit loans for investment properties. The PC frequently speaks the truth in a way that seems beyond other parts of our governance system.

    My own shopping list would also add to the report, for example:
    • Why should banks own insurance companies, as per a lot of Europe? Maybe the market itself will drive an unwinding of these assets.
    • What reform in business lending regulation would be necessary to facilitated wider syndication of commercial debt to the superannuation funds? How about US style BDCs? Why has the corporate debt market here never developed properly (80% or more is just bank debt funding its own balance sheets)? That is, how can one efficiently move high risk assets off bank balance sheets (with just 10% equity and risk of bankruptcy, and hence risk to the entire economy wide transactions settlement system) and into pensions funds that are unlevered?
    • Why do banks and insurance companies own financial advisory companies? Is it too simple to turn the clients of these business into stuffees?
    I could go on, but it gets boring. Maybe some of these things will come up in the public hearings that start today, but I doubt it.

    If I have a quibble with the PC report, it happens to be on the one topic you raised in your reply, and that is product proliferation. I thought that the profession’s interest in this topic died with the collapse of the FTC case against the US breakfast cereal manufacturers 35 years ago. Let’s think about cars instead of credit cards. There are about 50 brands of car sold in Australia, and hundreds of models. And it depends on your definition of a car. “Holden Commodore/Berlina/Calais, 3 different engine options = 9 different “models”, or just one? Falcons with different transmissions, engines, fuels (LPG-only, petrol and dual-fuel) and model designations based on trim level – one model, or many? Toyota Camry standard/hybrid/Aurion – same thing, or different (Aurion = V6 Camry)? Is a 4WD a commercial vehicle, or a car? What about SUVs/”crossovers”? How about paint colours and trim? Vintage also matters, for surely a 2008 Toyota Camry is a different product from a 2018 model? I think this brand and model proliferation is NOT an ethical failure on the part of the automobile industry. I think it is just the way they compete.

    Indeed, it is very difficult to think of any industry where product proliferation does not occur as a form of competition, something easily confirmed for me by a stroll down any aisle at a Woolworths or Coles store.

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    1. Appreciate the reading suggestion (Hand).

      I do not buy into your argument that the current regulatory threatpoint is an effective one. Sure it may not be a joy to be on the receiving end of a customer complaint in the finance industry but there are huge benefits (and profits) to be had from bending the rules and clearly that is done. That’s why we now have that particular RC. I agree with you that its scope is ill-defined but that in itself is the outcome of the machinations of a government that did not want this RC in the first place.

      I agree with you about your shopping list (and your assessment of the PC report but this was probably obvious from what I wrote).

      I do not agree with your quibble. There is a yuuuge difference between monopolistic competition where products are located somewhere on the line between search and experience goods and those complicated products that we are talking about in the current context (that lie somewhere on the line between experience goods and credence goods) and that are offered typically by very few firms with considerable market power. It is about product proliferation but even more about strategies of obfuscation (“schmeduling”), exactly the kind of strategies that I have observed first-hand. There is now a considerable literature out there on this issue. Google “behavioral contract theory”. Koeszegi’s 2014 article is a decent starting point and if you check the references to it, you’ll be quickly up to speed.

      It is not clear to me what exactly can be done about this problem; it is actually something I have been thinking about as of lately …

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