How to Hide Trade from a Lizard

Human beings are the most cooperative species on the planet. Other species cooperate on a limited scale among genetically related individuals but only human beings cooperate extensively with strangers. Human cooperation has been driven primarily not by command and control to achieve a collective goal but by harnessing self-interest and the price system to achieve the diverse goals of individuals. In short, human beings cooperate by trading.

Human beings engage in a lot of trade on a global scale, but sometimes we obfuscate our trades. In some cases, the reasons are obvious—the trades are illegal and the law needs to be skirted—as, for example, with political corruption or murder for hire. I find these situations relatively uninteresting, at least as to causes. More interesting is that we sometimes obfuscate, disapprove of, or even make illegal some trades that would likely benefit society.

Sex is not illegal, nor donating blood or body parts, yet trading money for sex, blood, or body parts is often illegal or at least disapproved. Sex, blood, and the body—these are areas with deep evolutionary roots, more determined by our non-trading “lizard brain” than by our cerebral cortex. Trade can be made more palatable to our lizard brain, however, through obfuscation. Gabriel Rossman discusses four strategies to obfuscate trade: gift exchange, bundling, brokerage, and pawning.

The shortage of human organs for transplant is one well known case where trade bans kill (Tabarrok 2002, 2010, Becker and Elias 2007). Two of Rossman’s obfuscation strategies, gift exchange and brokerage, have been used in the market for organs to increase the gains from trade.

Although paying for organs is illegal and considered repugnant, a gift for the gift of life—that is, an offer to pay the funeral expenses of the donor—could be acceptable to a wide audience.  Israel, for example, offers funds for families of organ donors to “memorialize the dead,” and this appears to have increased donation rates (Linde 2014).

Most plans to increase the supply of organs also rely on brokerage. Organ buyers would not contract directly with sellers, but compensation would be offered to donors only through the government or a third entity. In Iran, for example, live organ donors are paid for organ donation, but they are not paid by organ recipients. Instead, a third-party, a non-profit charity, “brokers” the exchange.

Rossman’s strategies of obfuscation can be useful for understanding limits on trade and how they might be routed around, but the language of obfuscation can also be misleading. When a politician accepts a gift and later does the giver a favor it’s natural for an economist to think that the gift “obfuscated” a trade. But that point of view privileges trade—it suggests that whatever the participants may think, what is really going on, underneath the obfuscation, is market pricing, and that may not be correct.

Consider, an experiment by McGraw and Tetlock (2005) in which they asked students to consider the following scenario: You have recently moved into a new apartment with an acquaintance. You are still working out who will be responsible for particular chores. Your roommate tells you that he or she does not want to take out the garbage for personal reasons. Your roommate makes (one of) the following offer(s):

  • If you take out the garbage, he or she will always take care of vacuuming the apartment. (Equality Matching.)
  • If you take out the garbage, he or she will pay you $15.00 a month for your effort. (Market Pricing).
  • If you take out the garbage, he or she will pay your share of the electric bill (which amounts to about $15.00 a month) for your effort. (Obfuscated Market Pricing).

The first response emphasizes the equality of the participants and the shared nature of communal living and falls under a category of social relationship that Fiske (1992) terms Equality Matching. In contrast, the Market Pricing response emphasizes hierarchy and explicit sale. The roommate, in effect, is being asked to also be a maid. In the experiment, the Market Pricing response elicited the fewest agreements and many thought that it was an inappropriate or odd request. The surprise, however, was  that Obfuscated Market Pricing, which to an economist is a mere re-description of Market Pricing, was the most accepted condition!

The obfuscated market pricing condition allowed mutually beneficial trade without upsetting prior notions of equality.

What is going on here? Obfuscated market pricing doesn’t simply disguise market pricing; it does in fact preserve equality matching. It’s not that either of the traders are being fooled by the obfuscation. It’s rather that there is a multi-dimensional space in which trade occurs and the two trades move the parties to different places in that space. By compressing all but the market dimension the trades look the same to an economist but in fact the trades are different. The difference between the trades will show up through differences in future trades and behaviors of the two parties. By preserving equality matching, for example, the two students will likely find it easier to cooperate on future tasks.

Recognizing that frames can change the nature of a trade also suggests other strategies for overcoming trade bans. For example, I would add a fifth strategy to Rossman’s list, trading sacred for sacred. Rossman says gift exchange is when “a contested commodity is not explicitly sold but is instead given with the expectation of reciprocity.” The emphasis is on avoiding an explicit sale. But explicit trade in contested commodities can occur if the traded commodities are of similar sacredness level or type. Kidneys can be traded for kidneys, for example.

Here’s how they work:  It sometimes happens that a living donor is willing to give a kidney to a loved one but the intended recipient is biologically incompatible. If another similarly situated couples can be found, however, the donors can each give to the other’s loved one and everyone be made better off. Kidney swaps have been common in recent years. See Roth (2016) for a discussion of the economics and history of kidney swaps.

 Kidney swaps are not gifts—everyone knows that the donors are giving quid pro quo—indeed, kidney swaps are typically arranged simultaneously to ensure that they don’t turn into gifts. Nevertheless, kidney-for-kidney swaps have been lauded even while kidney-for-money swaps remain repugnant. Moral transgression occurs only when the secular trades for the sacred, not when the sacred trades for the sacred (Tetlock 2003).

Trading sacred for sacred also indicates why “no-give, no-take” or priority rules may also be considered moral (Tabarrok 2002). In a no-give, no-take system people who sign their organ donor cards are given priority or allocation points should they one day need an organ. The virtue of giving priority to people who sign their organ donor cards is not that such a system is just, but that it creates an incentive to sign one’s organ donor card. Israel and Singapore have priority allocation system (Linde 2014).

Both memorial funds and priority allocation systems were introduced in Israel after the transplant shortage worsened because so-called organ tourism was made illegal for Israeli citizens in 2008. As the shortage grows worse elsewhere, we may see these ideas spread. More generally, when the costs of trade bans increase we can expect that more resources will be devoted to creating obfuscatory and other strategies that will hide trade from our lizard brain. Trade will bleed through at the margins.

 

 

References

Becker, G. S., & Elías, J. J. 2007. Introducing Incentives in the Market for Live and Cadaveric Organ Donations. The Journal of Economic Perspectives, 21(3): 3–24. Retrieved from http://www.jstor.org/stable/30033732

Fiske, Alan P. 1992. The Four Elementary Forms of Sociality: Framework For a Unified Theory of Social Relations. Psychological Review 99:689-723.

Linde, D. 2014. Israel Finds a Formula for Increasing Organ Donation. Tablet Magazine. Retrieved May 29, 2016, from http://www.tabletmag.com/jewish-news-and-politics/164976/israel-organ-d…

McGraw, A. P., & Tetlock, P. E. 2005. Taboo trade-offs, relational framing, and the acceptability of exchanges. Journal of Consumer Psychology, 15(1): 2–15. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1553985

Roth, A. E. 2016. Who Gets What and Why: The New Economics of Matchmaking and Market Design. Boston: Eamon Dolan/Mariner Books.

Tabarrok, A. 2002. The Organ Shortage: A Tragedy of the Commons? In A. Tabarrok (Ed.), Entrepreneurial Economics. Oxford, UK: Oxford University Press. Retrieved from https://global.oup.com/academic/product/entrepreneurial-economics-97801…

Tabarrok, A. 2010, January 8. The Meat Market. Wall Street Journal. Retrieved from http://www.wsj.com/articles/SB10001424052748703481004574646233272990474

Tetlock, P. E. 2003. Thinking the unthinkable: sacred values and taboo cognitions. Trends in Cognitive Sciences, 7(7): 320–324.

 

Also from this issue

Lead Essay

  • When the Invisible Hand Needs to Stay That Way by Gabriel Rossman

    In nearly all cases, markets are how most of us obtain and provide goods and services. But in some situations, recourse to markets is disfavored - whether rightly or wrongly - and in those cases, participants sometimes resort to what is known as an obfuscated exchange: Transactions may occur in which the good or service is provided, and in which the provider is compensated, but the whole thing still looks much less like a market transaction than it otherwise might. Examples are many, including everything from radio payola to Islamic finance. Professor Gabriel Rossman offers an introduction to this fascinating world and speculates on how cultures overcome their scruples about using markets.

Response Essays

  • Are Rossman’s Obfuscation Mechanisms Cynical, or the Best Available Compromise? by Michael C. Munger

    Michael C. Munger notes that objections to exchange typically arise from the perception of unequal bargaining power; these perceptions commonly are the source of the need to obfuscate. And yet obfuscation increases transaction costs. Even in the case of government subsidies to industry, obfuscation plays exactly this role, for we would perhaps find direct cash transfers even more objectionable than indirect, regulatory subsidies, which are not so easily talked about as just a sop to a favored few. But this is hardly the only time when obfuscation happens, and Munger concludes by promising to examine in a later essay when hidden exchanges should and should not be recommended.

  • Sleight of Hand-Out by Alan Page Fiske

    The examples that Gabriel Rossman analyzes are special cases of a general pattern, says Alan Page Fiske: What people say about social relationships commonly diverges from the actual nature of the relationship. This is not limited to obfuscation of market behavior; other things sometimes masquerade as commercial transactions instead, and various types of non-commercial interactions masquerade as one another. Further, individuals commonly act to preserve a beneficial ambiguity in their social relations, seeking to retain a pattern of options that would be foreclosed by a strict definition of the nature of their relationships. And at times, we may even be personally unaware of what our social minds are doing - and mischaracterize a relationship without realizing it.

  • How to Hide Trade from a Lizard by Alex Tabarrok

    Alex Tabarrok notes that for evolutionary reasons, humans tend to think in wealth-destroying ways about certain types of exchange. Obfuscation can help us work around the constraints of our lizard brains, saving lives in the process. Such happens in the obfuscated markets for organs in Iran and Israel. But obfuscation can do more than that: It can also allow participants to preserve certain kinds of social status that they might not want to forego. Obfuscation, then, is not mere dishonesty. It’s a way of negotiating social hierarchies while also participating in a market.

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