WEBVTT - Episode 17: When Does it Make Sense to Cheat? 0:00:00.080 --> 0:00:03.279 Professor. I bike to work every day and I often 0:00:03.760 --> 0:00:13.920 blow through stop signs. This episode is brought to you 0:00:13.960 --> 0:00:17.440 by nat X, the Binary Options Exchange. Binary Options let 0:00:17.480 --> 0:00:20.079 you limit your risk and trade stock in dissees, commodities 0:00:20.120 --> 0:00:23.040 for x and more from a single account. Nat X 0:00:23.160 --> 0:00:27.040 is a CFTC regulated exchange with transparency, free market data, 0:00:27.280 --> 0:00:30.720 and fairness guaranteed. The future of trading is here now 0:00:30.880 --> 0:00:34.040 at n A d e X, dot com, futures, options 0:00:34.040 --> 0:00:36.520 and spots. Trading involves risk and may not be appropriate 0:00:36.640 --> 0:00:45.159 for all investors. Hi, and welcome back to Bloomberg Benchmark 0:00:45.200 --> 0:00:49.199 Up podcast about the global economy. It is Wednesday, December three. 0:00:49.479 --> 0:00:52.600 I'm Tori Stiwell, an economics reporter with Bloomberg News in 0:00:52.720 --> 0:00:55.880 d C. And I am joined by my co host Akdo, 0:00:56.000 --> 0:00:59.240 our editor for Benchmark in San Francisco. Hey, Tory, how's 0:00:59.240 --> 0:01:02.160 it going pretty good? This weather that we're having is 0:01:02.200 --> 0:01:05.520 crazy heading into the holidays. I know we've been getting 0:01:06.160 --> 0:01:08.319 a lot of rain here in California, which is kind 0:01:08.319 --> 0:01:11.039 of nuts. It's like, what is this thing falling out 0:01:11.040 --> 0:01:16.760 of the sky. Nowhere carries umbrellas anymore? What are you 0:01:16.760 --> 0:01:20.560 doing for Christmas? I am going home to North Carolina, 0:01:20.840 --> 0:01:25.920 so we'll see the fam very nice. I'm going skiing 0:01:25.920 --> 0:01:29.039 in Tahoe, which is why I've been obsessed about this rain. 0:01:29.120 --> 0:01:32.319 If it's raining here, it's snowing in Tahoe. So that's 0:01:32.319 --> 0:01:36.039 a good thing. Yeah. So, as we're nearing the end 0:01:36.080 --> 0:01:39.360 of and I was reflecting back on the news of 0:01:39.360 --> 0:01:43.080 the year, I couldn't help but realized just how much 0:01:43.319 --> 0:01:47.080 cheating went on. You know, we had the Volkswagen diesel scandal. 0:01:47.319 --> 0:01:50.840 Goldman Sacks and JP Morgan both had to fire analysts 0:01:50.880 --> 0:01:54.840 for cheating on internal training tests. There's this former trader 0:01:55.040 --> 0:01:57.480 for Ubs and City Group. He was sent us over 0:01:57.520 --> 0:02:00.320 a decade of prison time after he was found guilty 0:02:00.360 --> 0:02:03.120 of rigging library. There was deflate Gate. How could we 0:02:03.200 --> 0:02:08.360 forget deflate Gate? And most recent and most recently, there's 0:02:08.520 --> 0:02:12.560 Martin Screlly, the price gouging Parma exec who was charged 0:02:12.600 --> 0:02:16.520 with securities fraud this month. Right, So we wanted to 0:02:16.600 --> 0:02:19.959 use today's show to you know, talk about the economics 0:02:20.040 --> 0:02:23.920 behind cheating. Um, not just those big examples that Tori 0:02:24.080 --> 0:02:26.799 you just gave, but also little incidents of cheating, to 0:02:27.040 --> 0:02:30.760 like when I don't follow the regular traffic laws of 0:02:30.800 --> 0:02:34.720 San Francisco when I'm on my bike, because otherwise, you know, 0:02:34.760 --> 0:02:37.799 if cheating wasn't this prevalent, we wouldn't need meter maids, 0:02:37.880 --> 0:02:41.400 we wouldn't need judges, we wouldn't need an umpire at 0:02:41.440 --> 0:02:44.680 a recreational softball game, or the little scanner things at 0:02:44.680 --> 0:02:46.839 the doors of the stores that bleep when you try 0:02:46.919 --> 0:02:49.080 to wake walk off with something you didn't pay for 0:02:49.360 --> 0:02:52.480 just generally get very close to them in my experience. 0:02:53.280 --> 0:02:56.320 Oh yeah, I hate those things. But it's it's that 0:02:56.520 --> 0:02:59.359 level of ubiquity document that you just mentioned that makes 0:02:59.360 --> 0:03:03.600 it almost possible to calculate how much cheating costs our society, 0:03:03.680 --> 0:03:05.240 which is what I first set out to do when 0:03:05.280 --> 0:03:07.160 I got to thinking about this topic. You know, how 0:03:07.280 --> 0:03:12.080 much this cheating cost. It is not really easy to 0:03:12.480 --> 0:03:15.240 come up with that figure. So instead we want to 0:03:15.280 --> 0:03:17.799 talk about why people cheat in the first place, from 0:03:17.840 --> 0:03:20.560 an economic standpoint, because sometimes there is a case to 0:03:20.600 --> 0:03:23.800 be made in favor of cheating. Also, why do society 0:03:23.840 --> 0:03:28.160 is discourage cheating? And how does globalization mean that it's 0:03:28.200 --> 0:03:31.000 going to get a lot harder to police cheating in 0:03:31.000 --> 0:03:34.480 our world? And for that we're bringing on Robert Stonebreaker 0:03:34.639 --> 0:03:39.160 and economics professor at Winthrop University in rock Hill, South Carolina. 0:03:39.320 --> 0:03:43.400 Hello professor, Hello, Hey, thanks so much for joining us. Professor. 0:03:43.800 --> 0:03:47.560 Let's walk through the act of cheating from an economic standpoint, 0:03:47.600 --> 0:03:50.200 because I think a lot of people out there are 0:03:50.520 --> 0:03:53.280 prone to think of cheating as sometimes being this knee 0:03:53.360 --> 0:03:56.360 jerk decision, something you do without thinking about it. But 0:03:56.560 --> 0:04:00.360 it's often a lot more rational than that. Right. Yes, 0:04:00.640 --> 0:04:04.560 economists would argue that our decisions are always made on 0:04:04.600 --> 0:04:09.600 the basis of our perceived costs and benefits of those decisions. Uh. 0:04:09.760 --> 0:04:13.000 For example, if I'm watching TV, I must have thought 0:04:13.040 --> 0:04:15.880 the benefit of watching TV exceeded the cost of watching TV. 0:04:16.600 --> 0:04:20.279 And it's the same thing for cheating. People understand that 0:04:20.320 --> 0:04:23.560 there are potential benefits of cheating, they understand their potential 0:04:23.600 --> 0:04:27.839 costs of cheating. But if they think that those benefits 0:04:28.080 --> 0:04:30.520 are going to be greater than the costs, it is 0:04:30.640 --> 0:04:33.480 rational for them to cheat. So we make our choices 0:04:33.520 --> 0:04:36.240 about cheating. It's just like we make our choices about 0:04:36.279 --> 0:04:39.479 anything else. We ask ourselves what are the benefits, what 0:04:39.520 --> 0:04:42.320 are the costs? If we think cheating is more beneficial 0:04:42.360 --> 0:04:45.960 than costly, we cheat. In my economics classes, we often 0:04:46.040 --> 0:04:48.680 talked about cheating in the context of game theory. You know, 0:04:48.800 --> 0:04:52.400 we talked about cartels and collusion, etcetera. Can you walk 0:04:52.560 --> 0:04:55.880 us through exactly what game theory is and how cheating 0:04:55.920 --> 0:04:59.800 would fit into that concept. Sure, game theory is just 0:05:00.080 --> 0:05:06.359 uh theory designed to predict strategic behavior. So when we 0:05:06.400 --> 0:05:09.240 talk about game theory, we're not talking about playing monopoly 0:05:09.400 --> 0:05:13.880 or shoots and ladders. We're talking about strategic games. How 0:05:13.880 --> 0:05:18.600 do we react to other people in strategic situations. One 0:05:18.640 --> 0:05:20.599 of the things that crops up quite a bit in 0:05:20.680 --> 0:05:24.280 game theory is the idea that it is sometimes very 0:05:24.320 --> 0:05:29.880 difficult for individuals to make cooperative agreements. For example, suppose 0:05:30.120 --> 0:05:35.240 two countries decide to try to limit a military arms race. 0:05:36.520 --> 0:05:40.960 The difficulty is there's an incentive for both countries to cheat. 0:05:41.520 --> 0:05:44.440 For example, if my country thinks the other country is 0:05:44.480 --> 0:05:47.799 going to cheat, then I have to cheat too, because 0:05:47.839 --> 0:05:49.640 you're going to cheat and I don't, I'm gonna lose. 0:05:50.960 --> 0:05:54.200 So if I think you're going to cheat, my best 0:05:54.279 --> 0:05:57.719 choice is also to cheat. But it turns out that 0:05:57.800 --> 0:06:00.479 if I think you're not going to cheat, it's still 0:06:00.520 --> 0:06:02.600 true that my best choice is to cheat, because if 0:06:02.600 --> 0:06:06.239 you don't cheat, and I do. I win. So cheating 0:06:06.320 --> 0:06:11.400 in that situation becomes what economists would call a dominant strategy. 0:06:11.920 --> 0:06:13.760 If I think you're gonna cheat, I'm going to cheat. 0:06:14.040 --> 0:06:15.520 If I think you're not going to cheat, I'm going 0:06:15.560 --> 0:06:18.120 to cheat. No matter what I think you're going to do. 0:06:18.600 --> 0:06:21.480 My best strategy is to cheat, and of course your 0:06:21.480 --> 0:06:23.640 best strategy is also to cheat, because if you think 0:06:23.680 --> 0:06:25.680 I'm going to cheat, you'll cheat. If you think I'm 0:06:25.680 --> 0:06:28.560 not going to cheat, you can cheat and win. So 0:06:28.600 --> 0:06:31.599 we both have a dominant strategy to cheat, and we 0:06:31.720 --> 0:06:35.039 end up cheating each other and we get into a 0:06:35.839 --> 0:06:38.520 what's sometimes called up a prisoner's dilemma from a game 0:06:38.560 --> 0:06:43.240 theory perspective. But it's very difficult for us not to 0:06:43.360 --> 0:06:46.840 cheat in those cases. Can we walk through maybe a 0:06:47.000 --> 0:06:52.080 smaller example of cheating? So, Professor, I bike to work 0:06:52.160 --> 0:06:56.360 every day and I often blow through stop signs. Oh 0:06:58.040 --> 0:07:00.640 it's illegal. I'm pretty terrible, and I get yelled at 0:07:00.680 --> 0:07:03.080 all the time. But can you walk us through what's 0:07:03.120 --> 0:07:05.680 going on in my head in terms of the perceived 0:07:05.760 --> 0:07:09.840 costs and benefits of that decision. You're asking yourself first, 0:07:09.880 --> 0:07:12.119 what are the benefits of blowing through that soft sign. 0:07:12.960 --> 0:07:15.000 The work earlier I can, I don't have to sit 0:07:15.000 --> 0:07:18.720 and wait, and what are the costs? And the question 0:07:18.800 --> 0:07:22.560 is is there a police officer sitting beside you. I'm 0:07:22.560 --> 0:07:26.240 also thinking about the probability of getting caught exactly, in 0:07:26.280 --> 0:07:30.120 other words, convinced that one it's not likely that you 0:07:30.120 --> 0:07:34.160 will be caught, or two that even if you are caught, 0:07:34.200 --> 0:07:39.440 the penalty will be basically nothing and go through. In 0:07:39.480 --> 0:07:41.560 other words, there are two aspects of the cost. One 0:07:41.640 --> 0:07:44.240 is what's the probability that you will be caught, and 0:07:44.320 --> 0:07:48.160 two is what will the penalty be if you are caught, 0:07:49.040 --> 0:07:51.360 And you need both of those. If I'm sure I'm 0:07:51.360 --> 0:07:52.720 not going to get caught, I don't care what the 0:07:52.720 --> 0:07:56.760 penalty is, it won't matter. And if the penalty is minimal, 0:07:57.080 --> 0:07:59.320 I don't care if I'm caught because the penalty won't 0:07:59.320 --> 0:08:02.760 matter anyway. So you need both probability of being caught 0:08:02.840 --> 0:08:05.880 and you need a penalty. That makes a lot of 0:08:05.880 --> 0:08:08.800 sense to me because I have not been caught yet 0:08:08.840 --> 0:08:13.320 in my four years in San Francisco advertising this, but 0:08:13.480 --> 0:08:19.560 maybe the next time. Let's let's talk about an example 0:08:19.680 --> 0:08:23.600 from the business world. Volkswagen So for the last three 0:08:23.720 --> 0:08:26.040 months or so, they've been dealing with the fallout from 0:08:26.040 --> 0:08:30.119 a pollution cheating scandal. Um the company's diesel cars weren't 0:08:30.160 --> 0:08:33.480 passing the strict emission standards in the US, so they 0:08:33.600 --> 0:08:36.679 devised a cheat that eventually made its way into about 0:08:36.679 --> 0:08:41.439 eleven million vehicles, and now they're facing roughly seven point 0:08:41.520 --> 0:08:46.400 five billion dollars in diesel recall costs, not including fines 0:08:46.440 --> 0:08:49.959 and potential damages from hundreds of lawsuits, and they've also 0:08:50.080 --> 0:08:52.880 lost consumer trust. Their sales are falling, and they've been 0:08:52.920 --> 0:08:56.640 slow to recall the vehicles. One analyst put the total 0:08:56.679 --> 0:08:59.680 financial burden of the scandal at as much as twenty 0:08:59.720 --> 0:09:03.680 two billions. So, Professor Stonebreaker, you're telling me that someone 0:09:03.720 --> 0:09:08.240 at Volkswagen thought about all of these things and was like, yeah, 0:09:08.400 --> 0:09:12.560 let's do it. Since well, they did. The problem was 0:09:12.640 --> 0:09:16.080 they misestimated the likelihood that they would be caught. We 0:09:16.160 --> 0:09:21.960 certainly make mistakes, and what happened at Volkswagen, I presume, 0:09:22.360 --> 0:09:26.840 is that the people making those choices were convinced that 0:09:26.880 --> 0:09:29.880 they would not be caught. And indeed it took many, 0:09:29.920 --> 0:09:32.920 many years before they were caught, and it was almost 0:09:32.960 --> 0:09:39.200 an accidental uh case in which they were caught. So 0:09:40.400 --> 0:09:43.959 in that case, I'm sure that the Volkswagen people made 0:09:43.960 --> 0:09:47.079 a rational choice, But our rational choices don't always turn 0:09:47.120 --> 0:09:49.000 out the way we think. All of us have made 0:09:49.040 --> 0:09:51.240 choices that we were absolutely convinced we're going to be 0:09:51.320 --> 0:09:54.560 the right choices, only to find out later whoops. You know, 0:09:54.679 --> 0:09:58.600 I misestimated this probability, I misestimated this cost, And I'm 0:09:58.600 --> 0:10:01.200 sure that's what happened to Volkswagen. Yeah, it happens to 0:10:01.240 --> 0:10:06.720 me when I eat like pizza late at night. Well, 0:10:06.760 --> 0:10:08.920 we're going to take a quick break for a word 0:10:09.040 --> 0:10:11.840 from our sponsor, but when we come back, we will 0:10:11.920 --> 0:10:16.800 walk through how societies can stop cheating and the possibility 0:10:16.880 --> 0:10:19.560 that it might be getting more prevalent as we become 0:10:19.679 --> 0:10:26.480 an increasingly global society. When we come back, what do 0:10:26.559 --> 0:10:30.199 traders want to limit risk? Access every opportunity and trade 0:10:30.280 --> 0:10:33.040 on a level playing field. Nate x binary options let 0:10:33.040 --> 0:10:35.400 you set your maximum profit and loss before the trade, 0:10:35.559 --> 0:10:39.080 so your risk is always limited. Find opportunities in multiple markets, 0:10:39.120 --> 0:10:42.720 stock indussees, commodities for US, even economic numbers, and bitcoin, 0:10:43.160 --> 0:10:45.959 all from one account and platform. Nat X is a 0:10:46.080 --> 0:10:50.640 CSTC regulated exchange with transparency, free market data, and fairness 0:10:50.679 --> 0:10:54.880 guaranteed innovations of financial industry needs and nat X already has. 0:10:55.280 --> 0:10:57.959 That's why we think binary options are the future of trading, 0:10:58.520 --> 0:11:00.520 and it's here now at n A d e X 0:11:00.679 --> 0:11:03.800 dot Com Futures options and swaps. Trading involves risk and 0:11:03.840 --> 0:11:10.040 may not be appropriate for all investors. Okay, so now 0:11:10.200 --> 0:11:14.600 we know about this economic framework behind whether we decide 0:11:14.679 --> 0:11:17.640 to cheat or not to cheat. Um, So let's talk 0:11:17.679 --> 0:11:20.800 about why societies try to stop it and how they 0:11:20.800 --> 0:11:23.640 can do that, um, professor, what's so wrong with cheating 0:11:23.800 --> 0:11:27.160 if it's the rational thing to do. The problem is 0:11:27.200 --> 0:11:30.080 that what is rational for the individual making the choice 0:11:30.320 --> 0:11:34.360 is not necessarily rational for the larger group. When one 0:11:34.400 --> 0:11:39.920 person cheats, they impose costs on others. For example, if 0:11:39.960 --> 0:11:42.920 I cheat on my taxes, surely I would never do that. 0:11:43.920 --> 0:11:47.600 But if somebody does their taxes, that may be perfectly 0:11:47.720 --> 0:11:50.640 rational from their perspective, but they're imposing costs on all 0:11:50.679 --> 0:11:53.880 other taxpayers. Other taxpayers either going to have to pay 0:11:53.880 --> 0:11:56.679 more or else people are going to lose benefits from 0:11:56.720 --> 0:12:00.240 the programs that their taxes could have supported. So my 0:12:00.360 --> 0:12:04.600 decision to cheat imposes costs on other people, and I 0:12:04.679 --> 0:12:07.040 might find to me there's a sort of a benefit 0:12:07.080 --> 0:12:11.160 of five from cheating, but maybe I impose costs of 0:12:11.280 --> 0:12:14.560 thirty five on other people. So my benefit of five 0:12:14.640 --> 0:12:18.160 certainly doesn't offset the thirty five costs to others. And 0:12:18.240 --> 0:12:22.320 that happens in all kinds of situations. If students cheat 0:12:22.480 --> 0:12:24.839 on exams, which is something I deal with on a 0:12:24.920 --> 0:12:27.680 day to day basis as a teacher, they impose costs 0:12:27.720 --> 0:12:30.720 on other people the ones that don't cheat, and in fact, 0:12:31.520 --> 0:12:37.840 in education, online education online courses have this problem. Normally, 0:12:38.040 --> 0:12:43.119 if you have a degree, a college degree, its signals 0:12:43.160 --> 0:12:49.240 employers that you have certain qualities. But many people look 0:12:49.280 --> 0:12:54.560 at online degrees as being less valuable signals because it's 0:12:54.600 --> 0:12:57.920 difficult to know whether or not students cheated in those 0:12:57.960 --> 0:13:02.319 online exams. And a classroom, I can monitor what's going on, 0:13:02.559 --> 0:13:04.400 you know, peop all out of textbook or talk to 0:13:04.440 --> 0:13:08.400 a classmate. I can see that, But many times when 0:13:08.400 --> 0:13:12.439 people take online exams, it is difficult to monitor whether 0:13:12.559 --> 0:13:15.480 or not they are in fact answering the questions, whether 0:13:15.559 --> 0:13:19.720 they're even the ones answering the questions, or whether they're 0:13:19.800 --> 0:13:22.959 using other kinds of sources to help them answer the questions, 0:13:23.880 --> 0:13:27.199 and employers understand that, and employers sometimes look at online 0:13:27.200 --> 0:13:31.480 degrees as being less valuable signals. In other words, is 0:13:31.520 --> 0:13:34.719 some cheat, it destroys the value of that signal for 0:13:34.760 --> 0:13:38.600 those who don't cheat. That's a really good perspective. I mean, so, 0:13:39.200 --> 0:13:42.320 we we know now why societies are trying to curb cheating. 0:13:42.360 --> 0:13:44.440 But is there a point at which the cost of 0:13:44.559 --> 0:13:49.200 trying to prevent this cheating outweighs the benefits of successfully 0:13:49.280 --> 0:13:53.079 doing so. Oh? Sure, it's like anything else. You want 0:13:53.120 --> 0:13:54.960 to do it only if the benefit covers the cost. 0:13:55.480 --> 0:13:59.040 If you look, for example, briefly that crime prevention h 0:13:59.559 --> 0:14:05.200 I could stop everybody in America from speeding, or I 0:14:05.200 --> 0:14:08.280 could stop everybody in America from blowing through a stop sign. 0:14:09.080 --> 0:14:11.360 All I have to do is station a police officer 0:14:12.520 --> 0:14:15.440 every twenty feet along every road. But the cost of 0:14:15.520 --> 0:14:20.360 doing so would be enormous compared to the benefit. Cann't 0:14:20.400 --> 0:14:23.760 be the same thing with cheating. I can stop people 0:14:23.800 --> 0:14:27.000 from cheating if I spend enough time and energy on 0:14:27.120 --> 0:14:30.200 monitoring what they do. But at some time, the cost 0:14:30.280 --> 0:14:34.360 of monitoring people just exceeds the benefit, and you find 0:14:34.360 --> 0:14:37.200 that in the workplace. My guess is that you've all 0:14:37.280 --> 0:14:40.080 seen people in a workplace who don't work as hard 0:14:40.120 --> 0:14:44.440 as they possibly could. At Bloomberg, no way, not possible. 0:14:46.400 --> 0:14:49.960 But if we monitored every employee, we could do something 0:14:49.960 --> 0:14:52.760 about that. You imagine you had a supervisor hanging over 0:14:52.800 --> 0:14:57.080 your shoulder every minute of every day. We probably wouldn't 0:14:57.480 --> 0:15:00.120 goof off as much as we otherwise would. But the 0:15:00.160 --> 0:15:03.320 cost of doing that would be enormous. It would be counterproductive. 0:15:04.200 --> 0:15:08.640 So we only want to cure a problem if the 0:15:08.680 --> 0:15:10.720 benefit of curing that problem is going to exceed the 0:15:10.720 --> 0:15:13.840 cost of curing that problem. You know, I kind of 0:15:13.880 --> 0:15:17.400 feel like I hear about cheating a lot more these days. 0:15:17.400 --> 0:15:20.080 And you know, maybe it's because I work in, you know, 0:15:20.160 --> 0:15:22.280 the news industry and we talked about this a lot. 0:15:22.360 --> 0:15:26.440 But you know, for example, you just talked about online schools. Um. 0:15:26.520 --> 0:15:28.920 I feel like it's gotten easier to cheat thanks to 0:15:28.960 --> 0:15:31.760 the Internet. So do you think it's the case that 0:15:31.840 --> 0:15:35.560 we're becoming more immoral or um? Why do you think 0:15:35.640 --> 0:15:39.880 cheating is becoming seems to be becoming more prolific these days. 0:15:40.280 --> 0:15:42.840 I'm hesitant to say we're less moral than we were 0:15:42.840 --> 0:15:44.920 in the past. I think immorality has been a problem 0:15:44.960 --> 0:15:47.960 since there's been humanities. I think it's a matter of 0:15:48.040 --> 0:15:50.960 changing costs and benefits. I think you can identify some 0:15:51.040 --> 0:15:55.480 cases in which it is more beneficial and or less 0:15:55.520 --> 0:15:57.920 costly to cheat today than it would have been in 0:15:57.960 --> 0:16:03.920 the distant past. First, it's a matter of what economists 0:16:03.920 --> 0:16:07.120 would call is are people involved in what they would 0:16:07.120 --> 0:16:10.360 call a one shot game or repeated game. If I 0:16:10.400 --> 0:16:12.560 go back to the game theory piece for a minute, 0:16:13.560 --> 0:16:15.760 If I'm going to interact with you one time and 0:16:15.840 --> 0:16:19.680 one time only, that's a different world that if I'm 0:16:19.680 --> 0:16:21.800 going to have to interact with you over and over 0:16:21.880 --> 0:16:25.920 and over again. If I'm a sort of the proverbial 0:16:25.960 --> 0:16:30.320 traveling salesperson, you know, I walk into a town, I 0:16:30.480 --> 0:16:33.400 con the people in that town out of money, and 0:16:33.480 --> 0:16:36.560 I leave. I get away with it. But if I'm 0:16:36.560 --> 0:16:38.640 going to try to do business there with the same 0:16:38.680 --> 0:16:41.720 people day after day, week after week, month after month, 0:16:42.240 --> 0:16:46.560 if I cheat them today, They're going to retaliate and 0:16:46.680 --> 0:16:49.080 get back at me the next time I interact with 0:16:49.120 --> 0:16:53.880 them rightly customers after So the more often I have 0:16:53.960 --> 0:16:57.240 to interact with you, the less likely it is I'm 0:16:57.240 --> 0:16:59.560 going to want to cheat you this time, because if 0:16:59.600 --> 0:17:02.760 I cheat today, say you'll retaliate and get back at 0:17:02.800 --> 0:17:05.879 me the next time. So one of the issues is 0:17:06.480 --> 0:17:09.720 are we interacting with people more or less than we 0:17:09.760 --> 0:17:13.520 did in the past. If you think it's sort of 0:17:13.560 --> 0:17:18.720 a proverbial small town American where everybody knows what everybody 0:17:18.760 --> 0:17:22.840 else does, the likelihood that I'm going to be caught 0:17:22.920 --> 0:17:26.080 cheating is high, and the likelihood that word of mouth 0:17:26.680 --> 0:17:30.840 will tell everybody in town that I cheated is high, 0:17:31.119 --> 0:17:33.040 and that will make it very difficult for me to 0:17:33.080 --> 0:17:35.880 interact with people in the future. That imposes a real 0:17:35.960 --> 0:17:41.159 cost on me of cheating. But suppose you look at 0:17:41.160 --> 0:17:44.400 a world in which you're interacting with different people every day. 0:17:44.520 --> 0:17:46.760 Suppose I'm living not in a small town, but I'm 0:17:46.800 --> 0:17:50.640 living in the middle of New York City. I could 0:17:50.680 --> 0:17:53.720 cheat you today and maybe never interact with you again 0:17:53.760 --> 0:17:58.280 for the rest of my life. So the more sort 0:17:58.280 --> 0:18:02.919 of transient we become, the less we interact with the 0:18:03.000 --> 0:18:06.679 same people over and over again, the more likely it 0:18:06.720 --> 0:18:09.719 is we can get away with cheating. That's really interesting. 0:18:09.960 --> 0:18:14.000 And also, like I guess, from a global standpoint and 0:18:14.119 --> 0:18:17.880 from a company standpoint, when we're thinking about businesses cheating. 0:18:19.800 --> 0:18:23.080 I feel like the globalization of commerce has got to 0:18:23.160 --> 0:18:27.400 impact the cost benefit that these companies undergo when they're 0:18:27.400 --> 0:18:32.159 deciding to cheat. Yeah, I think that's true of one 0:18:32.200 --> 0:18:34.719 of the things that the companies worry about. And if 0:18:34.760 --> 0:18:37.720 I get away from the small town analogy where word 0:18:37.760 --> 0:18:41.720 of mouth tells people who cheats and who doesn't cheat. Uh, 0:18:42.480 --> 0:18:45.399 how do you know if a firm you've never dealt 0:18:45.440 --> 0:18:49.159 with before is reliable? How do you know if a 0:18:49.200 --> 0:18:51.639 product you've never used before is a good product. How 0:18:51.640 --> 0:18:53.480 do you know if a restaurant you've never eaten in 0:18:53.520 --> 0:18:58.520 before is a good restaurant. Do you look at online reviews? Definitely? 0:18:58.840 --> 0:19:03.000 But do people cheat on online reviews? This is a problem. 0:19:03.040 --> 0:19:06.480 If we don't interact with these groups on an ongoing basis, 0:19:06.640 --> 0:19:09.919 it's difficult for us to know if these companies are 0:19:09.920 --> 0:19:13.159 trustworthy or not. The best we can do is to 0:19:13.200 --> 0:19:16.320 look at things like online reviews, But even though we 0:19:16.400 --> 0:19:19.879 find out are not always reliable. I think there have 0:19:19.960 --> 0:19:23.199 been studies which have shown that companies pay people to 0:19:23.240 --> 0:19:26.280 give them good online reviews and pay people to give 0:19:26.320 --> 0:19:30.760 their competitors bad online reviews. So the more difficult it 0:19:30.920 --> 0:19:34.040 is for us to know whether people are trustworthy or not, 0:19:34.680 --> 0:19:37.480 the easier it is to cheat, I would say, also, 0:19:37.800 --> 0:19:40.600 the stakes are higher too for these companies. It was 0:19:40.640 --> 0:19:43.080 the other thing I was going to suggest, the stakes 0:19:43.119 --> 0:19:48.440 are much larger in a globalized world. If I cheat 0:19:48.600 --> 0:19:53.840 and win customers in a local market, that's nice. But today, 0:19:53.880 --> 0:19:56.520 if I cheat, I can win not just the local market, 0:19:56.560 --> 0:19:59.560 I can win a global market. And I'm talking again 0:19:59.640 --> 0:20:04.520 about millions, billions of extra dollars as potential benefits. The 0:20:04.600 --> 0:20:07.960 larger the market, it's the bigger the stakes, the larger 0:20:08.000 --> 0:20:11.480 the market, it's the biggest potential games from cheating. Well, 0:20:11.520 --> 0:20:14.120 this is this is all great fodder for me, especially 0:20:14.160 --> 0:20:16.360 as we as we head into the holidays when I'm 0:20:16.359 --> 0:20:19.200 probably going to cheat on my plans to eat healthily. 0:20:22.400 --> 0:20:25.800 But thank you so much, Professor Stonebreaker for joining us. 0:20:25.840 --> 0:20:28.200 I really appreciate it, and I hope you had fun. 0:20:28.480 --> 0:20:32.640 Oh I did. Thank you. I enjoyed it, and thanks 0:20:32.680 --> 0:20:35.320 to you all for listening to Bloomberg Benchmark. We will 0:20:35.400 --> 0:20:37.960 be back next week, and until then you can find 0:20:38.000 --> 0:20:40.440 us on the Bloomberg terminal and Bloomberg dot com, as 0:20:40.440 --> 0:20:44.080 well as on iTunes. Pocketcast, Stitcher, Google Play, et cetera. 0:20:44.160 --> 0:20:46.760 And while you're there, please take a minute to rate 0:20:46.800 --> 0:20:49.480 and review the show so more listeners can find us. 0:20:49.600 --> 0:20:52.080 Please and let us know what you thought of the show. 0:20:52.200 --> 0:20:54.199 You can talk to us and follow us on Twitter, 0:20:54.400 --> 0:20:58.120 Atto seven and Tori still Well. See you next week. 0:21:08.440 --> 0:21:11.600 We're proud of our new and growing suite of original podcasts, 0:21:11.680 --> 0:21:14.720 all designed to help you navigate the complexities of business, 0:21:14.920 --> 0:21:19.120 financial markets, and the global economy. In addition to Bloomberg Benchmark, 0:21:19.200 --> 0:21:22.159 which you're listening to now, don't miss Odd Lots, a 0:21:22.240 --> 0:21:25.520 deep dive into the intersection of markets, economics, and finance 0:21:25.560 --> 0:21:28.760 with Joe Wisenhugh and Tracy Alloway. There's also Deal the 0:21:28.800 --> 0:21:32.600 Week with our mergers and Acquisitions reporter Alex Sherman, looking 0:21:32.600 --> 0:21:35.000 at a breakdown of the biggest deals and giving you 0:21:35.040 --> 0:21:38.639 an inside peek into corporate boardrooms. All three shows are 0:21:38.680 --> 0:21:43.480 available on iTunes, SoundCloud, pocket Casts for Android, Bloomberg dot Com, 0:21:43.520 --> 0:21:46.119 and of course, the Bloomberg Terminal. Check them out and 0:21:46.160 --> 0:21:51.040 subscribe today. This episode was brought to you by nat X. 0:21:51.280 --> 0:21:53.399 You know, any long term investment is going to go 0:21:53.440 --> 0:21:56.760 through short term dips and price fluctuations nat X binary 0:21:56.800 --> 0:22:00.320 options that you turn those short term movements into trading opportunity. 0:22:00.680 --> 0:22:03.399 You decide your maximum profit and loss before each trade, 0:22:03.680 --> 0:22:06.679 so your risk is always limited. Trade stock in dissees, 0:22:06.720 --> 0:22:10.320 commodities for X, even bitcoin in economic numbers, all from 0:22:10.320 --> 0:22:14.560 one account on a CFTC regulated US exchange. Instead of 0:22:14.600 --> 0:22:17.000 just watching the markets ups and downs, turn them into 0:22:17.040 --> 0:22:20.720 trading opportunities at nate x dot com. It's the future 0:22:20.720 --> 0:22:25.479 of trading n A d e X, dot com, futures options, 0:22:25.480 --> 0:22:28.280 and swaps. Trading involves risk and may not be appropriate 0:22:28.359 --> 0:22:29.480 for all investors.