Monday, March 06, 2017

Semper reformandum? Not so much

Animals, including people, fight harder to prevent losses than to achieve gains. In the world of territorial animals, this principle explains the success of defenders. A biologist observed that “when a territory holder is challenged by a rival, the owner almost always wins the contest—usually within a matter of seconds.” In human affairs, the same simple rule explains much of what happens when institutions attempt to reform themselves, in “reorganizations” and “restructuring” of companies, and in efforts to rationalize a bureaucracy, simplify the tax code, or reduce medical costs. As initially conceived, plans for reform almost always produce many winners and some losers while achieving an overall improvement. If the affected parties have any political influence, however, potential losers will be more active and determines than potential winners; the outcome will be biased in their favor and inevitably more expensive and less effective than initially planned. Reforms commonly include grandfather clauses that protect current stakeholders—for example, when the existing workforce is reduced by attrition rather than by dismissals, or when cuts in salaries and benefits apply only to future workers. Loss aversion is a powerful conservative force that favors minimal changes from the status quo in the lives of both institutions and individuals.— Thinking, Fast and Slow, page 305

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