Here's the script for a monologue I did for today's Broadcasting House programme, on the phrase of the week, "Moral Hazard". A podcast of the programme is available here, for one week. There will be a discussion about it at the Talking Philosophy Blog in a day or two's time.
I always assumed a moral hazard was something like the danger of having a heart attack while on a sponsored charity run. Discovering it is actually to do with the affects of contracts on risk behaviour therefore came as something as a disappointment.
Such a distinctive phrase is wasted on the world of high finance, especially when there is a truly moral phenomenon that’s begging for a memorable name.
Here’s what moral hazard should mean. Every time we try to do the right thing, we risk making matters worse. To be a moral actor is to run the risk of screwing things up.
For example, say you have friend who is engaged in self-destructive behaviour, like substance abuse or obsessively watching daytime TV makeover shows. You cannot know in advance whether trying to help will stop them slumping even lower, or merely delay the inevitable hitting bottom that is a necessary prelude to genuine recovery. At the same time, not trying to help at all has its own risks. No matter how well-thought through and sincere your attempts at being good are, you might just makes things worse. That’s moral hazard. Or at last, it should be.
The trouble with this kind of moral hazard is that it is not the exception, it’s the rule. Very few attempts at altruism are more or less assured of a good outcome. Giving old clothes to poor people in Africa, for example, struck most people as an unambiguously good thing, until someone realised it was often putting local weavers and tailors out of business.
The law of unintended consequences makes moral certainty impossible. Try as we might to stay one step ahead, we so often find we’re actually two steps behind. For instance, you check your warm-hearted impulse to spare a dime for a beggar, because you reason the money will probably be spent on drugs, so the penniless addict resorts to stealing, all because you allowed your imperfect head to rule your heart.
Should we just give up on trying to be good then? That's no answer: since refraining from altruism for altruistic motives is not always the best thing, inaction also risks making things worse than they otherwise would have been.
Moral hazard cannot be avoided: it's everywhere. It’s just a shame the bean counters have got hold of the phrase first.