Kakonomics


There is an interesting scene in Frank Capra’s 1961 comedy Pocket Full of Miracles that offers valuable insight about a common yet often unspoken attitude many people have toward quality. The setting is 1930s New York City, and in the scene, a Spanish count and his entourage who happen to be visiting New York City are prepared to host a very important reception. They wait, standing in an empty hall, looking at their watches with concern. It is getting late, yet none of the expected American dignitaries has arrived. Worried, the Spanish count turns to the butler.

“What time are the guests supposed to arrive?” he asks.

The butler, trying to cover for the delay, responds nonchalantly. “Oh, well no one arrives first. Everyone comes last.”

The count nods in understanding. Somehow, it makes sense to him that Americans would do just that.

Many of us might agree. It often seems most people do arrive late to meetings, drive over the speed limit, and cut corners in ways that inevitably reduce the quality of our deliverables. Once, while investigating this issue, I sought the secrets of a product supplier for a major supermarket with a good reputation for delivering high quality products. The solution was remarkably simple.

He said, “The client sends me a bill for every item that they consider under par.”

“And this forces you to improve quality?” I asked.

“Nah,” he said. “I increase the price to cover for these and then some. I make more money that way.”

“And they pay?”

“Sure, we’re the best in the market.”

Another way of looking at this is through the idea of the lowest common denominator, which implies that somehow, we find certain things gravitate to lower standards. Late for meetings, exceeding speed limits, twisting tax codes. People in the shortcut business produce their products based on an inferior standard.

The Italian philosopher Gloria Origgi considered this ”weird preference for low quality pay-offs” and coined a term for it – Kakonomics. This field of game theory has it that in any trade, whether in goods, services or ideas, each party wants to receive high-quality work from others but wants to deliver low-quality goods in return. In other words, buy low, sell high.

The word’s origin comes from the Greek word “kako” – meaning bad or worthless, and the term Kakonomics describes a situation where both parties prefer to give and receive a low-quality product. According to Origgi, the parties ”connive on a low-low exchange” and trust in each other’s untrustworthiness. This is what Game Theory calls equilibrium, an idea brought up by the famous mathematician John Nash, describing a situation in which the players settle for the same inferior choice to avoid a greater potential loss if they cooperate. The consequences is that the whole will lose a lot more or sometimes a specific person or group will lose a lot. In the latter, a majority vote may restrict a minority’s rights, which may not bother you if you are in the majority, but we sometimes forget that in the long run, everyone will find themselves in the minority at one point or another.

The pay-off for all this mediocrity is that it lets both parties off the hook: I accept your slacking because it frees me to slack too without feeling bad. If all the grades given to a class of students is based on a curve, we could all agree to slack and get the same grade anyway.

Of course, the consequences of this mutually-assured slacking give rise to significant concerns. While in economic terms a local optimum is achieved – both parties are satisfied; in the long run, the system erodes and the work quality stumbles to a lower bar, which gets lower and lower with every passing exchange. Sooner or later, if the bar gets any lower, only an expert limbo dancer would be able to dance their way under it, and the party will be over.

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