Trust and the Development of Institutions: Reviewing Liars & Outliers

I managed to snag an early copy of Bruce Schneier’s new book, Liars & Outliers: Enabling the Trust that Society Needs to Thrive. It’s a bit different from the books you normally see reviewed on development blogs. I’m a fan of Schneier’s sensible commentary on security issues, so I thought his book might provide some insights relevant to development work. I read it with general questions about institutional development—and specifically the issue of corruption—in mind.

A theory of coercion, compliance and trust

Schneier’s book provides a framework for understanding trust, compliance, cooperation, defection, coercion, and security across a variety of contexts. He starts by noting that trust is essential for our daily lives: we have to trust that merchants won’t cheat us, that other commuters will drive safely, and that the money we put in our bank account will be safe. Our economic and political systems wouldn’t function without trust. And we, in turn, can only trust others if society finds ways to promote cooperation.

As societies have gotten larger and more complex, they’ve developed four different pressures to promote cooperation. At the lowest level, morals are the rules that we’ve internalized. They work best in small groups because they rely on a certain amount of empathy. At the next level, reputations provide incentives to act honestly and fairly so that others will want to deal with us again. Reputation is only an effective control up to a certain group size—something on the order of 150 people, the oft-cited Dunbar’s number. As groups get larger, certain institutional pressures are needed: licensing regulations, court systems, taxation, and the like. These all promote cooperation and thereby enable trust.

Security systems create pressure for cooperation as well, but in a slightly different way. They often cut across the first three types of pressure. Locks physically stop break-ins, and they also provide a moral reminder (hence the phrase, “Locks are for honest people”). Likewise, tax audits perform the security function in detecting fraud, thereby bolstering the institutions of taxation.

These various pressures aren’t mutually exclusive. They often work together, and the lines between them may be blurred. Still, the framework gives us some broad categories for how society encourages individuals to place group interests above their personal interests.

Defection—with a twist

Schneier draws heavily from game theory to elaborate on his framework. The concept of “defection” will be familiar to anyone who knows the prisoner’s dilemma or public goods game. For the purposes of this book, defection is morally neutral; it could be good or bad. Stealing is defection, but so is protesting injustice. The dynamics are similar. In both cases, an individual decides that the risks that accompany defection are tolerable in light of a private competing interest, whether it benefits your wallet or your conscience. Society uses similar controls to prevent defection in either instance.

Defectors of all kinds seek like-minded groups. Those might be criminal organizations, transnational activist collectives, religions, sub-culture groups, or something else entirely. This is where things get interesting: defection from one group is often cooperation with another. For example, teenagers rebel against all sorts of social norms in order to conform to youth norms. Similarly, criminals may defect from law enforcement institutions in order to cooperate with fellow gang members.

Corruption: defection for personal interests, or for a smaller group?

I mentioned above that I had corruption in mind as I read this book. The obvious way to think about corruption is to see an official as placing his/her own selfish interests ahead of the public interest. What if we instead think of corruption as defecting from the social pressures of one group, in order to cooperate with the pressures from another?

Society as a whole pressures public officials through moral, reputational, and institutional mechanisms, as well as security systems like audits. Each type of pressure provides a different set of levers for encouraging cooperation with society’s goal of reducing corruption. However, corrupt officials do not act only for themselves. Often they act for their families, ethnic groups, or other constituencies. The pressures from these subgroups can be much stronger than the broader societal pressures.

As Schneier points out, understanding the actor is critical to understanding how they will respond to moral, reputational, institutional, or security pressures. It’s not enough to crank up the pressure against corruption. We also have to consider the other pressures that an individual faces.

Unexpected consequences

Social pressures operate in complex systems that have evolved over time. When they change, they can have unexpected and often counterintuitive results. To draw one example from the book: employing a security guard at a store can actually lead to an increase in shoplifting, if other employees conclude that monitoring shoppers is no longer their responsibility.

The results get even harder to predict when you consider technological advances. New technology creates new opportunities for defection: computer viruses, email scams, homemade chemical weapons, and so on. Defectors can often exploit new weaknesses more quickly than institutions and security systems can adapt to defend.

The point about unexpected consequences is especially interesting as we think about institutions in developing countries. Intentional efforts to “build institutions” don’t always turn out the way they’re planned. Part of the explanation may lie in the fact that individuals face tremendous pressures that run counter to institutional goals. Social norms are slow to change, as are in-group loyalties.

Disclosure: I received a free copy of the book, though it came with no obligation to provide a favorable review.

Categories: Book Reviews, Liars and Outliers, Text

Sidebar photo of Bruce Schneier by Joe MacInnis.