Thursday, September 26, 2013

Problems with Business Ethics Discourse

I just had my attention drawn to this recent paper by Michael Luca and Georios Zervas, of Harvard B-school and Boston U, respectively, about review fraud on The conclusions of the authors are rather curious to me and appear to display a deep misunderstanding of ethics and what exactly they are.

 Fake It Till You Make It: Reputation, Competition and Yelp Review Fraud
As crowdsourced information becomes increasingly prevalent, so do incentives for businesses to game the system. In this paper, we have empirically analyzed review fraud on the popular review website Yelp - both documenting the problem and investigating the conditions under which it is most likely to occur. We show that the problem is widespread - nearly one out of fi ve reviews marked as fake, by Yelp's algorithm. These reviews tend to be more extreme than other reviews, and are written by reviewers with less established reputations.
Our findings suggest that unethical decision making is a function of incentives, rather than of unethical businesses. Organizations are more likely to game the system when they are facing increased competition and when they have poor or less established reputations. For managers, policymakers, and even end-users investigating review fraud, this sheds light on the situations where reviews are most likely to be fraudulent. More generally, this casts light on the economic incentives that lead organizations to violate ethical norms. [emphasis added]
I find the first sentence of their concluding paragraph extremely problematic. First off, what could possibly be meant by "unethical businesses"? A business is a legal structure, a set of relations, i.e. an abstract entity. A business does not make decisions, actual flesh-and-blood people do. An owner or manager makes a decision "on behalf" of the business, but it is still the owner or manager who has made the decision and who is ethically culpable for it. Confusing agency in this way is indicative of the sloppy use of language and poor philosophic reasoning in economics generally.

 Secondly, the existence of incentives to engage in unethical actions does nothing to remove ethical culpability from the agent who engages in those actions. Sure, a restaurateur facing stiff competition has an incentive to leave negative reviews for his competitors, but he also has an incentive to fire bomb their establishments. In neither case does the existence of incentives mitigate the unethical nature of the act. If ethics is to mean anything, it must mean acting on the basis of something other than individual incentives (whether financial, social, etc.).

All businesses have an incentive to game the system in whatever way they can (in this case, leaving fake reviews on Yelp), but only some of them actually do it. The people who choose not to game the system, despite the presence of incentives to do so, are the ones we call "ethical". A person who chooses to game the system and violate the trust of others because of those incentives is someone we call "unethical."

No wonder the state of "business ethics" is in such a shambles: the "experts" don't even know what ethics means.

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