25 November 2014
The Cost of Deception
When one needs to make a certain decision, a basic cost-benefit analysis is often used to weigh options -- especially when it comes to economic or political decision-making processes. Although such processes may seem straightforward, there are sometimes less easily measured, but important aspects to consider.
Take, for example, the 2004 sale of publicly owned hospitals to a private company that took place in Hamburg. The incumbent city government assessed the money they would gain from the sale to outweigh the cost of not being able to control part of the public health care system of its citizens. In a country like Germany where health care is considered a public good, making significant changes with long-term impact within the system always comes hand in hand with a public and political battle. A referendum assessing public opinion found a clear majority (76,8%) against the sale. That result seemed to settle matters until the court ruled that public referenda results were not binding. That ruling allowed the government decided return to its original plan and sell the hospitals to the private company Asklepios.
Psychological research (pdf) has shown that deception causes significant cognitive-emotional and behavioural responses. In this case the trust not only in the government at the time but also in the whole democratic process was diminished. That meant that the ultimate cost for selling the hospitals increased significantly after the referendum, a development that the government did not fully take into consideration.
Bottom Line: Quantifying emotional costs and taking them into account when making a decision, may it be political, economic or of any other nature, might be difficult but is essential. Especially when a party involved is left with a feeling of deception, which triggers distress and negative responses, the resulting increase in costs should not be ignored.
* Please comment on these posts from my environmental economics students, to help them with unclear analysis, other perspectives, data sources, etc.