Moral hazard and ethical habits of mind

“Moral hazard” means the provision of incentives that encourage unduly risky conduct by shifting the impact of a bad decision to a party other than the decision maker.   Perhaps the most consequential area of moral hazard ever is climate change, as those individuals most likely to bear the brunt of it (young and not-yet-born people) are largely different than those creating the risk of the harm.  Another example is refusing to receive the COVID-19 vaccination, as this puts others at risk. However, individuals who do this are also putting themselves at risk– so this can be considered a case of partial moral hazard.  Still, even a partial moral hazard can, in some circumstances (like these), have grave consequences.

Moral hazard  – an economic concept – dovetails somewhat with the behavioral ethics phenomenon of “victim distance,”–  a psychological one.     That is, the more distant we are from the possible victims of our actions the less weight we’ll likely give to their interests.

Together, these two phenomena present formidable challenges to companies and individuals seeking to promote compliance and ethics (“C&E”), because they may negatively  shape habits of mind that may affect behavior in ways that are difficult to dislodge.  This is true not only of workplace ethical issues but also in other realms as well.

But habits of mind can be forces of good too. Indeed, the full promise of C&E programs goes beyond the business realm to nurturing habits of mind that can be helpful to addressing a wider range of challenges than traditional corporate law abidance and ethicality. Among other things, such habits could include thinking systemically about risk, having a deep appreciation for the interests of other individuals, insisting on transparency where it is reasonable to do so, embracing meaningful approaches to accountability for doing what is right and for stopping what is wrong and protecting truth telling at all costs.

None of these ways of thinking were invented by C&E practitioners. But for many millions of Americans and others there is now a steady reminder through C&E programs of the importance of thinking in these and related ways – and this could provide a foundation for promoting greater ethicality in the broader societal realm, including addressing moral hazard.

There is a lot more that can be said about how ethical thinking in one realm can inspire and support such thinking elsewhere. See this prior post for the somewhat similar suggestion that ethical thinking in the private sphere can strengthen C&E in the business world.  Here is another.