Chris Dillow has a good review
of Dan Davies’ new book, Lying for Money
. The book looks at (in)famous frauds and tries to explain what makes fraudsters do it - and what makes their victims fall for it.
Davies makes the argument that people are more likely to fall victim to fraud in high-trust societies (he calls it the “Canadian paradox”…), because high levels of trust make people more willing to do business with strangers. In low-trust societies, by contrast, people are much less likely to collaborate with people they don’t know, which protects them from a lot of fraud, but in turn reduces the overall level of economic activity.
This leads to the interesting observation that the optimal level of fraud is not zero. You can reduce fraud to close to zero by ramping up the level of social paranoia, but the trade off isn’t worth it (It reminds me of the Peter Thiel comment I quoted a few weeks ago
that you can have too little corruption
in a country). More broadly, there’s a wonderful genre of ideas in this vein, first introduced to me by my friend and colleague Alex
, called Umeshisms
. The canonical example is “If you’ve never missed a flight, you’re spending too much time in airports
”, but perhaps it’s as true to say, “If you’ve never been the victim of fraud, you’re not taking enough risks with strangers”.