Aggravated pimping UPDATED

UPDATE:

DSK acquitted.

ORIGINAL POST (3/6/2012):

Dominque Strauss-Kahn has been charged with "aggravated pimping" in France for his alleged role in a prostitution ring.

One wonders: how would the true economist react to this news?

No word on whether DSK has been charged with "sex by surprise" as well.

"I always wonder how the 'true economist' should react."

So muses Tyler Cowen, about that French dude -- who allegedly raped a hotel maid -- as Mr. Gillette points out.  Mr. Gillette really should have graced us with a block quote from Mr. Cowen's priceless post:

Dominique Strauss-Kahn has been arrested, taken off a plane to Paris, and accused of a shocking crime.  When I hear of this kind of story, I always wonder how the “true economist” should react.  After all, DSK had a very strong incentive not to commit the crime, including his desire to run for further office in France, not to mention his high IMF salary and strong network of international connections.  So much to lose. 

Should the “real economist” conclude that DSK is less likely to be guilty than others will think?

The supposition, as I understand it, is that an "economist" should (perhaps) conclude that any rich person is less likely to have committed a (non-financial?) crime than "others will think."  Apparently, this is because "others" will not understand that privileged folks like DSK will have less "incentive" to commit crimes of passion (madness?) than regular old poor folks.

This is all very absurd, of course.  The sin is clear: reductionism with a multiplier of monomania.  These days, most educated people become well versed in a particular school of thinking.  For example, you and I, Mr. Gillette, were trained in "legal reasoning."  As a result, we subconsciously (or consciously) apply that kind of reasoning in all facets of our life -- just ask my wife.  It turns out, however, that legal reasoning has its limits.

Just ask my wife.

My broader point is that we all tend to take our area of expertise and generalize it.  We try to solve all the world's problems with the tools we have, even when our best tool happens to be one of those cheap Swiss-army knives that comes with only a 3-inch blade , a useless 4-centimeter "saw," and a ... toothpick?

Mr. Cowen's blog post is a tour de force of provincial thinking -- the idea that "because this thinking can solve a certain problem, it can solve ANY problem!"  And when I say "tour de force," I mean "reductio ad absurdum."  That's a kind of logical argument.  And, as a philosophy major who concentrated in logic, I can assure you that logic solves all problems.

Sometimes we just don't understand the incentive.

As you know, Dominique Strauss-Kahn, the head of the International Monetary Fund, has been accused of sexual assault and is currently being held without bail at Rikers. Mr. Strauss-Kahn is an renowned economist and, until this happened, a possible candidate for the French presidency.

Tyler Cowen at the Marginal Revolution blog, asks a question no one thinks to ask (sort of like we do here), how should a "true economist" should react to the news? Mr. Cowen notes that Mr. Strauss-Kahn has strong incentives not to commit sexual assault but is now accused of committing one. The post questions whether the economic theory that incentives can predict individual behavior is central to economics and whether it should be central.

Andrew Leonard at Salon criticizes the post and suggests that reasonable economists think that incentives only matter in the aggregate and not in individual cases. But that can't be right because if incentives don't matter in individual cases, they can't matter in the aggregate.

It seems to me that incentives can be used to predict individual behavior. The trick is to understand the incentives. If the charges against Mr. Strauss-Kahn are true, it could be that that the incentives to commit the crime are larger than the things Mr. Cowen views as incentives not to commit the crime.

By way of example consider, Peter Elliott. As the Milwaukee Journal-Sentinel reports, Mr. Elliott is a disbarred attorney who was sentenced to ten years in prison for committing fraud involving his trust account. Normally, we would assume that people awaiting sentencing for crimes have strong incentives not to commit additional crimes. If they commit another crime they could be sentenced to even more time in jail.

What we might call the normal incentives (desire to avoid punishment, desire to get out of prison as quickly as possible) apparently did not apply to Mr. Elliot. Instead of keeping his nose clean while awaiting sentencing, Mr. Elliott spent some his time robbing a bank. His robbery of a bank in Wales Wisconsin netted him $9,516.

Anyway, as a result of the robbery, Mr. Elliott is now looking at an additional five years in prison. Mr. Elliott earned $1,903.20 per additional year of prison time. That does not seem like a very good return on his crime.

So what were the incentives that drove Mr. Elliott to commit the robbery? He told investigators that he used $2,600 of the money to get his daughter's vehicle "out of hock." Put another way, he felt his child needed his help. As a 62-year-old man facing a ten-year prison sentence, Mr. Elliot may expect to die in prison. Thus, he may have thought this was the last time he would ever be able to help his child. If we view Mr. Elliott's incentive that way, his decision to rob a bank seems less irrational. Mr. Elliott's incentives were simply not the normal ones we might expect from a criminal awaiting sentencing.

It seems possible that Mr. Cowen and Mr. Leonard have simply failed to identify the incentives that would drive Mr. Strauss-Kahn to behave as he is accused of behaving. I can't identify any incentives either. However, just because I don't recognize the incentives does not mean that none exist.

What do you think Mr. Torvik? Is Leonard right? Is Cowen asking the right questions? Should a non-economist be even thinking about these sorts of things?