The Business Ethics of stuffing. Discussed by Nassim Taleb. And me.
Nassim Taleb writes about this old ethical question here (worth reading the whole piece here as part of his next book in progress). I wrote about Taleb’s commencement address here.
…The question “is it ethical to sell something to someone knowing the price will eventually drop” is an ancient one –but its solution is no less straightforward. The debate goes back to a disagreement between two stoic philosophers, Diogenes of Babylon and his student Antipater of Tarsus, who took the higher moral grounds on asymmetric information and seems to match current ethics endorsed by this author. Not a piece from both authors is extant, but we know quite a bit from secondary sources, or, in the case of Cicero, tertiary. The question was presented as follows, retailed by Cicero inDe Officiis. Assume a man brought a large shipment of corn from Alexandria to Rhodes, at a time when corn was expensive in Rhodes because of shortage and famine. Suppose that he also knew that many boats had set sail from Alexandria on their way to Rhodes with similar merchandise. Does he have to inform the Rhodians? How can one act honorably or dishonorably in these circumstances?[ii]
We traders had a straightforward answer. We called this “stuffing” –selling quantities to people without informing them that there are large inventories waiting to be sold. An upright trader will not do that to other professional traders; it was a no-no. The penalty was ostracism. But it was sort of permissible to do it to the anonymous market and the faceless nontraders, or those we called the Swiss, or some sucker far away. There were people with whom we have a relational rapport, others with whom we had a transactional one. The two were separated by an ethical wall, much like the case with domestic animals that could not be harmed, but rules on cruelty were lifted when it came to cockroaches.”
I have an answer through the lens of sustainability (in its broadest sense).
Assuming you are going to be in business for the long-horizon then you should disclose everything.
If you do not disclose this, then your customers will not come back and buy from you. In modern day jargon you would have incurred “reputational damage” but more simply customer will not trust you. They will believe (and with proof) you will likely price gouge them again, if given the chance, and in any case, why not take business to someone who will be honest.
Full disclosure is the most sustainable answer for the business, assuming it wants to stay in business. A single day trade, where the trader will never trade again then perhaps the impact on the trader will be felt as they will never trade again in any case, although there reputation could well be damaged in other areas of their life.
On a 5 year view, or any long horizon view, the trader will make more sustainable profits from the full disclosure and trust from his customers.
The ethical view, aligns with the most sustainably profitable view.
This seems to be Taleb’s view, and Antipater’s view although through slightly different lens. Taleb writes:
“Diogenes held that the seller ought to disclose as much as civil law would allow. Antipater believed that everything ought to be disclosed –beyond the law –so that there was nothing that the seller knew that the buyer didn’t know.
Clearly Antipater’s position is more robust –robust being invariant to time, place, situation, and color of the eyes of the participants. Take for now that
The ethical is always more robust than the legal. Over time, it is the legal that should converge to the ethical, never the reverse.
Laws come and go; the ethics stays.”
You see a variant of this in that (decent) shops do not change the price of a snow shovel just because there is a snow storm. IF they increased snow shovel prices, just because there’s a desperate short term need for them, then customers will be disinclined to shop at that business again, if they can help it, because the customer will feel price gouged.
It’s also why one of the most disliked features of Uber is the price surge, even if there is an demand/supply balance and a tacit understanding for its purpose. The customer feels gouged and feels it is unethical.
This is a difficulty even with the straightforward interpretation of Milton Friedman’s thought that the socially responsibility of business is to increase profits. Indeed, beyond the scope here (hopefully addressed at a later point), but required reading for anyone interested in sustainability and indeed business management.
A more careful reading of Friedman would suggest his view is that managers have a responsibility to act in the long-run interests of shareholders, which many “responsible” decisions might well align with.
By extension, if it is in the interests of shareholder to have a planet to live on in 50 years time, is there not a responsibility to act on climate change under this view?
In any event the idea that law/business converges on the ethics is an interesting concept (rather than the other way round) and one leadership should think about.