On Strikes, Riots, and Rationality

One of the benefits of being home sick is that you can stay in bed all day and read guilt free. So as I was reading through a throw-away copy of an older New Yorker, I came across an article in their financial pages about the costs and benefits of strikes. The article was sparked by the Hollywood writer’s strike. But it has ramifications above and beyond.

Now I choose to NOT have cable in my home. But nevertheless, I get a lot of content on-line, including my daily dose of Bill Maher, Job Stewart, Colbert, etc. and I am getting a little tired of not having them around. So I was interested in James Surowiecki’s (author of Wisdom of Crowds) New Yorker piece from Nov 19th. He says that economically, strikes are not profitable for anyone. He looked at the 1988 writer’s strike that lasted 22 weeks and cost the industry a half billion dollars in lost revenues, wages, and it killed network ratings (which means fewer advertiser dollars). But, he said at the end, the strike had little effect on the final agreement. He says, in fact, that the final agreement was not that much different from the one proposed 5 months earlier. He is of the mindset that the strike cost both sides more than they gained or more than the sums they were fighting over.

In the article he says that most strikes (not all, but most) don’t end well for either side. They end with no major gains or losses and that economists have found that at the end of the day, they don’t have much effect on what workers earn. Unions raise worker wages, but strikes don’t.

Why?


Well, look at gaming theory and you might have an answer. 1) There is the problem of asymmetric information (i.e. one side has more info than the other). 2) Then there is the problem of honesty. Is the side with the most information being honest, or lying? One way to find out is to call the bluff and go on strike. If management concedes quickly, then one assumes that management was lying. If the disagreement is protracted, then management is probably bring honest. And the longer a strike lasts, the less likely a big victory will be. The positions become entrenched. 3) There is the problem of over-confidence on the part of one of the parties. A strike can’t help both sides. So that means one side is over-estimating its ability to win, which is probably linked to #1 above. And over-estimation is clouded by one’s desires. We interpret facts based largely on our desires and often fail to be objective enough. And finally, and most interestingly to me, is 5) justice. People get worked up over matters of principle. And this is the one that gets me into trouble the most often. I get more angry, rationally or irrationally, over matters of principle than anything else. And matters of principle are hard to win because they aren’t concrete and can be easily rejected by the opposition. Usually matters of principle are unsupported by concrete facts. Studies show that people will leave money on the table if they perceive that it is split unfairly. Even monkeys will stop cooperating if they deem their reward is somehow inferior to that of others. This is why companies don’t like employees to talk about salaries at work.

All of this is interesting in terms of peace and conflict studies and it makes me think of the riots in Paris. The thing that gets me is that rioters will destroy their own neighborhoods, which is economically and to a point socially irrational. So is suicide bombing- killing yourself and other innocents for what? To make a point? Because it is a matter of principle.