Corporate & Securities Law

Misinformation and crime prevention

One of my favorite ways to spend an hour is listening to Chicago Public Radio’s program “This American Life.” The stories are rich, compelling, funny, sad, and well done. I’m rarely disappointed. A recent episode (here) discussed the problem of police lying about crime statistics. The story is now a familiar one, which we’ve seen in Freakonomics with public school teachers lying about tests in order to meet performance metrics. If you tell people to maximize X, they will, but often not as one would want. In executive compensation, this is called wanting A and paying for B. A good example of this phenomenon comes from the deployment of soldiers to war. In World War II, soldiers came home when the war was over, while in Vietnam, soldiers served tours of duty with specific end dates. The incentives in each case are pretty clear, and it shouldn’t be surprising what was maximized in each case.

Coming back to crime statistics, the story about police manipulating the data was originally broken by the Village Voice. The Voice revealed the tapes of precinct conversations made by a concerned officer. The story reveals blatant manipulation of crime data:

[The tapes] reveal that precinct bosses threaten street cops if they don’t make their quotas of arrests and stop-and-frisks, but also tell them not to take certain robbery reports in order to manipulate crime statistics. The tapes also refer to command officers calling crime victims directly to intimidate them about their complaints. As a result, the tapes show, the rank-and-file NYPD street cop experiences enormous pressure in a strange catch-22: He or she is expected to maintain high “activity”?including stop-and-frisks?but, paradoxically, to record fewer actual crimes.

The full story is here. Is it any wonder why we’ve seen consistently lower crime statistics year after year?

How can we reduce the problem of manipulation? Markets provide a natural check. Imagine a market in predicting crime or crime statistics, in which this whistle blowing officer could not only surreptitiously tape his superiors and leak them to a paper, but also profit from his truth seeking. Such a market would not only provide better and easier ways for the truth to be revealed (e.g., by reducing the costs of disclosure, giving equal weight to anyone willing to bet, and by allowing bets to reveal intensity of belief), but also provide useful information to police officials their politician bosses about the true state of crime in the city.

Two coauthors and I have imagined just this kind of market, and our proposal along with several commentaries can be found here. Fraud will not be eliminated if such markets are deployed, but the incentives to reveal the truth will be higher on the margin, and therefore we should, ceteris paribus, expect less of it.

Full post as published by Truth on the Market on September 15, 2010 (boomark / email).