Economics of apologies

Ben Ho is a behavioral economist who studies apologies. He presents an economic theory of apologies that predicts when apologies will change the outcome of disputes, and proposes policies to increase the frequency and sincerity of apologies. The best evidence for economics-driven apology policies are the laws that make doctors' apologies inadmissible in court; Ho cites research that claims that this leads to more physicians' apologies, which reduces patient grief and anger, and cuts down on malpractice suits.

As a behavioural economist, my own research has focused on three goals, namely showing that:

* apologies can have real economic consequences;

* models based on economic incentives can explain how and when people give and receive apologies; and

* economic theory can help us understand what it means when we say the words "I am sorry."

Corporations frequently become the target of public outrage, like General Motors in its handling of recent safety issues and automobile recalls. The public apologies by GM CEO Mary Barra have come under attack and scrutiny. Do such apologetic words have any meaning? Lee et al. (2004) analysed annual reports from publicly traded companies and found that companies that admitted responsibility for bad earnings had higher stock prices one year later than those who did not.

Although compelling, Lee et al. can only establish a correlation between apologies and economic outcomes. In recent work, Elaine Liu and I find a causal link between doctors' apologies and their patients' inclinations to litigate (Ho and Liu 2011). At the time of writing, 36 US states had passed laws that encourage doctors to apologise. These laws are premised on two ideas:

Doctors are often hesitant to apologise because they are scared of lawsuits.

* Patients most often sue out of anger, sometimes because their doctor never apologised.

The science of apologies with experimental evidence [Ben Ho/Vox]

(via Naked Capitalism)

(Image: Sorry on Australia Day-sky writing, National Apology Day , National Sorry Day 2014 "such unthinkable theft", Butupa, CC-BY)