We live in a world in which fraud and deception are a normal part of everyday life. Examples include roofers who promise to use good materials but who substitute inferior product because few of us are able to climb three stories to check out their product, e-mails barrage us to send thousands of dollars to the sender who will then return millions of dollars to us, and websites sell counterfeit pharmaceuticals. Consequently, it is not surprising when companies go to extraordinary measures to reduce their risk of being "taken."
The unintended consequence of living in a world in which everyone is thought of as a potential cheat or liar is that measures must be taken to thwart off unknown risks. These include complicated passwords on bank and e-mail accounts and iris recognition technology. The last thing one would expect when protecting themselves would be to run into another risk. That is what is going on with some insurance companies.
Recently, I broke a tooth. In order to have my dental plan cover the incident I had to submit to a dental x-ray whose sole purpose was to "prove" to the insurance company that my dentist was not submitting a fraudulent claim. A photograph would not suffice and instead to invoke insurance coverage which I had paid for I had to allow myself to be exposed to potentially dangerous x-rays. My dentist has had a relationship with the insurance company for more than 30 years; at some point you would think they would trust him!
Insurance fraud is a big problem. The way to solve it is not by endangering or at least increasing the risk facing insurance customers. No doubt insurance companies are bilked out of millions of dollars every year. But the unintended consequence of protecting them should not be health issues afflicted on their customers.
Harlan Platt's blog harlanplatt.com discusses similar issues all related to his new book, Unintended Consequences: How to Improve our Government, our Businesses, and Our Lives.
By now you've probably read in my book, Unintended Consequences: How to Improve our Government, our Businesses, and our Lives, about the environmental damage caused by the release of Anaconda snakes in the Everglades. A similar problem has recently surfaced when fans of the fictional character Harry Potter who have tired of their pet owls and have released them into the wild.
I don't know if these actions are willful that is people understood there would be an unintended consequence or simply ignorant. I often have the same query when I see a person throw their chewed gum on the ground. Do they expect someone else to step in it? Or are they utterly oblivious to the fact that other people walk on the sidewalk in addition to themselves.
Too bad that the abandon owls don't eat anacondas; if that were the case as in mathematics when two negatives become a positive, the two unintended consequences could cancel each other out.
In the Wall Street Journal article, "A Year Later Rebirthing Pains," we learn that the city of Joplin Missouri is a hotbed of libertarian residence. One outcome of this is a lax zoning provision enabling people to build whatever they want on their own land. The article also tells us that many people in Joplin gambled and did not purchase insurance that would protect their homes against tornadoes.
The unintended consequence of having a neighbor without insurance when you live in a town like Joplin is that they might build a home which is incompatible with the neighborhood. This is an especially distressing outcome for people who were insured and then rebuilt their homes often times even nicer than what they had been. To the chagrin of the insured, many are now living besides modular homes and the like. I don't expect that prospective neighbors will survey a street to find out how many families are insured but that would seem to be the only way to avoid this unintended consequence.
However things work out on the Facebook IPO there is no question but that the company went public with a rich valuation. The average company in the Dow Jones Industrials has a PE ratio of 13.5; in contrast, Facebook has a P/E ratio of 122. There Is little doubt but that Facebook has a greater earnings potential than does the average company in the Dow Jones Industrials. Whether that potential deserves a 10X multiple to the average company in the Dow Jones remains to be seen - I for one sincerely doubt it.
People buying Facebook shares, other than professional investors, and over 0.5 billion shares were traded on the first day, purchased them in part because they knew the company. Decades ago a famous portfolio manager at Fidelity investments, Peter Lynch by name, made famous the notion that it is good to know the companies you buy stock in and to buy lots of stock in companies that are your favorites. Facebook goes several steps beyond Mr. Lynch's advice. For many people Facebook is a way of life - it consumes several hours a day, if not more, of their time. For those people to not believe that Facebook is the greatest thing in the history of humanity would create a cognitive dissonance for them since they've invested so much of themselves into the product.
And that is the unintended consequence. Every good investor knows you need to evaluate the future cash flows of the company and its management before making an investment. Most of these new nonprofessional Facebook investors haven't done that. Instead, they are assuming that things will work out - and that is the unintended consequence - because Facebook for them is so important. . Long-term investing is more than about liking and loving it's about cash. If the investment pays off for them in huge profits because Facebook generates enormous cash flow then the strategy of investing in what you love made sense but not because they loved it but because of its cash making abilities.
Research has shown that some head injury patients and some people with Asperger's are good investors because they have an unnatural ability to do away with emotions and to focus instead on facts. The unintended consequence of being in love may be being a bad investor.
It seems that product designers have decided that everything we use needs to be small enough to fit into our pockets and run on batteries, whether rechargeable or not. In order to accomplish both goals and to maximize the power output, many products have gone away from traditional AA and AAA batteries to small circular batteries with codes that start with the letters CR.
The unintended consequence of small circular batteries was documented in a recent study in the journal Pediatrics which reported that young children generally five or younger in large numbers have been brought to hospital emergency rooms because they have either swallowed batteries or have gotten them lodged in their nose or ears. Anyone who has ever had small children knows that simply saying "no" is not sufficient to keep them from doing something possibly dangerous in fact it may be an inducement for them to go ahead and do it.
One strategy for reducing this problem would be to in case batteries within the device so that they were not changeable. The unintended consequence of this approach, however, would be to raise the cost of devices to consumers who would then need to replace them whenever the batteries ran out. Perhaps Manufacturers need to replicate what was done with medicine and childproof caps; that is, make it difficult for children to remove batteries from devices.
The Wall Street Journal on Saturday interviewed the CEO of Spirit Airlines, the notorious low-fare charge you for everything airline. Spirit is known for charging for just about everything: boarding passes, checked baggage, carry-on baggage, to use the Internet to book tickets, and the CEO even joked about charging for armrests.
The Interesting unintended consequence that emerged from the interview was the revelation that Spirit airplanes burn less fuel than their competitors because passengers riding on Spirit bring fewer bags as a result of the high fees. This observation brings to mind many other user fees that should probably be imposed because of their unintended consequences: kids could be charged a dollar per hour for watching TV ( with the expected unintended consequence that they would watch less television), smokers could be charged a fee to cover their additional medical care ( with the expected unintended consequence that they would smoke less), and consumers of high calorie carbonated beverages could be charged a per bottle fee ( with the expected unintended consequence of reduced obesity).
The problem with most of the fees suggested above Is that they would be imposed by the government which in and of itself would create other unintended consequences. The point of the observation though is that people respond to price signals and they can be used to redirect behavior. Notice there is a difference between banning smoking of cigarettes and charging users for the costs they impose.
Be careful when you walk down the street: the young person walking towards you no doubt has their head down and is busily texting, playing a game, or using the Internet. The same is true when statistics on book reading and other intellectual pursuits are compared over the past ten years: young people today are too busy with their toys to engage in rigorous learning activities.
A chapter in my new book Unintended Consequences: How to Improve our Government, our Businesses, and our Lives talks about how young people have acquired special skills that their elders do not possess - that is they traded off activities that require multitasking and short attention spans for other activities. The unintended consequence of this change is that kids today are failing when it comes to education.
The 2011 National Assessment of Educational progress recently released by the US Department of Education contained some frightening statistics. Just 32% of students had strong science skills. Some people are blaming the school systems and the educational process. There's probably some truth to this. However, I think the unintended consequence of parents allowing their kids to buy every new itoy and to spend a majority of their waking hours, only because they can't use them while they're asleep, is also responsible.
You have probably seen the ads about drugs and alcohol which tells parents not to have a double standard: tell kids not to use them and then turn around and have a drink. There is probably some degree of this problem taking place with itoys as well. That is, parents are spending too little time with their children and too much time playing with itoys. The responsibility of schools is expanded in this case in that they must both teach and replace the guidance parents should be providing. On that measure, the school systems are failing.
The fast-paced world that we live in makes it difficult for people to have a full breakfast in the morning. Instead people grab a cup of coffee at Starbucks or wait to have an early lunch. Sometimes we tell ourselves that this is a good strategy for holding down weight, or we say that we don't have time to shop and buy the supplies required for a breakfast meal.
Among the unintended consequences of not eating breakfast are the results of a new study published in the American Journal of Clinical Nutrition which was conducted over a 16 year time span on nearly 30,000 men. men who did not eat breakfast at a significantly higher risk of developing Type 2 diabetes. This type of diabetes is referred to as adult onset diabetes and is associated with a higher cardiovascular and stroke risk. That statement doesn't seem to motivate people to take steps to avoid the problem, such as eating breakfast. Another way of describing the problem is to say that people with Type 2 diabetes have a 10% lower life expectancy. it would be a shame if that happened to someone because they didn't get up early in the morning to have a bowel of cereal.
American diets have moved to embrace seafood but especially salmon. My book talks about the unintended consequences that come from fish farming and that is a negative consequence. The recent issue of Neurology provides us with a positive unintended consequence from this transition.
a paper by Dr. Scarmeas reports a positive association between the consumption of omega-3 ( Salmon is a spectacular provider of it) and a significantly lower level of beta amyloid blood levels. So what you ask. The presence of these plaques in the brain are associated with the onset of mental problems associated with aging and there seems to be an additional association with Alzheimer's.
Smoked salmon, salmon with sushi, salmon patties, broiled or baked salmon, all these seem to be a relatively painless way, or should I say a tasteful way, of putting up a first level defense against experiencing mental declines as one ages. Some unintended consequences are beneficial this is an especially delicious one.
Once again Matt Ridley of The Wall Street Journal has written an article, Standards of Living Make Great Wonder Drugs, that is among the best pieces of journalism this past year. This time he reports on how the decline in death rates from illnesses such as TB do not seem to correlate well with the introduction of streptomycin, the antibiotic which Is the official "cure." Instead he notes that the improvement in housing which occurred commensurate with the improvement in economic conditions can be given much of the credit.
The unintended consequence of people no longer sharing beds with strangers, as was the case in earlier decades, has been a disruption of the linkage between the illness and new victims. Economic progress has fostered the creation of motels and hotels.