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Unformatted text preview: READING 7~I The Ethics and Profitability of Bluffing in Business Richard E. Wokutch Thomas L. Carson Consider a standard case of bluffing in an economic transaction. i am selling a used car and say that $1.500 is my final offer. even though i know that i would accept con- stderably less. Or. suppose that i am a union representative in a labor negotiation. Al- though i have been instructed to accept SID an hour if that is the highest offer 1 receive. 1 say that we will not accept a wage of $10 an hour under any circumstances. This sort of bluffing is widely practiced and almost universally condoned. it is thought to be morally acceptable. It is our contention, however. that bluffing raises serious eth- teal questions. For bluffing is clearly an act of deception; the bluffer's intent is to deceive the other parties about the nature of his bargaining position. Furthermore. bluffing often involves lying. The two examples of bluffing presented here both fit the standard definition of lying: they are deliberate false statements made with the intent of deceiving others.l Common sense holds that lying and deception are prima facie wrong. One could also put this by saying that there is a presumption against lying and deception: that they require some special justification in order to be permissible.2 Almost no one would agree with Kant's view that it is wrong to lie even if doing so is necessary to protect the lives of innocent people. According to Kant it would be wrong to lie to a potential murderer concerning the whereabouts of his intended victim.3 . Assuming the correctness of the view that there is a moral presumption against lying and deception. and assuming that we are correct in saying that bluffing often in- volves lying. it follows that bluffing and other deceptive business practices require some sort of special justification in order to be considered permissible. Businesspeople frequently defend bluffing and other deceptive practices on the grounds that they are profitable or economically necessary. Such acts are also defended on the grounds that they are standard practice in economic transactions. We will argue that these standard justifications of hluffing are unacceptable. Then we will propose an alternativejustifi- cation for lying and deception about one's bargaining position. There are those who hold that lying and deception are never profitable or economi- cally necessary. In their view. honesty is always the best policy. One incentive for telling the truth is the law. but here we are referring to lying or bluffing which is not illegal. or for which the penalty or rislc ofbeing caught is not great enough to discourage the action. Reprinted front the llr'cstntirurer Institute Review. May 1951. pp. 77-83. Used with permission of the authors. 228 The Ethics and Profitability of Blut‘fing in Business :29 Those who hold that honesty is always in one‘s economic self-interest argue that economic transactions are built on trust and that a violation of that trust discourages an individual or organization from entering into funher transactions with the lying party for fear of being lied to again. Thus. some mutually beneficial transactions may be foregone for lack of trust. Moreover. word of deceitful practices spreads through the marketplace and others also avoid doing business with the liar. Thus. while some short-run profit might accrue from lying. in the long run it is unprofitable. If this argu- ment were sound. we would have a nonissue. Lying. like inefficiency. would be a question of bad management that would be in one's own best interest to eliminate. Unfortunately. there are some anomalies in the marketplace which prevent the system from operating in a perfectly smooth manner. The very existence of bluffing and lying in the first place suggests that the economists‘ assumption of perfect (or near perfect) market information is incorrect. Some transactions. such as buying or selling a house. are one-shot deals with little or no chance of repeat business. Thus. there is no experience on which to base an assessment of the seller's honesty. and no incentive to build trust for future transactions. Even when a business is involved in an ongoing operation. information flows are such that a large number of people can he duped before others hear about it (e.g.. selling Florida swampland or Ari- zona desertland sight unseen). Other bluffs and lies are difficult or even impossible to prove. If a union negotiator wins a concession from management on the grounds that the union would not ratify the contract without it—even though he has reason to believe that this is untrue-—it would be extremely difficult for management to prove later that ratification could have been achieved without the provision. By the same token. some product claims. such as the salesman's contention that "this is the best X on the market.“ are inherently subjective. When the competing products are of similar quality. it is difficult to prove such statements untrue. even if the per- son making the statements believes them to be untrue. Another exception to the as- sumption of perfect information flows is the confusion brought on by the increasing technological complexity of goods and services. In fact. a product information in- dustry in the form of publications like Consumer Reports. Canadian Consumer. Consumer Union Reports. Money. and Changing Times has arisen to provide. for a price. the kind of product information that economic theory assumes consumers have to begin with. These arguments suggest not only that the commonly cited disincentives to bluff- ing and lying are often ineffective. but that there are some distinct financial incentives for these activities. If you can convince consumers that your product is better than it re- ally is. you will have a better chance of selling them that product and you may be able to charge them a higher price than they would otherwise be willing to pay. it is also ob- vious that in a negotiating setting there are financial rewards for successful lies and bluffs. if you can conceal your actual minimal acceptable position. you may be able to achieve a more desirable settlement. By the same token. learning your negotiating op- ponent's true position will enable you to press toward his minimal acceptable position. This is. of course. why such intrigues as hiding microphones in the opposing negotiat- ing team‘s private quarters or hiring informants are undenaken in negotiations—they produce valuable information. (“tr-x 230 Section Seven Ethics in Negotiation An individual cannot. however, justify lying simply on the grounds that it is in his own self-interest to lie. for it is not always morally permissible to do what is in one's own self-interest. I would not be justified in killing you or falsely accusing you of a crime in order to get your job. even if doing so would be to my advantage. Simi- larly. a businessman cannot justify lying and deception simply on the grounds that they are advantageous. that is, profitable. to his company. This point can be strength- ened if we remember that any advantages that one gains as a result of bluffing are usually counterbalanced by corresponding disadvantages on the part ofothers. ”I sue- ceed in getting a higher price by bluffing when i sell my house. there must be someotte else who is paying more than he would have otherwise. Economic necessity is a stronger justification for lying than mere profitability. Suppose that it is necessary for a businessman to engage in lying or deception in order to insure the survival of his firm. Many would not object to a person stealing food to prevent himselfor his children from starving to death. Perhaps lying in an extreme sit- uation to get money to buy food or to continue employing workers so that they can buy food would be equally justifiable. This case would best be described as a conflict of duties—ma conflict between the duty to be honest and the duty to promote the welfare of those for/lo whom one is responsible (one‘s children. one's employees. or the stockholders whose money one manages). However, it is extremely unlikely that bankruptcy would result in the death or starvation of anyone in a society which has unemployment compensation. welfare payments. food stamps. charitable organiza» tions. and even opportunities for begging. The consequences of refraining from lying in transactions might still be very unfavorable indeed. involving. for example. the bankruptcy of a firm. loss of investment, unemployment. and the personal suffering as- sociated with this. But a firrn which needs to practice lying or deception in order to continue in existence is of doubtful value to society. Perhaps the labor. capital. and raw materials which it uses could be put to better use elsewhere. At least in a free—market situation. the interests of economic efficiency would be best served ifsuch firms were to go out of business. An apparent exception to this argument about economic effi- ciency would be a situation in which a firm was pushed to the edge of bankruptcy by the lies of competitors or others. It seems probable that the long—term consequences of the bankruptcy of a firm which needs to lie in order to continue in existence would be better. or no worse. than those of its continuing to exist. Suppose, however. that the immediate bad consequences of bankruptcy would not be offset by any long-term benefits. in that case it is not clear that it would be wrong for a company to resort to lying and deception out of economic necessity. One can. after all. bejustified in lying or deceiving to save individuals from harms far less seri- ous than death. 1 can be justified in lying about the gender of my friend's roommate to a nosy relative or boss in order to protect him from embarrassment or from being fired. If the degree of harm prevented by lying or deception Were the only relevant factor. and if bankruptcy would not have any significant long-term benefits, then it would seem that a businessman couid easily justify lying and deceiving in order to protect those associated with his business from the harm which would result from the bank- ruptcy of the firm. There is. however. another relevant factor which clouds the issue. In the case of lying about the private affairs of one's friends. one is lying to others about The Ethics and Profitability of Blul'fing in Business 2.3I matters about which they have no right to know. Our present analogy warrants lying and deception for the sake of economic survival only in cases in which the persons being lied to or deceived have no right to the information in question. Among other things. this rules out deceiving customers about dangerous defects in one's products. because customers have a right to this information: but it does not rule out lying to someone or deceiving them about one's minimal bargaining position. We have argued that personal or corporate profit is no justification for lying in business transactions. and that lying for reasons of economic necessity is also morally objectionable in many cases. But what about lying in order to benefit the party being lied to? There are certainly many self-serving claims to this effect. Some have argued that individuals derive greater satisfaction from a product or service if they can be convinced that it is better than is actually the case. On the other hand. an advertising executive made the argument in the recent Federal Trade Commission hearings on children‘s advertising that the disappointtnent children experience when a product fails to meet their commercial-inflated expectations is beneficial because it helps them de- velop a healthy skepticism. These arguments are not convincing. in fact. they appear to be smoke screens for actions taken out of self-interest. It is conceivable that consumers might benefit from it. For example. deceptive advertising claims may cause one to pur- chase a product which is of genuine benefit. While lying and deception can sometimes be justified by reference to the interests of those being lied to or deceived. such cases are very atypical in business situations. As was argued earlier. successful bluffing al- tnost always harms the other party in business negotiations. The net effect of a success- ful bluff is paying more or receiving less than would otherwise have been the case. A further ground on which lying or deception in bargaining situations is some- times held to be justifiable is the claim that the other parties do not have a right to know one's true bargaining position. It is true that the other parties do not have a tight to know one‘s position; that is. it would not be wrong to refuse to reveal it to them. But this is not to say that it is permissible to lie or deceive them. You have no right to know where l was born. but it would be prima facie wrong for me to lie to you about the place ofmy birth. So. lying and deception in bargaining situations cannot bejusti- fied simply on the grounds that the other parties have no right to know one's true posi- tion. However. other things being equal. it is much worse to lie or deceive about a matter concerning which the other parties have a right to know than one about which they have no right to know. But what of the justification that lying and deception are standard practice in eco- nomic transactions? Certainly. lying and deception are very common. if not generally accepted or condoned. Bluffing and other deceptive practices are especially common in economic negotiations. and bluffing. at least. is generally thought to be an accept- able practice.‘ Does this fact in any wayjustify bluffing? We think not. The mere fact that something is Standard practice or generally accepted is not enough to justify it. Standard practice and popular opinion can be in error. Such things as slavery were once standard practice and generally accepted. But they are and were morally wrong. Bluffing cannot be justified simply because it is a common and generally accepted practice. However. we shall now use the prevalence of bluffing involving lying and deception as a premise of an argument to show that there is a presumption for thinking I 232 Section Seven Ethics in Negotiation that bl'uff'ing of tltis sort is morally permissible. lfone is involved in a negotiation. it is very probable that the other parties with whom one is dealing are themseivcs bluffing. The presumption against lying and deception does not hold when the other parties with whom one is dealing are themselves lying to or otherwise attempting to deceive one. Given this. there is no presumption against lying or deceiving others about one's bar- gaining position in the course of an ordinary business negotiation. since the parties with whom one is dealing may be presumed to be doing the same themselves. It is prima facie wrong to use violence against another person. but when one is a vic- tim of violence oneself. it is permissible to use violence if doing so is necessary in order to prevent or limit harm to oneself. One is not morally required to refrain from self-defense. Similarly. other things being equal. if X is being harmed by the ties or deception of Y and if X can avoid or mitigate that harm only by lying to or deceiving Y. then it is permissible for X to lie to or deceive Y. These intuitions are captured by the folfowing principle: (P) Other things being equal. it is permissible for X to do a to Y. even ifa is a prima facie wrong. provided that X's doing a to Y is necessary in order to prevent or mitigate harm to X caused by Y's doing a to X.’ In business negotiations an individual can typically gain some benefit (balanced by corresponding harm to the other party) if he is willing to lie or deceive the other per- son about his own negotiating position. The other party can avoid or mitigate this hann only by being willing to do the same. in our society most people routinely prac- tice this sort of lying andfor deception in business negotiations. Given this. (P) impiies that one may presume that one isjustified in blufiing (by means of lying and deception about one's negotiating position) in ordinary circumstances. unless either: (i) one has special reasons to suppose that the other patty will not do the same (e.g.. one might know that the individual with whom one is dealing is unusually scrupulous or naive). or (ii) one has special reasons for thinking that one will not be harmed by the bluffing of the other party. even if one does not bluff oneself. Space does not permit an extended discussion or defense of (P). We would. how— ever. like to forestall two possible objections. (i) (P) does not constitute a blanket en- dorsement of retaliation or the policy of "an eye for an eye and a tooth for a tooth.“ (P) would not justify my killing your chiid in retaliation for your having killed mine. (P) would justify my kiliing another person X only ifmy kjiling X is necessary in order to prevent X from killing me. (ii) It is standard practice for people involved in negotia- tions to misrepresent the terms they are willing to accept. In ordinary circumstances (P) will justify such actions. However. there are types of lying and deception which are not generally practiced in negotiations. For example. while meeting with a prospective buyer a person selling a house might have a friend pretend to make an offer to buy the house in order to pressure the prospective buyer. (P) does not imply that there is any presumption for thinking that such a ruse would be morally permissible. NOTES We are indebted to Thomas Beauchamp for comments on a previous version of this paper. Earlier versions of this paper were presented to a conference on Business The Ethics and Profitability of Blurring in Business 233 and Professional Ethics at Kalamazoo College and Western Michigan University. No- vember l9'i'9. and to the Philosophy Department at Denison Universny. I. For a much more thorough defense of the claim that bluft‘tng involves lying. with an appeal to a somewhat different definition of lying. see our paper “The Moral Status of Staffing and Deception in Business" in Business and Professional Ethics. ed.. Wade L. hobison and Michael S. Pritchard (New York: Humana Press). Atso see our paper “Blufftng in Labor I've— gotiations: Legal and Ethical Issues." with Kent F. Mursmann. Journal of Business Ethics. vol. i. no. [January 1982. . . ‘ - 2. The classic statement of this view is included in Chapter ll of Sir DaVid Ross 5 The Right and the Good (Oxford: Oxford University Press. l930). ‘ 3. Immanuel Kant. “On the Supposed Right to Tell Lies from Benevolent Motives." (1797). in Moral Rules and Particular Circumstances. ed. Baruch Brody (Englewood Cliffs. NJ: Pren- tice Hall. I970). pp. 32 and 33. . 4. in a well-known defense of bluffing. Albeit Carr claims that it is permisstble to make false Statements in the course of business negotiations because doing so is "normal business prac— tice." and part of what is involved in "playing the business game.” See “Is Business Bluffing Ethical7." Harvard Business Review. January—February [968. . . 5. It seems plausible to say that it would be permissible to do an act that is prima facre wrong to another person (X) if doing so were necessary in order to prevent X from harming a third party by doing the same act. For example. one would be justified in killing another person if doing so were necessary in order to prevent him from killing a third party. We accept the fol- lowing stronger version of P: . . . . 1" Other things being equal. it is permissible for X to do a to Y. even if a is prime fame wrong. provided that X's doing a to Y is necessary in order to prevent or mitigate harm to someone caused by Y's doing a to that person. The weaker principle (P) is sufficient for the purposes of our argument. H ...
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