February 03, 2008

Economic Incentives for a Life of Crime

As my dramatically diminished frequency of posting in the new year should suggest, I have been immersed in a lot of unpleasantness in recent weeks. Between increasingly frantic attempts at securing employment for the summer and reuniting with the maladjusted boys of 1524, I hardly had any time before last weekend to work on the quarter's only assignment for Legal Research and Writing, viz. a legal memorandum on intrusion of privacy worth 45% of the grade for the year. Needless to say, I overshot the word limit by over 1,800 words—this blog should be evidence enough of my inability to check the penchant for spewing incoherent nonsense—and had to spend all of last Sunday cutting out entire paragraphs, sentences, and towards the end, prepositions, articles, and other structures vital to sound writing. As hour after tedious hour of reading the same incomprehensible gibberish for expendable words and thoughts passed, I could not help but fall into a state of despair and existential angst (not an infrequent occurrence), pondering the same questions that have haunted me for years on end: (1) What am I doing with my life?¹ and (2) Why did I not choose to pursue a life of crime?

The first question I have explored in mind-numbing detail over the last year, and as such I will not belabor it (for now); the short answer is nothing. The second question is no less important, and may indeed be more relevant, not the least because discerning an answer has the potential to give my life the purpose it so sorely lacks at the moment.

Leaving aside the (probably irrelevant, in my case, anyway) concerns of morality (e.g., stealing is bad, etc.), conventional wisdom and common sense would likely attribute my decision not to become a criminal during my adolescent years to both my socioeconomic status and my background as the child of professionals. In explaining why I did not drop out of high school to sell rocks, those notions make a fair degree of sense, both sociologically and economically. From the former perspective, I had the influence and strong expectations of my parents that I follow in their footsteps, not to mention their financial backing. From the latter perspective, the net present value of staying in school, doing well, and attending college far exceeded any immediate value I might have obtained by becoming a low-level dealer. Moreover, it is not entirely clear that the 'Vine even has a market for crack to speak of, which would have posed serious hindrances to entrepreneurial success. (Other markets, e.g., heroin, powder cocaine, etc., though much more likely to be thriving in suburbia, would have been difficult to turn a profit on due to high startup and transaction costs, as discussed earlier.)

Where conventional wisdom and common sense tend to break down is when considering why I did not pursue crime after college. At that point, it was not as though I was going to be pacing down Telegraph Ave. slanging dime bags to 15-year-olds straight off the (crime-ridden) streets of Marin County—or their vegan dogs. To wit, with an education from one of the best programs in Electrical Engineering and Computer Science under my belt, I had the potential to make a fortune through what I will nebulously term only as hacking.² Moreover, unlike drug dealing, computer crimes carry none of the risk to life or limb. Wealth, power, and if such movies as Swordfish are to believed (a patently false assumption), an opportunity to meet Halle Berry sans a top might have all been mine. Well, maybe not that last one. But still, a whole lot more cash than I made in two years in corporate America—or will make in the five or so after I return as an attorney. And that's not even counting opportunity cost when I am enrolled in law school. So, what gives? Why am I sitting here accruing debt at 8% when I could be swimming in a metaphorical Money Bin?

The answer obviously comes down to risk tolerance. While my skills and abilities may have allowed me to escape detection for some finite amount of time, there was no way I could get away with it totally; everyone gets caught at some point. And then it's off to federal pound-me-in-the-ass prison (or some equivalent thereof). So, really, the relevant calculation is this:

Valuelawlessness * Pcapture * Pconviction|capture > Valuelawfulness?

Intuitively, I think it should be clear that Vlawlessness > Valuelawfulness, at least for white-collar crimes; otherwise, there would be no reason ever to commit such crimes at all.³ However, since both the probability of detection (i.e., getting caught) and the probability of conviction given capture are unknown, it is not entirely clear which option is the best. Really, what we need here is some empirical data. That way, enterprising young individuals such as myself could have a clearer picture as to their career choices. Can someone get on this already? A whole generation of well-educated, highly-skilled 20-somethings await your conclusions. Thanks in advance.

^ ¹ Incidentally, this was also one of the mantras of 1524 while we resided in San Francisco. The other two were: (1) Why does my back hurt? and (2) The house always wins.
^ ² The term for what I am describing within the technology community is actually cracker. A hacker is synonymous with programmer, and does not carry the negative connotation associated with the word in mainstream society. A cracker is one of those Bad People™ that steal your data. See also Hacker vs. Cracker.
^ ³ Of course, one could point to the fascinating story of Jérôme Kerviel over at French bank Société Générale SA, who lost €4.9 billion ($7.2 billion!) via rogue trades, but based on information that has emerged, it is rather clear that this was a tragic case of delusions of grandeur gone horribly awry. Leaving aside the (entirely relevant) issue of how this could have happened, it is not clear to me why it did: Kerviel apparently did not stand to gain from his trades, and to the bitter end, insisted he had come upon a new theory of trading. Talk about absurdism. This entire story reads like Albert Camus' L'Étranger.