Kidnapping, Blackmail, and Honesty

Securing a reputation for honesty also increases your credibility. Outside of game theory land, nice people strive to be honest because it’s “the right thing to do.” In the hypercompetitive business world, however, honest behavior arises more from self-interest than morality. Consider, for example, why kidnappers and blackmailers profit from being thought honest.

A kidnapper demands ransom, but the victim’s family should comply only if paying the ransom increases the chance that the victim will be released. It’s challenging for a kidnapper to satisfy this condition. Imagine that you’re a kidnapper who has just been paid a ransom. Should you release your victim? It won’t earn you any more money, and releasing the victim will provide police with clues as to your identity and whereabouts.

There are advantages, however, to not killing your hostage. First, the police won’t work as hard to catch you if you’re guilty of just kidnapping rather than kidnapping and murder. Second, you will get a far lighter sentence, if caught, if you didn’t kill. Both of these advantages apply, however, regardless of whether you get the ransom.

If the victim’s family thinks that you will release their loved one because you fear a murder conviction, then they should believe that you will fear this conviction regardless of whether they meet your ransom demands. Remember, the victim’s family will pay a ransom only if they believe it increases the chance of your freeing the victim. Only a professional kidnapper could meet this condition.

A kidnapper planning on plying his trade in the future would benefit from having a reputation for honesty. A repeat kidnapper wants his victim’s families to know that in the past he has released his victims if, but only if, his demands were met. Consequently, a victim’s family should perhaps only pay off a kidnapper who intends to kidnap again.

Blackmailers, as well as kidnappers, face substantial credibility problems. A blackmailer promises to disclose embarrassing information about his victim if the victim doesn’t pay. For example, a treacherous mistress might threaten to reveal her married boyfriend’s adulterous activities if he does not give her $30,000. Would this disclosure threat be credible, however?

Before you ever pay off a blackmailer, you should examine her incentives to disclose the embarrassing information. If your blackmailer hated you and would enjoy seeing you suffer, then she would disclose the information regardless of whether you pay her off.

Blackmail is illegal, even if the blackmailer has the complete legal right to reveal the embarrassing information. If your blackmailer reveals her information, it increases the chance of her getting jailed, if for no other reason than you are now more likely to file charges. The criminality of blackmail provides an incentive for the blackmailer not to disclose, but this incentive exists with equal force whether or not you pay her off. A rational one-time blackmailer, therefore, should be just as likely to disclose regardless of whether you pay her.

Furthermore, even if you met your blackmailer’s demands, why wouldn’t she continue to demand money? When you pay off a blackmailer, she gets your money, but all you get is her word not to disclose. A professional blackmailer would not want future victims to believe that she has betrayed past customers. A one-time blackmailer, however, would have a strong incentive to make further demands of her victim. After all, if a victim were willing to pay $30,000 last month not to have the information released, then surely he would be willing to pay a few thousand more this month to avoid humiliation. The best way to deal with a one-time blackmailer, then, is probably either to take your chances and not pay her off or to agree to pay her small sums for the rest of your life. If the blackmailer expects to get a continuous stream of income, then she would be made considerably worse off by disclosing the information. By paying the blackmailer throughout her life, you turn her into a professional and consequently make it in her interest to be honest.

If your blackmailer plans on playing her games again, then, as with kidnappers, she has an incentive to develop a reputation for honesty. A professional blackmailer would want people to know that in the past she disclosed her information if, but only if, her extortion demands were not met.

What does blackmail and kidnapping have to do with business? Blackmailers and kidnappers can hope to profit from their trade only if they can get people to trust them. Since these criminals can’t rely upon others believing in their honor or morality, they must devise mechanisms whereby people will trust them because honesty serves their interests. Many businesses, too, can profit only if others trust in their honesty.