Tuesday, December 14, 2004


The theoretical part of the Kerik scandal

Ok, we've heard so much about Kerik.

He had extramaritial affairs, a "love den" in Battery Park City and had a hard time keeping his mistresses apart from eachother. At one time, according to The Daily News one of his mistresses, Judith Regan, the correctional officer with whom he had "workout sessions", left him a romantic note, which (unfortunately for Kerik) was found by his other mistress Mrs. Jeanette Pinero. Mrs. Pinero, the Washington Post reported, is the woman who is involved in the civil suit against Mr. Kerik. (See also ... sexist remark of the week: Kerik on Regan in Vanity Fair)
Now, as Newsweek reported, Regan had to hire bodyguards to keep Kerik away when their affair went down the drain. Well, funny thing, Kerik had a hard time dealing with his marriages in more ways than one. For example... he had a somewhat liberal view on bigamy. In fact, Newsday reports, it seems as if he hadn't really divorced his first wife (Linda Hales) when he married his second (Jacqueline Kerik). Nevermind the fact that the second marriage didn't seem to make him end up as very ... what'sthewordi'mlookingfor... faithful.

Since then, the nanny story hasn't really evolved even though there are a number of articles written. The only thing we now seem to get is is a whole lot of rumors.
Different media outlets - completely different stories - as in: Washington Post, LA Times.

And to top it of... there's the alleged connections between Kerik and organized crime in New York City's Department of Investigation and the whole (Newsday) story about what Guiliani really knew about it.

At times like these, there is only one thing to say: Wow.
The list of related stories just keeps growing (as do the stories themselves)
a) The Nanny story
b) The warrant in NJ
c) Riker's Island
d) The Baghdad connection
e) The mistresses
f) The bigamy
g) Organized crime

Now to a somewhat more theoretical scope of the whole mess.
Anyone who is lying or stonewalling, the way it seems like Mr. Kerik has done his entire life, will have to make a number of estimations as to whether a lie is suitable or not. Let's use some economics to explain this. I suggest a cost-benefit analysis for lying (See Tullock.1972. Towards a Mathematics of Politics: pp 135-139). (As we will see, the act of stonewalling has the same utility function as the act of lying.)

[BLP – Cc – (1-L)CpLp + CrLr = P]

B Expected utility from action held secret by
L Probability that the audience is persuaded by the lie
P The internal interest for lying; The probality that the lie, if convincing
enough to persuade the audience, will lead to expected end-result.
Cc Conscience, internal cost for lying
Cp Cost for punishment
Lp Probability for punishment, if audience doesn’t buy into a lie
Cr External cost; Harm done to actor’s reputation given that other actors discover the lie

Lr Probability that the harm done to actor’s reputation will occur if the audience discover the lie not to be true
Now, how can we explain the (internal) cost-market for rumors like these? For example, how is it possible for newspapers to print so many different unsubstantiated claims about the nanny? The formula above explains why. The critical difference is between micro (the media prey - in this case - Kerik) and macro (audience) expactions of respective utility functions. Since (L) to an ordinary reader is very high, while [(1-L)CrLr] is low. However, for Kerik, L is extremely, which is why he should try to push up Cp anyway he can.
To Kerik... his internal cost-estimation is perhaps what made this whole problem appear in the first place. Since a lie is preferable if, and only if, [BLP>(1-L)(CrLr+CpLp)] .
So, really, what Kerik has been doing all along is to behave like an extreme optimist, playing a game that has promoted his career so far. Until he realized that in the world of politics, you better be able to have damage control ready right away.

The coalition, now formed among journalists who hunt for Kerik in any new side story they can create, is so strong that it seems impossible for Kerik to ever recover from the story. (More on this coalition force soon to come.) And in any case - he is off the table as new head of DHS. I guess he found out the hard way - Playing with the big boys in D.C. is not like dealing with the wise guys in NJ - it's worse.

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