The Economics of Apologies

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By Ben Ho, Assistant Professor of Economics, Vassar College. Cross posted from VoxEU

Apologies are often hard – that’s the point. An apology is due when trust is broken, and to restore trust the apology must be hard. This column discusses a model of apologies as costly signals with some recent experimental evidence.

Following the recent wave of apologies by politicians,1 celebrities,2 and in particular by firms,3 there have been numerous commentaries about the nature of apology – in particular how it is pointless and overused. Recent research in the social science of apologies can help us understand their logic, and shed light on the purpose of the rituals of repairing social transgression.

A market economy depends on the strength of weak ties, and only rational fools (Sen 1977) ignore the value of relationships in support of economic transactions (Granovetter 1973). But from time to time, mistakes are made that temporarily break these ties. Apologies work to restore such frayed relationships.

As a behavioural economist, my own research has focused on three goals, namely showing that:

• Apologies can have real economic consequences;

• Models based on economic incentives can explain how and when people give and receive apologies; and

• Economic theory can help us understand what it means when we say the words “I am sorry.”

Corporations frequently become the target of public outrage, like General Motors in its handling of recent safety issues and automobile recalls. The public apologies by GM CEO Mary Barra have come under attack and scrutiny. Do such apologetic words have any meaning? Lee et al. (2004) analysed annual reports from publicly traded companies and found that companies that admitted responsibility for bad earnings had higher stock prices one year later than those who did not.

Although compelling, Lee et al. can only establish a correlation between apologies and economic outcomes. In recent work, Elaine Liu and I find a causal link between doctors’ apologies and their patients’ inclinations to litigate (Ho and Liu 2011). At the time of writing, 36 US states had passed laws that encourage doctors to apologise. These laws are premised on two ideas:

• Doctors are often hesitant to apologise because they are scared of lawsuits.

• Patients most often sue out of anger, sometimes because their doctor never apologised.

By making a doctor’s apology to the patient inadmissible in court, these states hope to break this vicious cycle and improve the doctor-patient relationship.

By looking at malpractice claims in each state before and after the laws were passed, we find that after a state passes an apology law, malpractice cases settle 19-20% faster (especially in the most severe cases) and we see a 16-18% reduction in the number of claims filed.

This research was inspired by a model of apologies I developed in Ho (2012). The model studies a class of ongoing principal agent relationships where the principal and agent engage in repeat interactions, but the agent’s suitability is unknown to the principal, and contracts are incomplete. Relationships between a doctor and a patient, a home owner and a contractor, a politician and the electorate, and an investor and an entrepreneur all share these feature, and therefore they all rely on a degree of trust. From time to time, mistakes are made and that trust is broken.

The fundamental insight of the model is that for an apology to restore the broken trust, the apology must be hard. The idea is based on a key insight of game theory that finds that our ability to signal a desirable quality depends on the cost of performing that signal. Signaling theory has traditionally been applied in contexts such as explaining a peacock’s extravagant plumage or understanding the value of an expensive college degree. The work here applies the idea of signaling to apologies and human relationships.

When we are wronged, we all want the transgressor to apologise. However, often when they apologise, we punish them for it. We make them feel bad. The reason? If an apology were easy, it would no longer have any meaning.

This simple insight that apologies work to restore relationships but are costly for the apologiser has powerful implications borne out in experiments I conducted with students in a lab. Subjects played a simple investment game that depended on trust. If the investment failed, they were allowed to apologise for that failure. The theory and experiment both show that apologies should be more common in long relationships, more common early in a relationship, and more common when there is a better match between the two parties.

Some say these recent examples of public apologies followed by public jeering and humiliation are just a waste of everybody’s time. But it is precisely the public jeering and humiliation that make the apologies effective.

What does this research say about what makes for a good apology? Essentially, anything that makes the apology costly or difficult. Here are some types of apologies to consider:

• “I’m sorry about your grandmother’s illness”. Recognition of the pain is a start. Demonstrating that you at least have the empathy to recognise the damage caused and an acknowledgment that the rules that were violated.

• “I’m sorry – I will never do it again”. Often people will offer forgiveness for the first transgression, if the transgressor accedes to being held to a higher standard in the future. As the saying goes: “Fool me once, shame on you; fool me twice, shame on me.”

• “I’m sorry – I am an idiot”. Admitting your own incompetence means you give up some of your reputation in exchange for forgiveness. Tiedens (2001) find that voters liked Bill Clinton more after seeing a video of him apologise about the Lewinsky scandal, but then they became less likely to want to vote for him because they think he is less competent.

• “I’m sorry – here are some flowers”. The more expensive the better. Offering reparation for the harm done is a way to a pay a tangible cost to make up for the mistake.

• “I’m sorry – it wasn’t my fault”. This is perhaps the least effective as it is the least costly to say. But it could work if you can prove it wasn’t your fault in a way that is costly to fake.

Of course, much more remains to be done to understand this complex social institution, but this analysis offers a start. As for any shortcomings in what I write here, my apologies.


1 President Obama for, Governor Christie for the George Washington Bridge scandal.
2 Shia LaBoeuf for plagiarism, Ted Nugent for racism.
3 General Motors for its safety issues, Netflix for its pricing, Apple for its Maps, JP Morgan for its regulatory mishaps.

See original article for references

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  1. Dana

    The piece neglects the key impact of an apology that seems sincere: it places the burden back on the victim of the original wrong. The author’s discussion of medical malpractice cases is deficient as it suggests that victims sue because they are “angry.” In fact, victims of medical malpractice sue because they have suffered injuries that are at least temporarily and often permanently disabling, and must undergo emotionally horrific, physically agonizing and financially devastating procedures to partially repair the damage. The health care “system” of the United States guarantees that a lawsuit against the guilty party is the only way the victim can hope to regain some little bit of their health; the lack of guaranteed sick leave or adequate disability income guarantees that a lawsuit is the only way the victim can hope to recover economically from the malpractice. Tort repeal statutes enacted in the 1980s and 1990s guarantee that medical malpractice lawsuits cannot even be filed unless the evidence is far stronger than that required in other cases, and the expense and time commitment ensures that a lawsuit is pointless unless the damages mount into the hundreds of thousands of dollars.

    Yet if a doctor apologizes and makes it seem sincere, his victim now feels guilty for pursuing the lawsuit. Perhaps the doctor truly is sincere, but we can be pretty sure that the motives of the lawyer advising the apology are entirely cynical. Convince the victim that not only were her injuries an accident, but that she would be a bad person for pursuing her lawsuit and “ruining the doctor’s life.” The apology transforms the malpractice victim, from victim to aggressor in her own psyche.

    1. Banger

      In a sense the author is distorting the definition of the word “apology” and turning it into a cynical tool to manipulate people’s emotions for personal gain. Apologies have to be more than “I’m sorry” they have to include a statement of the motivations behind the act that required the apology as well as some indication that something has been learned other than “don’t get caught.”

      1. James Levy

        Two words: shame and penance. I was raised on twelve years of Catholic school, and no, that’s not a punch line. They taught me a mess of valuable things about life, the universe, and everything. Some of the priests/nuns/lay teachers I had were astoundingly good; the best were not Pollyannas. They knew a lot about life. And they rejected the idiot Protestant notion that faith justifies and redeems (George W., anyone?). Redemption took effort. Forgiveness only came through repentance and compensatory action (yes, I know, Hail Marys–but that was for the dumb priests; the smart ones made you go back, fess up, and make it right with the person you wronged, the way Jews are supposed to do before the New Year).

        This way of dealing with wrong action (sin), I find commendable. Be ashamed of what you did (shame, as Broadway Danny Rose understood, is a good thing). Then, confess what you did. Then, act to make it up (to God if you believe in such a thing [I no longer do] ) to the person you wronged. Economists want a model of behavior? I give you this one.

        1. susan the other

          then there’s always this: guilt is perverse (for a good reason) and needs to be taken care of before it becomes chronic… before it becomes a complex that has a negative effect individually and can become a dysfunction across society… as in oops, we were sloppy (and, er… defrauded the entire country, but we’ll sue you for slander if you use the F word…or as in Japan – put you in jail if you speak the truth about Fukushima…) and all sorts of other delusional manifestations of self and national interest. Blahblahblah.

      2. Gaianne

        Don’t forget the making of amends! This is at least implicit, and better it be explicit.

        Without the making of amends, the apology is indeed a manipulative ploy.


  2. allcoppedout

    Behavioural economists clearly know little behaviour. We are being apologised to death in Britain by disingenuous tossers who have discovered the action has positive social value. Apologies work in a number of ways. We have politicians and banksters apologising instead of going to gaol, cops and social workers apologising for not doing their jobs, burglars apologising to victims and nearly all of them are lying. Of course, these apologies come after being caught and long after plausible denials and the DNA test.

    So what is it that professor Ho thinks he is researching? He is clearly spotting the label ‘apology’ doing its rounds, but seems not even close to operational definition of the behaviours involved. Wouldn’t most of us consider an apology with an economic objective not an apology at all? Might one suggest Ho is really discussing PR and lying? And subject to ethical confusion on the nature of his research? And quite extraordinary naiveté on language?

    Ask yourself if you really want an apology from the political-bankster class, or would prefer to see a substantial number of them in gaol, applying moral hazard to future practices?

    There are cultural differences regarding what apology is, so where is the cultural study?
    And I suspect the professor’s work has already been done –

    The current rash of apologies remind me of the old bots and wers of English Law – ‘I’ve just killed you husband and children. Take this bag of silver in compensation’. Apologies are cheaper and if Ho wants to look at behaviour I’d recommend he abandon the “insights” of game theory and look at some simple sociology like Goffman’s ‘Presentation of Self in Everyday Life’ (1967). Or listen to a psychopath demonstrating “remorse” at a parole board and follow “Skull Crusher” to his next skull crushing three days after his release. What are these apologies seems the behavioural question.

    1. skippy

      Behavioral economics – consumer is unhappy with crapification… BE arbitrator says sorry about your unhappiness… yet we have a no refund corporate policy… because the market demands it.

      Skippy… BTW fetched son from the olds place [topo link], platypus, dingos, water buffalo, eagles, many species of deer, on a place that has not changed much since the mid 1800s, were the back drop to him finding out…. the Real Lives of Dallas – Fort Worth – Houston Wives is… for real – all – of it.

  3. Banger

    Public apologies from people whose profession is to maximize profit or gain power are PR stunts and nothing more. By definition, IMHO, these sorts of apologies are fakery playing on our natural inclination towards compassion which, in turn, moves us away from compassion when we see that these lawyered-up and PR-ed up individuals are lying–which is de rigeur for all powerful people in our system. In the end, rational people, will stop being compassionate then what?

    I’m always a bit irritated when economists start showing us that morality has economic utility which only shows me the extraordinary cynicism at the heart of the discipline. Fake apologies that are suggested by the author are deeply unethical and part of the hustler mentality that economists seem to think is the highest virtue we can aspire to.

    1. James Levy

      I’m reminded of the scene wherein Archie Bunker complains that Nixon’s weakness was that he filled his Administration with Krauts; if he had chosen Japs, they would know to do the right thing and kill themselves when they got caught! The Korean principal who hung himself to atone for the deaths of all those children whose well-being was his responsibility points us in what I consider to be a generally positive ethical direction. To quote Commodore Decker before he does a kamikaze run against the Doomsday Machine: “A captain is responsible for the lives of his crew, and for their deaths. Well, I should have died with mine.” It’s hard to loot and lie after internalizing such a code of behavior. It may be why Americans still so badly want to believe in our military, because we hope and pray that the Duty, Honor, Country mantra of West Point has been drilled into their collective skulls to the extent that they will act nobly and disinterestedly. It is, at least, a pius fiction.

      1. susan the other

        A noble fiction that defeats itself. I didn’t go to Vietnam physically, but I definitely went there mentally and emotionally. I was young and horrified. It has stayed with me ever since. And my husband got drafted despite all his efforts to avoid it. And he was there for 2 years. 2 years. It’s a flat-out miracle he didn’t come home, go rationally insane, and blow his own brains out. So fiction has short legs too. And only if you acknowledge your own truth – much like admitting your own guilt – do you survive. So what does that say about our sick society? We have a lot of fences to mend. The amazing thing is, we know it. Denial has no substance.

    2. allcoppedout

      The economists see themselves as ‘tough lovers’. The data of swinging successfully through the line of a fast ball is hardly physics. Being honest or spending time working out what is really going on is doing physics on the fast ball trajectory rather than just swinging through the line to them. Why bother when the dishonest swing has a money payoff? The inevitable end of all this apologising is to devalue the apology completely. A bit like the economists’ groaf-jawbs paradigm. A few quid now, burned planet down the line.

      Now folks, how’s our plan to rob Fort Knox coming along? No need for worries if it goes wrong, we’ll just apologise. The Japanese have matsusho, a formal system of apology, but still rip out history pages on Nanking. In fact, apology looks like a way of not putting things to rights in Ho and more of a symbolic gesture of the liar.

      1. Lambert Strether

        On “the dishonest swing has a money payoff,” I’ve always loved this post from Ian Welsh:

        I’ve long thought that the problem with politicians isn’t just that they’re constantly passing bills they’ve been bribed to pass, but that they sell out so cheaply.

        I mean, the ROI on lobbying is astronomical. For example the American Jobs Creation act earned corporations 82 billion.  The cost in lobbying?  283 million.  Return on investment?  22,000%

        It’s safe to say that even drug dealing doesn’t return that sort of money, which is why I believe that any corporation large enough to buy politicians which isn’t doing so is clearly failing in its fiduciary duty.

        But it’s the cheapness which used to puzzle me.  No more though.  My friend Eli pointed out what should have been obvious to me.

        [They sell out cheap] because it’s not their money. It’s like selling your neighbor’s car for twenty bucks.

        America’s politicians: cheap and crooked.

          1. allcoppedout

            Public choice theory with no attempt to align the private decision with the decision in public interest.

  4. James Dodd

    It appears to me that the complaints about the article’s approach to apologies and the anecdotal examples provided in the comments are focusing only the inadequate “cost” of most apologies.
    The “cost” of an effective apology would seem to be a factor of the mental state of the perpetrator at the time the wrong was committed and the amount of damage caused by the wrongful act. A good faith mistake with little or no actual damage may require a fairly low cost apology to restore the social link of trust. However, an intentional or reckless wrong would require an apology with the extremely high cost of proving that the behavior would not happen again – e.g. a drunk swears off all drinking. An apology wrong that damages others must be accompanied with divestiture, reparations or restitution.

  5. allcoppedout

    “Occasionally words must serve to veil the facts. But let this happen in such a way that no one become aware of it; or, if it should be noticed, excuses must be at hand to be produced immediately.”
    ― Niccolò Machiavelli – for ‘excuses’ read apologies

    And have a legal disclaimer at hand.

  6. shinola

    “Economic theory can help us understand what it means when we say the words I am sorry”

    Seriously? This is a good example of over reach & hubris that is so very common to the “science” of economics.

    1. Vatch

      Perhaps it makes more sense to make such a claim about game theory rather than economic theory.

  7. weinerdog43

    I think I might be inclined to forgive little Timmy Geithner for his many huge transgressions, but I doubt he would be sincere. Therefore, I propose bringing back the stocks so we could throw rotten vegetables at him for a month. He might still not be sorry, but I would feel a whole lot better. Plus, some things are not cured by an apology.

    1. susan the other

      Yes indeed. As Glen Hubbard would also do to Geithner. Claiming Timmy “lied” flat-out when he said in his book that Hubbard said taxes would be necessary on the rich but they (conservative consultants) couldn’t say so yet. Terrified of the Tea Party. TTP. That was supposedly in response to Timmy’s response as Obama’s agent re taxes in exchange for Simpson-Bowles implementation. No Simpson Bowles until agree to taxes on the rich. And totally ignored was the fact that S-B was as farcical and illogical as goofy old Simpson himself. And so on.

  8. ScentOfViolets

    From what I was taught, an ‘apology’ is actually three things: 1) An admission of error/harm/wrongdoing, 2) The apology itself, and 3) Some sort of amends or redress.

    Part of the outrage at corporate ‘apologies’ is that frequently only 2) is given while 1) is carefully avoided to minimize the legally-imposed 3). That point 1) is very important; at the time of those big bailouts, I thought that preserving the bennies of the the Top Men would be acceptable so long as said honchos got on prime time TV and publicly both admitted their culpability and apologized for it. Didn’t happen of course . . . which left them perfectly free to carry on exactly as before.

    1. susan the other

      … and so it becomes even more disgusting than the original insult… we are the indignados… plus almost 10 years and counting…

  9. John

    You should do a topic on…. hunger. I hope they don’t ban me from the internet for saying this but one thing I learned while working in some countries, if you wanted to negotiate contracts you hold your meetings during Ramadan (Ramazan) and preferably late in the afternoon.

    1. allcoppedout

      And lessons will be learned, though in fact never are, because the same mistakes that were made get made again. What is the apology then? “Very sorry”.

  10. Hugh

    Sorry, we stole all the money in the world, but you let us. So it must be OK.


    The rich and elites.

  11. allcoppedout

    That would be signed ‘lawyers for the rich and elites’ Hugh. And we’d be billed the fees.

  12. allcoppedout

    Scent gets the mechanism right above. While that form of economic apologising continues, we have other forms of delayed apologies in which we can’t hear the apology because the Americans aren’t ready (Chilcott on Iraq), and apologies for original treatment 25 years ago, previously investigated several times to avoid apology, by independent bodies who bent the already bent evidence further than those perpetrators who investigated themselves in order to suppress the truth, all hurting the victims again and again, leaving one wondering what the eventual apology can be now all the perpetrators have died, retired on pension or otherwise fled, and who can deliver it (Hillsborough). Expect the return of the whipping boy, the poor sod who took the flogging for the King’s sinning.

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