Tag: Hammurabi’s Code

Hammurabi’s Code

hammurabi's code

Nearly 4,000 years ago, Hammurabi’s code specified:

“229. If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.”

“230. If it causes the death of the son of the owner of the house they shall put to death a son of that builder.”

“231. If it causes the death of a slave of the owner of the house he shall give to the owner of the house a slave of equal value.”

“232. If it destroys property, he shall restore whatever it destroyed, and because he did not make the house which he build firm and it collapsed, he shall rebuild the house which collapsed at his own expense.”

“233. If a builder builds a house for a man and does not make its construction meet the requirements and a wall falls in, that builder shall strengthen the wall at his own expense.”

The image above shows 230 and 231 written in the original cuneiform script.

Hammurabi was the best-known king of Babylon's first dynasty. In addition to being a lesson in incentives, the code is one of the earliest, if not the earliest, recorded construction law.

“In all,” writes Nael Bunni in Risk and Insurance in Construction, “there were 282 rules found inscribed on an imposing stone stele in cuneiform script. The rules were divided into three sections: property law, family law, and laws relating to retaliation and restitution.”

The severe penalty imposted by these rules ensured that building work achieved the required standards of construction and safety and helped to ensure that houses were free from the defects resulting from bad design, materials or workmanship. The assurance that this would be so was based on the principle of ‘an eye for an eye' in accordance with the law of that time, a principle that still exists today in some legal systems.

In a 2011 Op-ed, Nassim Taleb wrote:

The Babylonians understood that the builder will always know more about the risks than the client, and can hide fragilities and improve his profitability by cutting corners — in, say, the foundation. The builder can also fool the inspector; the person hiding risk has a large informational advantage over the one who has to find it.

An Ancient Lesson on Taking Responsibility For Decisions

“A decision is responsible,” wrote Charles Frankel, “when the man or group that makes it has to answer for it to those who are directly or indirectly affected by it.”

Think about that for a second.

How often does that happen today? In most organizations people don't make decisions — committees do. Responsibility is diffused to a group, not the individual. Everyone is insulated from their mistakes.

The ancients had a way around this. Consider Hammurabi's Code:

If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.

While extreme, that is the best risk-management rule ever. If you have the upside, you have to keep the downside.

The Romans had a similar system. The guy who created the arch stood under it as the scaffolding was removed. And to some extent, we do the same thing today. No one packs your parachute for you.

Charlie Munger, the partner of Warren Buffett at Berkshire Hathaway, puts it another way:

Another thing that is never discussed any more is my idea of one of the great philosophers of America who was Charlie Frankel. He was mugged to death in due course because, after all, he lived in Manhattan in a different time.* Before he was mugged to death, he created this philosophy of responsibility. He said the system is responsible in proportion to the degree that the people who make the decisions bear the consequences.

So to Charlie Frankel, you don’t create a loan system where all the people who make the loans promptly dump them on somebody else through lies and twaddle, and they don’t bear the responsibility when the loans are good or bad. To Frankel, that is amoral, that is an irresponsible system. That is like selling an automobile with bad brakes and you know the brakes are bad. You shouldn’t do it.

We've gotten away from responsibility for our decisions, which allows people to get all the upside and none of the downside. Is it any wonder why things go wrong?

How can we implement better decisions in organizations? Make them stand under their own arches.

The best way to do this is to make the responsible person sign their name to decisions. Simple and effective but not easy to implement.

Nassim Taleb — How to Prevent Other Financial Crises

Let us start with our conclusion, which is also a simple policy recommendation, and one that is not just easy to implement but has been part of history until recent days. We believe that “less is more” in complex systems—that simple heuristics and protocols are necessary for complex problems as elaborate rules often lead to “multiplicative branching” of side effects that cumulatively may have first order effects. So instead of relying on thousands of meandering pages of regulation, we should enforce a basic principle of “skin in the game” when it comes to financial oversight: “The captain goes down with the ship; every captain and every ship.”

That's Nassim Taleb in a newly published paper. “In other words,” Taleb and his co-author argue, “nobody should be in a position to have the upside without sharing the downside, particularly when others may be harmed.”

They sounds an awful lot like Warren Buffett:

If I were running things if a bank had to go to the government for help, the CEO and his wife would forfeit all their net worth. … And that would apply to any C.E.O. that had been there in the previous two years. …I think you have to change the incentives. The incentives a few years ago were try and report higher quarterly earnings. It’s nice to have carrots, but you need sticks. The idea that some guy who’s worth $500 million leaves and only has $50 million left is not much of a stick as far as I’m concerned.

Incentives matter. Hammurabi’s code, formulated nearly 4,000 years ago, serves as a great example:

If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.

“This principle,” Taleb writes, “has been applied by all civilizations, from the Roman heuristic that engineers spend time sleeping under the bridges they have built, to the maritime rule that the captain should be last to leave the ship when there is a risk of sinking”