Dishonesty? We come by it honestly!
Yet another banker-bashing news story has hit the press. On Thursday (28 June 2012), Barclays bank was fined for fixing an interest rate linked to the price of loans on mortgages. There has been a loud voice from the public demanding Bob Diamond to resign as Chief Executive. Other stories have reported that Bob will not resign over the actions of a "small number" of Barclays employees who were dishonest to make a fast buck for themselves. Searching Twitter for #Barclays and #BobDiamond shows a lot of anger and hate directed towards the leaders of the banks. The people want a public execution: they want a Diamond skull!
Is this "reach for the torches and pitchforks" reaction helpful? The "small number" of traders in Barclays would have known what they were doing was (if not illegal) "morally questionable", and yet they still did it. People are inherently dishonest and do not always weigh up the reward of an action versus its real, or potential cost. This contradicts a current idea in economics; that people rationally weigh up the personal gain of an action (e.g. end-of-year bonus) versus the cost (e.g. heavy fine/jail term).
In New Scientist, behavioural economist Dan Ariely describes an experiment which showed that this dishonesty extends through society. A group of people were asked to answer a series of mathematical questions. After 5 minutes, the subjects were given the answers and to count how many they got right. After this, they were to put their answer sheet into a "shredder" and tell the experimenters how many answers they got right. Unknown to the test subjects, the shredder did not fully shred the answer sheet and the researchers could cross-check the subject's reported answers versus their real ones. "People usually solve four [problems] and report six" reported Ariely. This experiment shows that most humans will cheat. Many of us (up to 56% of children aged 8–18) illegally share, listen to and download music without paying for copyright. This is despite an overwhelming knowledge that downloading pirated music is illegal.
In another paper by Dan Ariely et al., the authors accept that there are many examples of dishonesty in public and corporate life. They go on to argue that there are two ways to defend against dishonesty. The first assumes humans behave rationally and that increasing the likelihood/cost of being caught will decrease the level of dishonesty in a group of people. An experiment, similar to the one described in the paragraph above, has shown that an increase in risk of being caught does not necessarily decrease the level of dishonesty (results discussed in more detail in the link above). The authors conclude that to reduce dishonesty, we must understand the internal psychological mechanisms of a human
A witch hunt for banker CEOs is unlikely to delve into the mechanisms that force humans to make dishonest decisions. Without understanding the mechanisms that cause dishonesty, the future will always be filled with scandals and dishonest deals.
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| After the execution |
Is this "reach for the torches and pitchforks" reaction helpful? The "small number" of traders in Barclays would have known what they were doing was (if not illegal) "morally questionable", and yet they still did it. People are inherently dishonest and do not always weigh up the reward of an action versus its real, or potential cost. This contradicts a current idea in economics; that people rationally weigh up the personal gain of an action (e.g. end-of-year bonus) versus the cost (e.g. heavy fine/jail term).
In New Scientist, behavioural economist Dan Ariely describes an experiment which showed that this dishonesty extends through society. A group of people were asked to answer a series of mathematical questions. After 5 minutes, the subjects were given the answers and to count how many they got right. After this, they were to put their answer sheet into a "shredder" and tell the experimenters how many answers they got right. Unknown to the test subjects, the shredder did not fully shred the answer sheet and the researchers could cross-check the subject's reported answers versus their real ones. "People usually solve four [problems] and report six" reported Ariely. This experiment shows that most humans will cheat. Many of us (up to 56% of children aged 8–18) illegally share, listen to and download music without paying for copyright. This is despite an overwhelming knowledge that downloading pirated music is illegal.
In another paper by Dan Ariely et al., the authors accept that there are many examples of dishonesty in public and corporate life. They go on to argue that there are two ways to defend against dishonesty. The first assumes humans behave rationally and that increasing the likelihood/cost of being caught will decrease the level of dishonesty in a group of people. An experiment, similar to the one described in the paragraph above, has shown that an increase in risk of being caught does not necessarily decrease the level of dishonesty (results discussed in more detail in the link above). The authors conclude that to reduce dishonesty, we must understand the internal psychological mechanisms of a human
A witch hunt for banker CEOs is unlikely to delve into the mechanisms that force humans to make dishonest decisions. Without understanding the mechanisms that cause dishonesty, the future will always be filled with scandals and dishonest deals.
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