Business infrastructures and the science behind cheating

Dan Ariely’s presentation makes us question established models in our economy. We were taught that cheating is a cost-benefit analysis. Cheaters look at the probability of being caught, what the punishment you’ll get and what benefits you get by cheating.

Experiments showed that it wasn’t that a few people cheated a lot, but a lot of people cheated a little bit. Even if the probability of being caught goes up or down, people cheat just a little bit. Plus, Ariely’s research showed that people want to do well and would only cheat up to the point when they’ll still feel good about themselves, which he calls the Personal Fudge Factor. His research showed that there are three factors that affect our Personal Fudge Factor.

• Morality – we cheat less when we are forced to think about our morality. This manifested itself when people were asked to recall the Ten Commandments. This was also reflected when people were asked to sign a honor code and cheated less.
• Money – the closer the items are to monetary form, the less people cheat. Ariely points out, it’s easier for people to take a pencil home from work than take 10 cents from the company’s petty cash.
• Part of group – people cheat more when they see people in their group cheat. People are reminded of morality when they see outsiders (people they do not relate to or are seen as opposite to them) cheat, but find it easier to cheat when they see peers (people like them) do the same.

How does this relate to business? Items we’re trading in the stock market are far removed from money by calling them stock, stock options, derivatives, etc. Our stock markets and businesses are a social environment. When people at Enron, for example see peers around them cheating, it makes it acceptable behavior. As Ariely notes, many of these intuitions are wrong in our lives. We should question our assumptions not just in our business environment, but in our schools, our government institutions and the societal infrastructures we’ve built.