I have been following the work of Dan Ariely, an Israeli American professor of psychology and behavioral economics at Duke University. He believes that we can replicate almost any question and design a test to find the answer to that question. The Enron fallout and the Stock Market meltdown caused him to question whether such horrific outcome was caused by a few bad apples or whether the cheating behavior was widespread. His cleverly designed studies revealed the hidden reasons why people think it’s okay to cheat or even steal sometimes.

Ariely and his colleagues distributed math problem sheet to two groups of students without giving them sufficient time to solve all of them. The subjects would be paid $1 for each correctly answered question. The group that had to turn in the paper averaged 4 corrected answers. The other group that was instructed to shred the answer sheet reported 7 corrected answers. Increasing or decreasing the amount of reward or making it easier to cheat (shred the full sheet vs. half of the sheet) didn’t make a difference. People seem to be insensitive to the economic incentives when it comes to cheating. It also turns out that instead of a few people doing all the cheating, it’s a lot of people doing a little bit of it.

It’s almost as if we want to look in the mirror and feel good about ourselves. We’d cheat just enough so that our overall impressions about ourselves don’t have to change. Not surprisingly, when the students were asked to sign the honor code before giving the assignment or memorize the Ten Commandments, they wouldn’t lie even if given the opportunities to do so. People cheat less when they are reminded of morality.

If students were offered tokens instead of cash and all they had to do was walk a few feet to redeem the tokens for money, cheating went up. We may all agree that it’s easier for us to take a pencil from our employer than steal ten cents from the company. The more distant we are from incentives like money, the easier it is for people to be dishonest.

Ariely also hired an undercover actor who stood up within a few minutes and declared, “Mr. Experimenter, I have solved all the problems. What should I do now?” The researcher replied, “If you are done, you may go and claim your reward.” Clearly he couldn’t have answered all the questions in that short period of time. Now the findings got even more interesting. If the actor was wearing the same college T-shirt as the rest of the group, cheating went up. But if the actor was wearing a T-shirt from a neighboring university, cheating went down. This indicates that when we witness someone from our ingroup cheats, we feel it’s okay to do the same. Otherwise, we may feel disgusted and choose to do the right thing.

In the stock market, it could be because rewards are disguised as stocks, options or derivatives and therefore many steps away from cash, people feel more comfortable about playing the game dishonestly. It could be the social environment that encouraged the widespread of cheating. All these forces worked in a very bad way and brought not only the U.S. but also the global economy to its knees.

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