### TL;DR The standard economics perspective considers only one ...
Dan Ariely - (Dis)Honesty [![](https://i.imgur.com/KbEgb4R.jpg)]...
Dan Ariely is a professor of Psychology and Behavioral Economics at...
From the Accenture Survey: > ***"one-fourth (24 percent) said th...
A theory that only takes into account external benefits states that...
#### Ultimatum Game: There are two players involved in an ultima...
When people lie they care about more than simply maximizing their o...
> *** "socialization is a key to the development of internalized re...
According to Freud the superego incorporates the values and morals ...
The internal reward mechanism that curbs dishonest behavior can be ...
**Self-deception** represents a biased, self-serving information fl...
**There are four general drivers of dishonesty: ** 1. lower extern...
Proposed solution to curbing dishonest behavior for different scena...
Vol. 25 (1) Spring 2006, 1–000
ISSN: 0743-9156 (print), 1547-7207 (electronic)
1
Dishonesty in Everyday Life and Its Policy
Implications
Nina Mazar and Dan Ariely
D
ishonest acts are all too prevalent in day-to-day life. This article examines some possible
psychological causes for dishonesty that go beyond the standard economic considerations of
probability and value of external payoffs. The authors propose a general model of dishonest behavior
t
hat includes internal psychological reward mechanisms for honesty and dishonesty, and they discuss
the implications of this model in terms of curbing dishonesty.
Nina Mazar is a postdoctoral associate (e-mail: ninam@mit.edu), and
Dan Ariely is Luis Alvarez Renta Professor of Management Science
(e-mail: ariely@mit.edu), Sloan School of Management, Massachu-
setts Institute of Technology.
C
ompanies such as Enron, Tyco, WorldCom, and Adel-
phia are associated with some of the biggest financial
scandals in U.S. corporate history since the Great
D
epression. These corporations exemplify how the boom
years of the 1990s have been accompanied by a serious ero-
sion in business principles and, especially, ethics in the
accounting and auditing profession. The Brookings Institu-
tion estimated that the Enron and WorldCom scandals alone
would cost the U.S. economy approximately $37–$42 bil-
lion of gross domestic product in the first year alone (Gra-
ham, Litan, and Sukhtankar 2002). For comparison, this is
approximately the amount that the U.S. federal government
spends each year on homeland security (De Rugy 2005).
In addition to corporate scandals, almost all companies
present their employees with the conflict between selfishly
pursuing their own financial goals and being honest. Bro-
kerage companies represent perhaps the most clear exam-
ples of such companies. Brokers are rewarded on the basis
of the volume or profitability of the business they transact;
such a system provides ample opportunities for conflicts of
interest. Although brokers are supposed to act in their
clients’ best interests, the commissions system can tempt
them to choose personal gains over their clients’ interests;
for example, brokers may experience pressure to buy and
sell when they stand to gain larger commissions, they may
recommend stocks or funds that are suitable for their inter-
ests but not for the client’s interest, they may delay the
trades ordered by their clients to invest their own money
first, or they may misuse knowledge of a large impending
order (Davis 2004; McDonald 2002).
Companies and their employees are not alone in the play-
ground of dishonesty (Murphy and Laczniak 1981). In addi-
tion to corporate scandals and individuals within companies
who behave dishonestly, consumers also behave in ways
that are ethically questionable (Bagozzi 1995; Vitell 2003).
For example, in a recent survey conducted by Accenture
(2003) on insurance fraud, approximately 25% of U.S.
adults approved of overstating the value of claims to insur-
ance companies, and more than 10% indicated that submit-
ting insurance claims for items that were not lost or dam-
aged or for treatments that were not provided is acceptable.
According to Accenture’s press release, the Insurance Ser-
vices Office estimates that the cost of fraud in the U.S. prop-
erty and casualty industry is approximately 10% of total
claims payments, or $24 billion annually. Similar incidents of consumer fraud can be found in the retail industry. According to the National Retail Federation (Speights and Hilinski 2005), “wardrobing,” or the return of used clothing, was estimated to cost approximately$16 billion in the
United States in 2002.
Another domain that is central to consumers’ unethical
behavior involves intellectual property theft, such as music,
film, and software piracy. Although the standards and
morals linked to such behaviors are not yet well established,
it is clear that the economic implications of these endeavors
are large. As the Office of the United States Trade Repre-
sentative estimated, intellectual property theft worldwide
costs U.S. companies at least $250 billion a year, a stagger - ing statistic considering that the copyright industries make up approximately 6% of the U.S. gross domestic product ($626 billion) and employ 4% of the U.S. workforce (U.S.
2 Dishonesty in Everyday Life and Its Policy Implications
Department of Justice 2004). Perhaps the largest contribu-
tion to consumer dishonesty comes from tax deception,
including issues such as omitting income and inflating
d
eductions. A recent Internal Revenue Service (IRS) study
based on special audits of randomly selected individual
income tax returns for the 2001 tax year estimates that the
“tax gap”—the difference between what the IRS estimates
taxpayers should pay and what they actually pay—is some-
where between $312 billion and$353 billion annually.
These numbers translate into an overall noncompliance rate
of 15% to 16.6% (Herman 2005).
These examples represent only a subset of everyday
deception by companies, individuals within companies, and
individual consumers. Together, they contribute to the U.S.
economy losing hundreds of millions of dollars in tax rev-
enues, wages, and investment dollars, as well as hundreds of
thousands of jobs each year.
1
As the damages to society’s
welfare become more apparent, substantial money is being
invested in special governmental task forces (e.g., the
Department of Justice’s task force for intellectual property
issues), programs, and laws to fight dishonest behavior.
However, little has proved successful so far. For example,
although the IRS is ramping up its audits on high-income
taxpayers and corporations, focusing more attention on abu-
sive shelters, and launching more criminal investigations,
the overall tax gap has not changed much as a reaction to
these measures. As IRS officials publicly state, too many
audits result in no change in the amount of taxes paid. That
means that these large and expensive efforts for increased
compliance seem to be a huge waste of time and money for
the taxpayer and the IRS (Herman 2005).
Similar disappointing results can be observed, for exam-
ple, in industry antipiracy measures, such as investing in
technologies for better copy protection of CDs and DVDs,
identifiability, and increasing the number of litigations. Evi-
dence for the number of litigations was reported in a recent
article at law.com, stating that music industry lawsuits
against individuals have been ineffective at cutting peer-to-
peer music swapping. Although the industry measures seem
to have contributed to an increased awareness of copyright
laws and lawsuit campaigns, people seem relatively unin-
timidated by them. An April 2004 survey revealed that 88%
of children between the ages of 8 and 18 years understood
this, 56% of these children admitted to continued music
Given this limited success in curbing dishonest behavior,
there are two possible approaches for understanding and
limiting future dishonesty. The first approach assumes that
the current strategy for curbing dishonesty is the correct one
but that it is not practiced sufficiently or with sufficient
force. With this approach, the major two variables—the
probability of being caught and the magnitude of punish-
ment—should increase, thus reducing or eliminating dis-
honesty. At the extreme, this would mean “cutting off the
right arm” for minor crimes and cutting more important
organs for more severe crimes. The second approach, which
is the one we take in this article, questions whether the typ-
ical path taken to reduce dishonesty (i.e., increasing the
probability of being caught and the magnitude of punish-
Journal of Public Policy & Marketing 3
ment) is the correct path. In the next section, we elaborate
on these two approaches. The first approach falls under the
standard rational model, and the second one falls under the
p
sychological theory of honesty.
Economic and Psychological Theories of
(Dis)Honesty
Economic Theories of the Effect of External
Incentives
The standard economic perspective of the Homo economi-
cus is one in which the individual is a rational, selfish
human being who is interested only in maximizing his or her
own payoffs. This rational individual knows what he or she
wants and does not want and is able to perform correspond-
ing trade-offs to select the option that is expected to deliver
the greatest positive surplus (Hobbes and Macpherson 1968;
Smith and Skinner 1997, 1999). From this perspective, there
is nothing special about the decision to be honest, which
depends solely on the expected external benefits (e.g., more
money, a better position) and expected external costs (e.g.,
paying a fine, loosing a job) to the individual (Hechter 1990;
Lewicki 1984); the higher the external rewards from being
dishonest, the higher is the extent to which an individual
engages in dishonest behavior (see Figure 1). Such a cost–
every other decision that individuals face.
Because this view of dishonesty has been adopted in gen-
eral, and has been adopted in legal theorizing in particular,
efforts to limit dishonesty have assumed that the only ways
to make progress are restricted to the external costs and
benefits of a dishonest act. The ensuing emphasis on the per-
vasiveness of police force and magnitude of punishment are
the two simplest ways to manipulate these external costs
(see Figure 1).
Psychological Theories of the Effect of Internal
Incentives
Internal Rewards for Virtuous Behavior
In contrast to the classic economic perspective, there is
ample evidence from different academic fields, such as psy-
chology, sociology, anthropology, behavioral and experi-
mental economics, and neuroeconomics and neuroscience,
that in addition to the external reward mechanisms, there are
also internal reward mechanisms and that these exert influ-
ence on people’s decisions. Economists such as Ernst Fehr
(see, e.g., Fehr and Fischbacher 2003, 2004; Fehr and
Gachter 2002) and James Andreoni (see, e.g., Andreoni,
Harbaugh, and Vesterlund 2003; Andreoni and Miller 2006)
have repeatedly demonstrated altruism and reciprocity in
social dilemma games. For example, in an ultimatum game,
two people have the opportunity to split a certain amount of
money through a one-time-only, anonymous interaction.
One of the two players, the proposer, offers a division of the
money. The second player, the receiver, must decide
whether he or she wants to accept or reject this proposition.
If the receiver rejects the proposed division, both players go
home without any money. If the receiver accepts the divi-
4 Dishonesty in Everyday Life and Its Policy Implications
sion, each player receives the amount that the proposer
offered. From a game theoretical, rational point of view, the
proposer should split the money unequally, in favor of him-
o
r herself. After all, it is a one-time game, so reciprocation
is not an issue. In addition, offering even $.01 to the second player should make the receiver accept the offer because that player will be better off with this amount than with nothing. Instead, however, a majority of the offers are typi- cally split equally, and many offers that are not split equally are rejected. These types of results demonstrate that people care about more than maximizing their own monetary pay- offs and that these other considerations include social utility and the care for others’ outcomes. Uri Gneezy (2005) con- ducted a related study that emphasized this point in the con- text of (dis)honesty. Gneezy used a simple deception game with asymmetric information to demonstrate how people act selfishly, insofar as they maximize their own payoffs, but they are also sensitive to the costs that their lies impose on others. These results are important when we consider daily deception because there are many differences in wealth (e.g., between employees and employers, between con - sumers and corporations) and in perceptions of the cost that deception creates for the other party. Essentially, these results suggest that people will be more dishonest when they face wealthier counterparts and when the cost of the decep- tion for these counterparts seems lower. Thus, an important question for economists is, Why do people consider more than “just” their material payoffs? To address this question, Joseph Henrich and colleagues (2001) undertook a large cross-cultural study of behavior in ultima- tum, public good, and dictator games. They analyzed the behavior of people from 15 small-scale societies in 12 coun- tries exhibiting a wide variety of economic and cultural con- ditions. The sample consisted of foraging societies; societies that practice slash-and-burn horticulture; nomadic herding groups; and sedentary, small-scale agriculturalist societies. Two of their main findings in support of the hypothesis of internalized reward mechanisms are that (1) the observed behavior varied substantially across societies and (2) people’s preferences were not exogenous as the classical model would predict but rather were shaped by their soci- ety’s characteristic economic and social interactions of everyday life. In other words, socialization is a key to the development of internalized reward mechanisms. Adding to the behavioral evidence for internal rewards, recent findings from neuroscience and neuroeconomics pro - vide further credence for the existence of internalized reward mechanisms and point to the brain structure that might be implicated in their activation. Thanks to the recent, rapid diffusion of brain-imaging studies, such as positron emission tomography or event-related functional magnetic resonance imaging, groundbreaking developments have added more pieces to the puzzle of reward processing. Sev- eral studies in these fields have identified certain regions in the dorsal and ventral striatum, especially the caudate nucleus and the nucleus accumbens, to represent a brain’s pleasure center that can be activated through different forms of rewards (see also related studies in rats and primates; e.g., Olds and Milner 1954; Schultz et al. 1992). For example, human beings show significantly increased striatal activity during the anticipation of monetary gains (Knutson et al. Journal of Public Policy & Marketing 5 2001), pleasant tastes (O’Doherty et al. 2002), or beautiful faces (Aharon et al. 2001). More important for our point, however, is that the same brain regions are also activated in a nticipation of satisfying social outcomes (i.e., social rewards). Rilling and colleagues (2002) show how the stria- tum “lit up” when people rewarded cooperators. Seemingly contrary to these findings, De Quervain and colleagues (2004) report similar findings when people punished defec- tors; this result holds even if the punishment was possible only at a personal material cost. Together, these two studies suggest that people feel good about complying with inter- nalized social norms and values; that is, someone who coop- erates should be rewarded, and someone who defects should be punished to reestablish socially desirable behavior. Psychology has long argued on behalf of internal reward mechanisms. Most notably, Sigmund Freud and colleagues (Freud 1933; Freud and Strachey 1962; Freud, Strachey, and Gay 1989) lectured extensively about the superego, that is, the part of the self that represents society’s moral norms and values that the individual internalizes during the course of his or her early life (see also Campbell [1964] on the inter - nalization of moral norms). The superego acts as an internal judge, rewarding or punishing the individual depending on compliance with these norms and values. Activation of Internal Rewards Lessens Sensitivity to External Incentives On the basis of the evidence of internal reward mechanisms described, Mazar, Amir, and Ariely (2005) studied how external and internal reward mechanisms work in concourse to influence people’s decisions to be (dis)honest. The gen- eral procedure was to contrast financial reward incentives that favor dishonest behavior with people’s inherent moti- vation for honest behavior. Taking the motivation for finan- cial rewards as self-evident, Mazar, Amir, and Ariely tested the extent to which the decision to be (dis)honest is driven by the possible consequences of being caught cheating (external costs) relative to the internal rewards of honesty. In one of the experiments, participants were presented with a set of 50 multiple-choice, general-knowledge questions and were promised$.10 per answer they solved correctly
within 15 minutes.
There were four different between-subjects conditions
that differed in procedure after participants finished answer
-
ing the questions on the original test sheets. The four condi-
(self), (3) self-graded plus shredding (self+), and (4) self-
graded plus shredding plus self-payment (self++). In the
control condition, participants were told that when they fin-
-
menter for a bubble answer sheet (a sheet with circles to
indicate the answers, much like those used for exams that
are scanned and graded electronically) on which to transfer
their answers and then take both forms to the experimenter,
who would check their performance and pay them.
In the self condition, participants were told that when they
finished answering the questions on the original test sheet,
they should ask the experimenter for a premarked bubble
answer sheet, which included the same circles as in the con
-
trol condition but with one of the answers premarked as
6 Dishonesty in Everyday Life and Its Policy Implications
then to count and write down the number of correct answers.
When this was completed, they were asked to take both
f
orms to the experimenter, at which point they would be
paid accordingly. In this condition, participants had the pos-
sibility to cheat at the risk that the experimenter might dis-
cover it.
The self+ condition was similar to the self condition,
except that participants were instructed that after they trans-
should walk to a shredder, shred their original test sheet, and
take only the answer sheet to the experimenter, at which
point they would be paid accordingly. This condition
offered a lower probability of being caught cheating than the
self condition. Indeed, there was no legal way of proving
that anyone cheated. The experimenter could be suspicious
Because this social interaction could make cheating par-
ticipants feel uncomfortable, Mazar, Amir, and Ariely
(2005) decreased the chance of being caught even further in
the final condition (self++). In this condition, participants
were instructed to shred both their test sheet and the answer
sheet and then to walk over to a large jar with money that
was sitting at the end of the table and take the amount that
they earned.
This study had four important findings: First, participants
in the external condition solved significantly fewer ques-
tions than the participants in the three self conditions.
Because there was no reason to believe that the skill level of
the participants was different in any of these conditions, this
result implies that external reward mechanisms exist, and
people are dishonest when it is good for them. This result is
also along the lines of Schweitzer and Hsee’s (2002) find-
ings, according to which participants are more likely to be
dishonest as the private information they have becomes
more ambiguous.
Second, there was no significant difference between the
three self conditions, though the probability of being caught
further decreased dramatically from the self to the self+ to
the self++ condition (thus, the fear of being caught should
also have decreased). This result provides direct evidence
that the external disincentives for dishonesty are only a part
of a more complex picture.
Third, the magnitude of dishonesty in the three self con-
ditions was relatively small. Participants cheated only 20%
of the possible average magnitude and thus were far from
maximal dishonesty, as the standard rational model would
predict. This result suggests that people seem to possess
internal reward mechanisms for honesty because when
given the opportunity and incentive to be dishonest, they
exhibited dishonest behavior, but this dishonest behavior
was limited in its extent (probably by the strength of their
internal reward mechanisms).
Fourth, these results suggest that, at some level, the act of
cheating itself can activate the internal reward mechanism.
This means that though low levels of dishonesty might go
“unnoticed” from the point of view of the internal reward
mechanism, at some point, the magnitude of dishonesty
itself can activate this mechanism and limit dishonest
behavior.
Journal of Public Policy & Marketing 7
Together, these findings suggest that the relationship
between the external and the internal reward mechanisms is
complex. In particular, we hypothesize that the internal
r
eward mechanism is either active or inactive (in the same
way that people categorize actions and people as honest or
dishonest rather than in a more continuous way) and influ-
ences the tendency for acting (dis)honestly as a step func-
tion: First, below a certain level of dishonesty, the internal
reward mechanism may not be activated at all and thus does
not influence behavior; that is, the propensity for dishonesty
in such cases is a function of external cost–benefit consider-
ations (see Figure 1). Second, beyond the activation thresh-
old, when the dishonest act is noticeable, the internal reward
mechanism is activated and, at least within a certain range,
exerts its maximal force independently of the level of exter-
nal rewards. As a consequence, when a person’s internal
standards become activated, they override the sensitivity to
external rewards such that the propensity for dishonesty
becomes independent of increased external rewards for
being dishonest (within a certain range). Third, arguably, it
is likely that when the external rewards become very large,
they become tempting and may ultimately prevail. That is,
at some point, a person’s internal standards could be over-
ridden or deactivated such that the causes for dishonesty
preclude such internal considerations and are based solely
on planned dishonesty (a cost–benefit analysis as theorized
by the standard rational model). Figure 2 sketches the
hypothesized relationship of these components, as Mazar,
Amir, and Ariely’s (2005) findings illustrate. These findings
and the contrast between Figures 1 and 2 suggest that a
model for honesty that assumes that people behave like a
a person’s decision to be (dis)honest and, to the extent that
these assumptions are wrong, to incorrect prescriptions for
the prevention of deception.
Changing the Activation Threshold for Internal Rewards
Note that all the research we discussed supports the theory
that internal reward mechanisms indeed exist. However,
there is also research that suggests that it is possible to move
the activation threshold, that is, to cause internal reward
mechanisms for honesty to be more active, or to “kick in”
earlier. Representative of this kind of evidence is the exten-
sive body of research in psychology on objective self-
awareness by Duval and Wicklund (1972). According to
Duval and Wicklund, objective self-awareness represents
attention directed inward that induces self-evaluation in
relation to standards that are salient or accessible in the
immediate situation, which in turn increases motivation to
-
ticular situations such as being in front of a real or implied
audience (Duval and Wicklund 1972), being individualized,
standing in front of a mirror (Carver and Scheier 1978), or
writing short stories about oneself (Fenigstein and Levine
1984) can increase an individual’s awareness of him- or her-
self as an object in the world. When awareness of the self is
increased, people are also more likely to be aware of dis-
crepancies between how they want to view themselves (the
ideal self) and how they actually behave. Given this tension
and the discomfort it can create, people who are aware of it
might work actively to reduce this discrepancy by either
8 Dishonesty in Everyday Life and Its Policy Implications
shifting attention away from the self or changing their
behavior to act more in accordance with their ideal self. In
the domain of deception, this means that higher self-
a
wareness might lead to more honest behavior.
Beaman and colleagues (1979) provide a well-known
example of the effect of self-focused attention on increasing
the alignment between behavior and internal standards. In
this famous experiment, which was conducted during Hal-
loween, trick-or-treating children entered a house and were
told by the experimenter to take only one candy; then, the
experimenter left the children alone in front of the candies.
They found that children who were individualized by being
only one candy. In addition, these children were even more
likely to take only one candy when there was a mirror
directly behind the candy bowl. Mazar, Amir, and Ariely
(2005) use a different manipulation to influence self-
awareness; specifically, they use a manipulation that is more
directly related to honesty to test whether an increased
awareness leads to more honest behavior on a math test. In
their experiment, participants were told to write down either
as many of the Ten Commandments as they could remem-
ber (increased self-awareness of honesty) or the names of
two minutes for this task before they moved on to an osten-
sibly separate task: the math test. The task in the math test
was to search for number combinations that added up to
exactly ten. There were 20 questions, and the duration of the
experiment was restricted to five minutes. After the time
was up, students were asked to recycle the test form they
worked on and indicate on a separate collection slip how
many questions they solved correctly. For each correctly
solved question, they were paid $.50. The results showed that students who were made to think about the Ten Com- mandments claimed to have solved fewer questions than those in the control. Moreover, the reduction of dishonesty in this condition was such that the declared performance was indistinguishable from another group whose responses were checked by an external examiner. This suggests that the higher self-awareness in this case was powerful enough to diminish dishonesty completely. Yet another method that proved successful in increasing self-awareness with the con- sequence that students cheated less on that math test was to make students sign an honor code before beginning the test. This finding is particularly interesting because it provides some evidence for the effectiveness of a simple commitment device that schools, companies, and the government can easily adopt. A different kind of research that can be interpreted in line with the self-awareness theory is based on Daniel Schachter and colleagues’ work on the role of emotional arousal for moral behavior. For example, Schachter and Latane (1964) tested the effects of a tranquilizer in a situation in which par- ticipants could cheat. They found that participants cheated significantly more after having taken the tranquilizer, a sym- pathetic inhibitor, than did the placebo controls (see also Schachter and Singer 1962). These results suggest that the activation of the threshold is based on arousal and that when arousal is decreased (even by artificial means, such as a tranquilizer), the threshold is less likely to be activated, and thus dishonesty is likely to be more prevalent. This idea is Journal of Public Policy & Marketing 9 further developed by Dienstbier and Munter (1971), who show that it is not emotional arousal per se that influences the tendency to cheat but rather a person’s understanding or i nterpretation of the meaning and significance of that arousal (see also Dienstbier 1972, 1975). Self-Deception T hus far, the discussion has focused on deceptive acts and t he activation of a threshold that ignites the internal rewards. In our conceptualization of the threshold, it is important that the amount of deception in and of itself can activate the threshold. An added complexity comes from the idea of self- deception, in which people can reframe an act in a way that makes them not perceive it as dishonest. Under such refram- ing (self-deceptions), dishonest acts would not contribute to the activation of the threshold and thus would not influence the tendency for honesty. As a consequence, even if an indi- vidual has internalized standards for honesty, acts of dis- honesty that do not influence the activation of the threshold (self-deceptions) would not influence behavior, and the rela- tionship between external rewards and the tendency for dis - honesty would remain in Zone 1 of Figure 2 (never reaching the threshold). In general, self-deception represents a biased, self-serving information flow within an individual—that is, an active but unconscious misrepresentation of reality to the conscious mind (Trivers 2000). Although it seems to be a paradox that a person could deceive him- or herself, casual observation suggests that people are effective in maintaining unrealisti- cally positive views of themselves. People maintain beliefs in their intelligence, competence, and moral worth in the face of their sometimes foolish, incompetent, and immoral behavior. Similarly, people frequently estimate that they are, for example, better, more intelligent, or more beautiful than average. Because typically far more than 50% of people estimate this “better-than-average” effect, aggregat- ing these data clearly violates logic (e.g., Alicke et al. 1995). Other researchers have shown how people can be led to believe false or biased “facts” about their own past (see research on memory distortion and suppression of unwanted memories; e.g., Anderson, Cohen, and Taylor 2000; Loftus 1994; Schachter and Dodson 2002), and they can convince themselves of certain motivations for their behavior, thus hiding their true intentions. Therefore, self-deception can be successful even in the most extreme cases: For example, doctors who participated in genocide in Nazi Germany man- aged to convince themselves of the rectitude of their actions (Lifton 1986). Although self-deception can be beneficial in the short run because it enables people to maintain self-regard, the inflated self-perception can be problematic in the long run when that bogus self-regard has costs. Norton and Ariely (2005) show this in the context of an IQ test. In one of Nor- ton and Ariely’s experiments, people participated in two sequential IQ tests. Half of the participants in the first test were provided with an answer key on the bottom of their test sheet, whereas the other half did not have an answer key. When the first test was over, each participant learned how many questions he or she solved correctly. After that, they were asked to predict how many questions they would solve 10 Dishonesty in Everyday Life and Its Policy Implications on a second, similar test without an answer key. The predic- tion task was designed such that people had a monetary incentive to be accurate. Payment depended more on the a ccuracy of their predictions and less on their performance such that the dominant strategy was to predict accurately. The results of this experiment show that in the first round, participants who had the answer key performed better on the test than participants without the answer key and that there was no performance difference on the second IQ test when none of the participants were provided with an answer key. This result suggests that the presence of the answers allowed participants to solve more problems correctly. More impor- tant, it seems that participants who had the answer key in the first test believed that this better performance was actually due to their greater intelligence, as reflected in their higher estimates of their performance on the second test. As a con- sequence, participants who deceived themselves by having an inflated perception of themselves made less money. Notably, when Norton and Ariely (2005) asked a different group of people to predict how they would perform in such an experiment, participants predicted that if they had the answer key on the first test but not on the second, they would perform better on the first test but not on the second test. This result suggests an added danger of self-deception, namely, that people believe that they are immune to it. Researchers have explained this paradox of not knowing about self-deception under the assumption that a person can simultaneously store both true and false knowledge, with a bias toward the true knowledge being stored in the uncon- scious and the false (i.e., misrepresented) knowledge being stored in the conscious (Greenwald 1997). Trivers (2000) points out that from an evolutionary standpoint, this way of organizing knowledge has the advantage that self-deception not only must act primarily in the service of fooling oneself but also can act in the service of deceiving others. The latter is true because an outside observer initially interacts with the conscious mind of the deceiver, and if the deceiver is also deceiving him- or herself, the conscious mind com- prises only the false information. The true information would be hidden in the unconscious. If this is the case, cues, such as a higher-pitched voice, increased pupil size, or lip pressing, which in general accompany attempted, conscious deception, should not be available to the observer, thus mak- ing the deceit more difficult to detect (DePaulo and Morris 2004). As a consequence, even if people are fully self-aware (i.e., internal reward mechanism is active) and the net utility of deception is negative (i.e., costs loom larger than bene- fits), deception that eludes the person who is committing the dishonest act (i.e., self-deception) might not completely vanish. 2 Policy Guidelines for Reducing Dishonesty The standard rational model of decisions about honesty and dishonesty assumes that people trade off only external costs and benefits of an outcome. In contrast, the psychological model we have sketched assumes that decisions about hon- esty also include considerations of internal reward mecha - nisms. In addition, we argue that decisions about honesty can sometimes be not cognizant, for example, at levels of Journal of Public Policy & Marketing 11 activation below the threshold or when self-deception is involved. As a consequence, making the right policy recom- mendation to decrease dishonesty depends particularly on t he analysis of what is driving the deceit in a particular situ- ation. Our literature review suggests that there are four gen- eral drivers of dishonesty: (1) lower external costs and rela- tively higher benefits of deception; (2) lack of social norms, which results in a weak internal reward mechanism; (3) lack of self-awareness, which primes the activation of the inter- nal reward mechanism; and (4) self-deception. In the fol- lowing subsections, we elaborate on how these different per- spectives on dishonesty can translate into different approaches for reducing or curbing dishonesty. When Dishonest Behavior Is Caused by External Rewards If the cause for deception lies solely in greater external benefits than costs of the dishonest act, the solution is sim- ple: The costs for dishonest actions must be greater than their expected benefits. This can be achieved by increasing either the probability of being caught or the severity of the punishment. Thus, if the cause of dishonesty is based solely on an imbalance of external costs and benefits, the standard legal approach of controlling the external costs is appropri- ate. This theory implies that it is appropriate to introduce governmental task forces, such as the Department of Jus- tice’s task force on intellectual property, which, among other combat strategies, invests in increasing the number of specially trained prosecutors. The same is true for the IRS’s increase in audits and the music industry’s aggressive increase in filing lawsuits against individual deceivers. Even if the cause for deception is related to the cost– benefit analysis, there might be ways to increase the effec- tiveness and efficiency of measures to combat dishonest behaviors. For example, if the probability of being caught and the magnitude of punishment are evaluated differently, and research suggests that the probability of punishment is more important than increasing the severity of the punish- ment (Nagin and Pogarsky 2003), it might be best to allocate efforts accordingly. However, even if legislators decide to invest more effort in the probability of detection and decrease the magnitude of punishment (e.g., moving from a$500 fine for not stopping at a stop sign with 10% probabil-
ity of being caught to a $100 fine with a 50% probability of being caught), there is still the question of what is the opti- mal probability for deterrence. Informing the question of what is the optimal probability for deterrence, research by Barkan, Zohar, and Erev (1998) suggests that the best approach is eliminating altogether the probability of being caught, that is, moving to nonproba- bilistic punishments. Their main argument is that events that have low probability are unlikely to occur (by definition) and thus can have a perverse effect on learning, such that people who violate the rule and are not caught receive a positive reward for the violation, which causes them to underestimate the probability of being caught and, over time, increases their tendency to behave in this undesired way (see also Erev et al. 2003). According to this perspec- tive, a person who expects that driving through a red light would involve a$500 fine in 5% of the cases is more likely
12 Dishonesty in Everyday Life and Its Policy Implications
to drive through it than a person who has the same expected
value but with certainty of being caught (i.e., a definite $25 fine). More important, over time, the person in the proba- b ilistic punishment setting is going to discount the probabil- ity of the punishment further (as long as he or she is not caught), which in turn will lead to an even greater tendency for violation. Eliminating the probabilistic component from all undesirable behaviors is impossible, but it is clear that there are some cases (e.g., driving through an intersection at a red light) in which this is possible and desirable. When Dishonest Behavior Is Caused by the Internal Reward Mechanism If the reason for dishonest actions lies in a lack of internal- ized social norms, our primary recommendation would be to invest in educational efforts and socialization to increase the strength of the internal reward mechanism. The key ques- tions in this context are, How can this best be done, and is there a critical age period for the internalization of such mechanisms (as in language and visual development)? For example, educational efforts can be integrated in schools, social clubs, or religious institutions. Another possibility that is increasingly exercised by the government and the music, film, and software industries is to feature public mes- sages in an attempt to build a social norm so that a particu- lar type of behavior (e.g., illegally downloading music or movies) becomes socially undesirable and frowned on. Other efforts could illustrate how such acts can hurt the rank-and-file workers, not just the big corporations, by reducing their job security or pay (see, e.g., television adver- tisements and movie trailers launched by the Motion Picture Association of America in 2003 and 2004). When the effects of such efforts on the development of socially based internal reward mechanisms are understood, it is important to go a step further and ask what the limits of such efforts should be and whether society should allow all ideologies to participate in the creation of such internal rewards (e.g., what about racial prejudices or particular cults?). The question about the types of internal reward mechanisms that society could develop or not develop is particularly important if we consider the likely possibility that this process might have a critical period in which younger people are much more sensitive to such influences and that when the critical age is reached, these mechanisms remain relatively stable for the rest of their lives. Given the higher sensitivity of younger adults to social influence and advertising, society might want to place careful boundaries for the development of such socially based internal repre- sentations by different interested parties, such as religious, financial, and social institutions. If dishonest behavior occurs not because of a lack of social norms but simply because of a lack of self-awareness and, thus, the degree to which these internalized social norms are activated, it is important to make use of contex- tual cues that increase awareness when deception is about to happen, namely, at the point of temptation. For example, the IRS could slightly change its forms by making them more personal or by asking people to sign an honor code of sorts before they begin filling out the forms. Another possibility worth trying might be to include a survey that asks tax pay - Journal of Public Policy & Marketing 13 ors questions such as how much they care about their coun- try, how important honesty was to their parents, how many people they think lie on their taxes, or what the typical pro- f ile is of tax deceivers. The consideration of internal rewards also suggests that the theory of optimal punishment (optimal punishment trades off the benefits of deterrence and the cost of punish- ing innocent people) should be reconsidered with these inputs in mind. If the punishment magnitude is determined in a way that makes the costs slightly higher than the bene- fits and if these costs also include internal costs, the optimal punishment will be lower by that amount. For example, if the expected benefit for a particular crime is Y and the inter- nal reward for honesty is X, the standard rational model would prescribe a punishment with an expected magnitude of –(Y + ε), whereas the model that includes internal rewards would prescribe –(Y + ε) + X. The complexity is that not everyone has the same level of internal reward mechanisms, and to the degree that these are unobservable, it is difficult to assess the true level of optimal punishment (though it is possible that someday there will be a test for this). Conversely, signs of repeated criminal behavior, for example, can be taken as an indication for a lower level of internal reward mechanisms, causing the magnitude of X to be updated as lower. This type of framework, in which X is an individual variable, has the potential to help build a theory of repeated punishment with the same desired princi- ples of optimal punishment but with more effectiveness. (Currently, repeated crime is punished more severely, such as in California’s “three-strikes-and-you’re-out” approach, but there is no theory or logical guideline for the magnitude of these policies.) When Dishonest Behavior Is Caused by Self- Deception Finally, deception of the self-deception variety is difficult to fight. Self-deception due to a self-serving bias is very robust. Several academics have shown that paying people to be more realistic in their view, making people write essays that argue the other side’s point of view, or educating people about the self-serving bias are not successful in debiasing people (see, e.g., Babcock and Loewenstein 1997; Babcock, Loewenstein, and Issacharoff 1997). Therefore, the most successful way to fight self-deception might be to eliminate the incentives that spawn the bias and simply eliminate the situations that can give rise to this type of behavior. For example, Bazerman, Loewenstein, and Moore (2002; see also Bazerman and Loewenstein 2001) argue that if decep- tive audits by accounting professionals are mainly due to self-deception, it might be more effective to pass laws or enforce standards among the accounting profession that bar auditors from offering both consulting and tax services to clients, prohibit hiring accountants through clients, and allow only limited-time contracts. As these examples show, fighting deception caused by self-deception requires serious interventions that limit substantially the freedom and self- determination of people in certain situations. 14 Dishonesty in Everyday Life and Its Policy Implications Conclusion In summary, there is no question that dishonesty is prevalent in daily life. The standard economics perspective considers one cause for dishonesty—external reward mechanisms— and thus emphasizes the probability of being caught and the m agnitude of punishment as the only ways to overcome dis- h onesty. In contrast, the psychological perspective we pre- sent herein suggests that dishonesty is also influenced by internal reward mechanisms and that such mechanisms should be taken into account when considering effective measures for limiting dishonesty in daily life. Moreover, the psychological perspective suggests that internal and external rewards are not simply additive but also take a particular functional form (see Figure 2). 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18 Dishonesty in Everyday Life and Its Policy Implications
1
Not everybody loses in every dishonest act; those who committed the
act can gain.
2
We assume that the external reward mechanism as postulated by classic
economics is always active in at least normally healthy people.
Journal of Public Policy & Marketing 19
20 Dishonesty in Everyday Life and Its Policy Implications
Figure 1. The Relationship Between Expected Net Benefits
of Dishonesty and the Propensity for Dishonesty
A
ccording to a Theory That Includes Only
E
xternal Rewards
Journal of Public Policy & Marketing 21
Notes: Mazar, Amir, and Ariely’s (2005) results show that dishonesty itself
can activate the internal reward mechanisms, which in turn interrupt
the standard relationship between external rewards and the propen-
sity for being dishonest (as postulated by classic economics).
Figure 2. The Relationship Between Expected Net Benefits
of Dishonesty and the Propensity for Dishonesty
B
ased on the Results of Mazar, Amir, and
A
riely’s (2005) Study