Why do we cheat?

Behavioral Economist concludes that most people cheat.

In a very interesting video on the website TED, Dan Ariely, Professor of Behavioral Economics at Duke University, explains his research into why people think it is okay to cheat and steal.

Here is Ariely’s presentation from YouTube:

From his research, he concludes the following:

  • A lot of people will cheat.
  • When people cheat, however, they cheat by a little, not a lot.
  • The probability of being caught is not a prime motivation for avoiding cheating.
  • If reminded of morality, people cheat less.
  • If distanced from the benefits from cheating, like using “chips” instead of actual money in transactions, people cheat more.
  • If your in-group accepts cheating, you cheat more.
Dan Ariely

I quibble with the interpretation of some of his findings, which may justify a separate post on how people perceive what they do and do not know, but there are always issues of this sort with a given research project.  Where I draw the line is when he expands his conclusions to include all of Wall Street and the stock market, which is totally beyond the scope and nature of his research.

On what basis does he draw this conclusion?  As explained in this short video (as I have not read his book, though I’ve read excerpts and am familiar with the study upon which the book is based), Ariely claims that because stocks and derivatives are not in the form of money, they “distance people from the benefits of cheating,” which leads individuals who engage in the stock market to cheat more.  He alludes to Enron as proof.

This is almost too silly to spend a lot of time on trying to discredit, but I fear that a lot of people who hear his talks or read his book may be lulled into accepting what he says about the stock market as true.  But it is not! Enron is the exception, not the rule.

Companies who issue stocks are raising money to provide a good or service that is valued by society; they are rewarded by profits.  Investors who buy and sell stocks, trade derivatives, and invest in portfolios are trying to make their money go further. They are trying to earn a return on their savings.  Cheaters do not survive in the stock market, unlike the “consequences-free” classroom in Areily’s experiment.

On the other hand, these factors are in glaring abundance in the government:  politicians never “see” the taxes they spend as the hard-earned income of the citizens. And the “benefits” of cheating, including power and privilege, are amorphous and vague, and couched in the so-called morality of “doing the greater good.”  I’m surprised Ariely does not condemn the federal government using the same logic as his does the stock market.

His last take-away from this research project?  That we find it “hard to believe that our own intuition is wrong.”

I think Dr. Ariely ought to apply that caveat to the conclusions he draws about his own research.  Very interesting, very compelling, but his interpretation of the results as they apply to the stock market falls victim to the very same biases that he claims to find in others.

by Sherry Jarrell

6 thoughts on “Why do we cheat?

  1. why to assert that “Enron is the exception, not the rule!”? Is the “proof” in the exclamation? Anyway, back to the real world:

    JPMorgan, Lehman, UBS Named as
    Conspirators in Muni Bid-Rigging

    By William Selway and Martin Z. Braun
    March 26 (Bloomberg) —

    JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and UBS AG were among more than a dozen Wall Street firms involved in a conspiracy to pay below-market interest rates to U.S. state and local governments on investments, according to documents filed in a U.S. Justice Department criminal antitrust case.
    A government list of previously unidentified “co- conspirators” contains more than two dozen bankers at firms also including Bank of America Corp., Bear Stearns Cos., Societe Generale, two of General Electric Co.’s financial businesses and Salomon Smith Barney, the former unit of Citigroup Inc., according to documents filed in U.S. District Court in Manhattan on March 24. The papers were filed by attorneys for a former employee of CDR Financial Products Inc., an advisory firm indicted in October. The attorneys, as part of their legal filing, identified the roster as being provided by the government. The document is labeled “list of co-conspirators.”

    The derivative world, BTW, is a giant conspiracy of crooks. Proof? World is worth ten times less… According to the co-conspirators, who apparently assume we are all idiots, joining insult to theivery…

    PA

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    1. Goodness, Patrice, we learned the art of trying to “prove” a point by “exclaiming” from you!

      Seriously, have you ever been involved in a lawsuit where the government is on the other side of the “transaction?” I have, and to define this as an arms-length market transaction on the part of the government is a stretch, and to believe that the government understands what a fair market rate of return is is hilarious. And can you imagine the lawsuits the government will file against the health care industry in the future as the tentacles of the health care legislation wind their way through our economy?

      The government makes up the rules, then inserts itself as another player, then sues when the other side doesn’t play by their rules. Hardly a competitive environment. More like a kingdom. For example: The Obama administration has just insured that they will make a boat-load of money off of student loans, having taken over and monopolized that industry, not by being the best provider of those services, but by passing a law on the shirttail of Health Care reform that requires all students who borrow to go to school to do so from the government and to pay a 3-4 percent margin over the government’s borrowing costs. I guess they need the money to pay off the special deals they made to buy health care votes:

      Obama suspected of cutting deals with pharamaceutical industry, AMA and others…. http://thehill.com/blogs/blog-briefing-room/news/87891-top-republican-opens-investigations-into-healthcare-secret-deals
      Obama held secret meeting with Planned Parenthood http://www.wnd.com/index.php?pageId=119735
      The store is open http://diplomatdc.wordpress.com/2010/03/20/health-care-the-secret-behind-obamas-lobbying-success-by-gregory-hilton/
      Nebraska deal http://prescriptions.blogs.nytimes.com/2009/12/22/7-state-backlash-for-nelsons-nebraska-deal/
      Louisiana Purchase http://www.tulsabeacon.com/?p=3265
      New Special Deals made in 11th hour to pass Health Care Reform http://dailycaller.com/2010/03/20/health-care-reform-shouldnt-need-special-deals/
      Senior Congressional Staffers get exempted from health care bill http://dailycaller.com/2010/03/20/health-care-reform-shouldnt-need-special-deals/
      Unions get special deal in Health Care bill http://dailycaller.com/2010/03/20/health-care-reform-shouldnt-need-special-deals/
      State AGs planning to sue: Health Care legislation Unconsititutional http://www.washingtontimes.com/news/2010/mar/23/13-state-ags-sue-over-health-care-overhaul/
      and those are just a few of the ones we know about…..

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      1. Hi Sherry!
        Maybe I should patent the proof by exclamation method…Impressive list… I do not advocate the strange way politics occur in the USA. It is actually unconstitutional in France (one cannot pass laws mixing genres, the Constitutional Court decided, so no tagging of student loans on a health care bill: that would invalidate the entire law in France).
        P

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  2. Dear Sherry:
    But thanks for finding that brainy gentleman, I will find him most useful, no doubt… ;-)!
    PA

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  3. Well, one cannot have a PhD in all subjects so in many cases one has to rely on intuition and experience. I don’t feel this is entirely specious since I have had 62 years of the latter ..

    Some people will always cheat; it seems to be in the genes.

    Others will always cheat, too; they are following the example of parents.

    Some will never cheat. (Is this a case for human cloning?)

    But a considerable number (the majority??) will cheat if they see others doing it successfully, particularly those in elected authority. This is why the behaviour of the rich and powerful, especially politicians, is crucial. Many will say to themselves: “Well, I’d prefer an honest society, but if those bastards are going to do it and get away with it and even when caught out nothing much happens to them then why should I be a mug?”

    In other words, corruption is like a virus and it spreads from the top.

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  4. Hi Chris —

    Ah Yes! The singular importance of ethical leadership. It is real – hard to describe, to mandate, to mimic — but real and critical and irreplaceable just the same. Thank you!

    Sherry

    Like

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