Predictably Irrational (26 page)

Let's think about this tale in terms of markets. There are two morals to the story. The first is that people are willing to forgive a bit of lying. Obviously, many corporations get away with lying in their advertisements and offers, at least temporarily. But when marketers persist in pulling bait-and-switch tactics, mistrust bites back, sinking its sharp teeth not only into the thigh of the perpetrator but also, more generally, into others as well. When market defectors spread false claims, more and more of us increase our level of distrust, and this distrust then gets diffused into everything we hear. We cast obvious truths into doubt, and we suspect everything. The cable company that betrayed my trust stung itself, for sure, but it also hurt its industry by causing consumers like me to mistrust telecommunications companies in general. And that mistrust, like a pebble dropped into a still pond, ripples throughout the telecommunications industry; creating tiny waves that end up affecting business and society as a whole.

But the second, more important moral—one that we are just beginning to understand—is that trust, once eroded, is very hard to restore. One only has to think about the banking crisis of 2008 that left the U.S. economy in tears. The multiple bailouts and new regulations that followed did little to heal the broken trust, and the behavior of Wall Street executives only ground salt into the wounds. I am unsure why trust as an important public resource was ignored, but it is clear to me that its loss will have long-term negative consequences for everyone involved, and that repairing the public trust will take a very long time. Thanks to shortsightedness and individual greed, the public commons (in this case, in the form of financial systems, government, and the economy as a whole) have suffered a great tragedy.

Nevertheless, by coming to understand trust as an important, tangible public resource to be protected and cared for, organizations could do a great deal to restore it. A few are beginning to take great care to create and maintain trust, and do what they can to prevent its possible deteriorations. In the end, I believe that companies that want to be successful will heed the example of Timberland and realize that honesty, transparency, conscientiousness, and fair dealing should be bedrock corporate principles. If we consumers reward their efforts by buying from them more frequently, we might over time be able to rebuild trust—at least in the select firms that really deserve it.

CHAPTER
13
The Context of Our Character, Part I

Why We Are Dishonest, and What
We Can Do about It

I
n 2004, the total cost of all robberies in the United States was $525 million, and the average loss from a single robbery was about $1,300.
²²
These amounts are not very high, when we consider how much police, judicial, and corrections muscle is put into the capture and confinement of robbers—let alone the amount of newspaper and television coverage these kinds of crimes elicit. I'm not suggesting that we go easy on career criminals, of course. They are thieves, and we must protect ourselves from their acts.

But consider this: every year, employees' theft and fraud at the workplace are estimated at about $600 billion. That figure is dramatically higher than the combined financial cost of robbery, burglary, larceny-theft, and automobile theft (totaling about $16 billion in 2004); it is much more than what all the career criminals in the United States could steal in their lifetimes; and it's also almost twice the market capitalization of General Electric. But there's much more. Each year, according to reports by the insurance industry, individuals add a bogus $24 billion to their claims of property losses. The IRS, meanwhile, estimates a loss of $350 billion per year, representing the gap between what the feds think people should pay in taxes and what they do pay. The retail industry has its own headache: it loses $16 billion a year to customers who buy clothes, wear them with the tags tucked in, and return these secondhand clothes for a full refund.

Add to this sundry everyday examples of dishonesty—the congressman accepting golfing junkets from his favorite lobbyist; the physician making kickback deals with the laboratories that he uses; the corporate executive who backdates his stock options to boost his final pay—and you have a huge amount of unsavory economic activity, dramatically larger than that of the standard household crooks.

When the Enron scandal erupted in 2001 (and it became apparent that Enron, as
Fortune
magazine's “America's Most Innovative Company” for six consecutive years, owed much of its success to innovations in accounting), Nina Mazar, On Amir (a professor at the University of California at San Diego), and I found ourselves discussing the subject of dishonesty over lunch. Why are some crimes, particularly white-collar crimes, judged less severely than others, we wondered—especially since their perpetrators can inflict more financial damage between their ten o'clock latte and lunch than a standard-issue burglar might in a lifetime?

After some discussion we decided that there might be two types of dishonesty. One is the type of dishonesty that evokes the image of a pair of crooks circling a gas station. As they cruise by, they consider how much money is in the till, who might be around to stop them, and what punishment they may face if caught (including how much time off they might get for good behavior). On the basis of this cost-benefit calculation, they decide whether to rob the place or not.

Then there is the second type of dishonesty. This is the kind committed by people who generally consider themselves honest—the men and women (please stand) who have “borrowed” a pen from a conference site, taken an extra splash of soda from the soft drink dispenser, exaggerated the cost of their television on their property loss report, or falsely reported a meal with Aunt Enid as a business expense (well, she did inquire about how work was going).

We know that this second kind of dishonesty exists, but how prevalent is it? Furthermore, if we put a group of “honest” people into a scientifically controlled experiment and tempted them to cheat, would they? Would they compromise their integrity? Just how much would they steal? We decided to find out.

T
HE HARVARD BUSINESS SCHOOL
holds a place of distinction in American life. Set on the banks of the River Charles in Boston, Massachusetts; housed in imposing colonial-style architecture; and dripping with endowment money, the school is famous for creating America's top business leaders. In the Fortune 500 companies, in fact, about 20 percent of the top three positions are held by graduates of the Harvard Business School.
*
What better place, then, to do a little experiment on the issue of honesty?
*

The study would be fairly simple. We would ask a group of Harvard undergraduates and MBA students to take a test consisting of 50 multiple-choice questions. The questions would be similar to those on standardized tests (What is the longest river in the world? Who wrote
Moby-Dick
? What word describes the average of a series? Who, in Greek mythology, was the goddess of love?). The students would have 15 minutes to answer the questions. At the end of that time, they would be asked to transfer their answers from their worksheet to a scoring sheet (called a bubble sheet), and submit both the worksheet and the bubble sheet to a proctor at the front of the room. For every correct answer, the proctor would hand them 10 cents. Simple enough.

In another setup we asked a new group of students to take the same general test, but with one important change. The students in this section would take the test and transfer their work to their scoring bubble sheet, as the previous group did. But this time the bubble sheet would have the correct answers pre-marked. For each question, the bubble indicating the correct answer was colored gray. If the students indicated on their worksheet that the longest river in the world is the Mississippi, for instance, once they received the bubble sheet, they would clearly see from the markings that the right answer is the Nile. At that point, if the participants chose the wrong answer on their worksheet, they could decide to lie and mark the correct answer on the bubble sheet.

After they transferred their answers, they counted how many questions they had answered correctly, wrote that number at the top of their bubble sheet, and handed both the worksheet and the bubble sheet to the proctor at the front of the room. The proctor looked at the number of questions they claimed to have answered correctly (the summary number they wrote at the top of the bubble sheet) and paid them 10 cents per correct answer.

Would the students cheat—changing their wrong answers to the ones pre-marked on the bubble sheet? We weren't sure, but in any case, we decided to tempt the next group of students even more. In this condition the students would again take the test and transfer their answers to the pre-marked bubble sheet. But this time we would instruct them to shred their original worksheet, and hand only the bubble sheet to the proctor. In other words, they would destroy all evidence of any possible malfeasance. Would they take the bait? Again, we didn't know.

In the final condition, we would push the group's integrity to the limit. This time they would be instructed to destroy not only their original worksheet, but the final pre-marked bubble sheet as well. Moreover, they wouldn't even have to report their earnings to the experimenter: When they were finished shredding their work and answer sheets, they merely needed to walk up to the front of the room—where we had placed a jar full of coins—withdraw their earnings, and saunter out the door. If one was ever inclined to cheat, this was the opportunity to pull off the perfect crime.

Yes, we were tempting them. We were making it easy to cheat. Would the crème de la crème of America's youth take the bait? We'd have to see.

A
S THE FIRST
group settled into their seats, we explained the rules and handed out the tests. They worked for their 15 minutes, then copied their answers onto the bubble sheet, and turned in their worksheets and bubble sheets. These students were our control group. Since they hadn't been given any of the answers, they had no opportunity at all to cheat. On average, they got 32.6 of the 50 questions right.

What do you predict that the participants in our other experimental conditions did? Given that the participants in the control condition solved on average 32.6 questions correctly, how many questions do you think the participants in the other three conditions claimed to have solved correctly?

What about the second group? They too answered the questions. But this time, when they transferred their answers to the bubble sheet, they could see the correct answers. Would they sweep their integrity under the rug for an extra 10 cents per question? As it turned out, this group claimed to have solved on average 36.2 questions. Were they smarter than our control group? Doubtful. Instead, we had caught them in a bit of cheating (by about 3.6 questions).

What about the third group? This time we upped the ante. They not only got to see the correct answers but were also asked to shred their worksheets. Did they take the bait? Yes, they cheated. On average they claimed to have solved 35.9 questions correctly—more than the participants in the control condition, but about the same as the participants in the second group (the group that did not shred their worksheets).

Finally came the students who were told to shred not only their worksheets but the bubble sheets as well—and then dip their hands into the money jar and withdraw whatever they deserved. Like angels they shredded their worksheets, stuck their hands into the money jar, and withdrew their coins. The problem was that these angels had dirty faces: their claims added up to an average 36.1 correct answers—quite a bit higher than the 32.6 of our control group, but basically the same as the other two groups who had the opportunity to cheat.

What did we learn from this experiment? The first conclusion, is that when given the opportunity, many honest people will cheat. In fact, rather than finding that a few bad apples weighted the averages, we discovered that the majority of people cheated, and that they cheated just a little bit.
*
And before you blame the refined air at the Harvard Business School for this level of dishonesty, I should add that we conducted similar experiments at MIT, Princeton, UCLA, and Yale with similar results.

The second, and more counterintuitive, result was even more impressive: once tempted to cheat, the participants didn't seem to be as influenced by the risk of being caught as one might think. When the students were given the opportunity to cheat without being able to shred their papers, they increased their correct answers from 32.6 to 36.2. But when they were offered the chance to shred their papers—hiding their little crime completely—they didn't push their dishonesty farther. They still cheated at about the same level. This means that even when we have no chance of getting caught, we still don't become wildly dishonest.

When the students could shred both their papers, dip their hand into the money jar, and walk away, every one of them could have claimed a perfect test score, or could have taken more money (the jar had about $100 in it). But none of them did. Why? Something held them back—something inside them. But what was it? What is honesty, anyhow?

T
O THAT QUESTION,
Adam Smith, the great economic thinker, had a pleasant reply: “Nature, when she formed man for society, endowed him with an original desire to please, and an original aversion to offend his bretheren. She taught him to feel pleasure in their favourable, and pain in their unfavourable regard,” he noted.

To this Smith added, “The success of most people . . . almost always depends upon the favour and good opinion of their neighbours and equals; and without a tolerably regular conduct these can very seldom be obtained. The good old proverb, therefore, that honesty is always the best policy, holds, in such situations, almost always perfectly true.”

That sounds like a plausible industrial-age explanation, as balanced and harmonious as a set of balance weights and perfectly meshed gears. However optimistic this perspective might seem, Smith's theory had a darker corollary: since people engage in a cost-benefit analysis with regard to honesty, they can also engage in a cost-benefit analysis to be dishonest. According to this perspective, individuals are honest only to the extent that suits them (including their desire to please others).

Are decisions about honesty and dishonesty based on the same cost-benefit analysis that we use to decide between cars, cheeses, and computers? I don't think so. First of all, can you imagine a friend explaining to you the cost-benefit analysis that went into buying his new laptop? Of course. But can you imagine your friend sharing with you a cost-benefit analysis of her decision to steal a laptop? Of course not—not unless your friend is a professional thief. Rather, I agree with others (from Plato down) who say that honesty is something bigger—something that is considered a moral virtue in nearly every society.

Sigmund Freud explained it this way. He said that as we grow up in society, we internalize the social virtues. This internalization leads to the development of the superego. In general, the superego is pleased when we comply with society's ethics, and unhappy when we don't. This is why we stop our car at four AM when we see a red light, even if we know that no one is around; and it is why we get a warm feeling when we return a lost wallet to its owner, even if our identity is never revealed. Such acts stimulate the reward centers of our brain—the nucleus accumbens and the caudate nucleus—and make us content.

But if honesty is important to us (in a recent survey of nearly 36,000 high school students in the United States, 98 percent of them said it was important to be honest), and if honesty makes us feel good, why are we so frequently dishonest?

This is my take. We care about honesty and we want to be honest. The problem is that our internal honesty monitor is active only when we contemplate big transgressions, like grabbing an entire box of pens from the conference hall. For the little transgressions, like taking a single pen or two pens, we don't even consider how these actions would reflect on our honesty and so our superego stays asleep.