Management studies: Dishonesty shift

Honesty is a virtue and generally lauded as a vital moral value. But a new study carried out by Martin G. Kocher, Simeon Schudy and Lisa Spantig at LMU, which appears in the journal Management Science, shows that, when decisions are taken by groups, respect for truth soon gives way to other considerations.

Recent years have shown numerous instances of unethical behavior. Corporate entities and organizations have engaged in unethical practices, including covert breaches of regulatory norms, questionable accounting practices and corruption. Indeed, such practices by executives and employees in pursuit of competitive or personal advantage have become a regular source of headlines in the media. In the new study, Martin Kocher and his colleagues have used an experimental setting to investigate the circumstances that facilitate such dishonesty. In particular, they asked whether disregard for moral norms is a matter of individual choice or a product of structural factors within groups.

A total of 273 students took part in the study. Participants had to watch a video of a single die roll and report the outcome. The number they reported determined their pay-off. In this situation, participants faced a tradeoff between reporting truthfully and reporting a number that corresponded to a higher payoff. The task was presented either to individual participants or to small groups. In the group condition, group members saw the same video and were able to chat anonymously with each other before they reported the outcome of the die roll.

"Our findings are unequivocal: People are less likely to lie if they decide on their own," says Martin Kocher, who holds the Chair of Behavioral Economics at LMU and is Director of the Institute of Advanced Studies in Vienna. Even groups composed of participants who reported truthfully when being asked individually frequently decided to misreport. The researchers refer to this phenomenon as a 'dishonesty shift'. Their experiments suggest that the exchange of arguments over the validity of the honesty norm is the main driver of this effect: "Feedback is the decisive factor. Group-based decision-making involves an exchange of views that may alter the relative weight assigned to the relevant norm. In such a setting, the participants can more readily reinterpret the norm than in cases where the decision is made on an individual basis," explains Lisa Spantig, PhD student and manager of the experimental laboratory for economic and social sciences at LMU. The study also shows that these discussions tend to make participants more pessimistic about norm compliance of others and, in turn, help groups to justify their dishonest behavior.

The experiment allowed the researchers to isolate these mechanisms under abstract conditions. For example, the experimental design did not include any sanctions against misreporting. The results of the study suggest that companies may benefit from monitoring such team-based decision-making processes more closely. "It is striking that many of the most prominent instances of corporate cheating in recent years have involved groups," says Spantig. For example, a former analyst for Enron, an American energy firm that went bankrupt as the result of corrupt accounting practices, said "it was no great secret what we were doing." To combat such behavior ." ..firms have to establish strong ethical norms with the help of codes of conduct but also monitor group decision making processes and sanction norm violations," says Assistant Professor Simeon Schudy.