Introduction
Human beings basically try to do two things at the same time. On one hand, we want to be able to look in the mirror and feel good about ourselves while on the other hand, we want to benefit from being dishonest. Due to our flexible cognitive psychology and our ability to rationalize our actions, we can do both.
| RSA ANIMATE: The Truth About Dishonesty |
Action Rationalization
If we rationalize our actions, and if we cheat just a little bit, we can benefit from cheating just a little bit and at the same time we can keep on thinking about ourselves as honest wonderful people. It’s all about rationalization. If we can rationalize things to higher degree, we’ll be able to cheat more or be more dishonest and think of ourselves as good people. And if we can rationalize less, we would be more honest.
There’s something about reminders that the moment we think about morality even if it’s not our own moral code, often we’re kind of supervising ourselves to a higher degree. We’re more thoughtful about our own actions. And consequently, we would let ourselves get away with less activities. And at some point, many people switch and start cheating all the time. And we call that the switching point effect. It turns out that we don’t have to be 100% good to think of ourselves as good. But if at some point, we don’t think of yourself as good, we might as well enjoy it.
Conflicts of Interest
The whole thing is the question of conflicts of interest. And conflicts of interest mean that we have a pool to see reality in a certain way. And we can justify our view. Imagine we like a soccer team and we go to a game and the referee calls a call against our team. There is now way for us to think the referee is evil, vicious, stupid, blind, something like that. We can’t help but having our motivation influence how you see the reality. Now when we replace our team with 5 million dollars or with something else, and we will see how the same forces will get us to see reality in a biased way.
So, imagine you are a banker and imagine that you were paid 5 million dollars to view mortgage backed security as a good product. This does not mean you will shift your opinion from thinking from that they’re terrible to that they’re wonderful, but you’ll probably shift your understanding of them. And if everybody around you thought that they were great as well? And what if they were difficult to compute? And you were sitting there with a big spreadsheet and you would do different calculations, and parameters, and estimators then at the bottom would see the final value, but it would also reflect on you end-of-year bonus. Wouldn’t you shade your evaluation even further?
Conclusion
We’ve taken people and we’ve put them in situations, which are practically guaranteed to blind or at least to distort their vision. And we expect people to overcome that. We all tend to think of people as good or bad. And we say that if we kick the bad people everything will be fine. But the reality is that we all have the capacity to be quite bad under the right circumstances. In banking, we’ve created the right circumstances for everybody to misbehave. And because of that it’s not such a matter of kicking some people and getting new people in. It’s about changing the incentive structure. Because unless we change that, we’re not going to get forward.
