Bankers: dishonest when banking is on their minds!
Be honest: Do you look at banking and other financial institutions and imagine the swishing sound of billions of dollars and euros flushing down the drain? Lies, thefts and frauds are not getting any scarcer grow among the people who handle money, so we ask:
Who takes? What gives?
The august scientific journal Nature took a stab at explaining the apparent rise in financial cheating with a study by three researchers at the University of Zurich (a banking capital!) who looked at 120 employees of an anonymous international bank. The study rested on the concept of “salience,” the idea that behavior is affected by thoughts and values that happen to be present in our minds.
The question was, are bankers less honest when the thoughts and values associated with banking are running through their minds?
The study was built around a coin-flip experiment. Participants were told which side would win, and asked to report the result after each of 10 flips. Wins were worth $20 apiece. Statistics were the only way for the testers to know if the subject was being honest — in the long run, close to 50 percent of the flips should be heads, so any deviation from 50-50 marked dishonesty.
In the control situation, the bankers were asked a series of generic questions about their lives; in the experimental situation, some of the question were intended to raise the salience of banking, such as, “What is your function at the bank?”
Bankers responded honestly, essentially stating that half the throws were winners — unless the thoughts of banking were raised. But after the banking prompts, 58.2 percent of their responses were winners — a result that is not possible given the random results of flipping a coin many times. Close to 10 percent of the primed bankers reported a win on every throw, a result that would be expected in about 1 percent of the 120 cases!
Why are bankers honest — but only until they are reminded that they work in a bank? The cause seems to lie in the bank culture or values, says author Ernst Fehr, a professor of economics, who commented in a conference call that the spate of banking and financial scandals “raise question of whether the business culture in banks is favoring, or tolerating, fraud, to a larger degree than business culture in other industries.”
The researchers wrote that after being reminded of their profession, subjects were significantly more likely to “endorse the statement that social status is primarily determined by financial success.” That endorsement, they added, “is positively correlated with the reported number of successful outcomes.” Recall that an excessive number of successes involved what we call cheating.
The authors continued that their findings “substantiate current concerns about the influence of materialistic values in the banking sector,” especially since the simple recognition that one is a banker, “may have increased dishonesty through an increase in materialistic values.”
It’s not that bank management is telling employees to be dishonest, “it’s the opposite,” Fehr said. But does not seem to be getting through, he added. “I believe that … what is thought to be implicitly okay is what is showing up here.”
When money talks, can we answer?
Co-author Michel Maréchal, an assistant professor of economics at Zurich, added that “those in the experimental group who most strongly endorse the materialist statement have a positive relationship with dishonesty.” Occupational norms in the banking industry, he added, “put a greater employee emphasis on dishonesty and materialism.”
What can be done, given that financial businesses commonly encourage employees with financial incentives, which the authors said could play a role in the outbreak of cheating.
Recall that the study found that, until being primed to think about banking, these bank employees “are basically honest, so it’s really the cultural aspect, the unwritten norms and values that prevail in the company that seem to make them more dishonest, and that is something we can change,” said Fehr.
Incentives may offer one basis for fighting dishonesty, Fehr said, since any incentive “can be an incentive for being dishonest… and the stronger it is, the bigger is the problem. We don’t argue for removing all incentives, but maybe we should reduce the strength of these incentives.”
A second fix may reside in trying to counter the professional norms with pledges or standards, a tactic that is being tested to battle fraud among taxpayers and insurance claimants.
– David J. Tenenbaum
Kevin Barrett, project assistant; Terry Devitt, editor; S.V. Medaris, designer/illustrator; David J. Tenenbaum, feature writer
- Business culture and dishonesty in the banking industry, Alain Cohn, Ernst Fehr & Michel André Maréchal, Nature (online 19 November, 2014). ↩
- What science tells us about why we lie. ↩
- Convicted of felonies, banks are allowed to stay in business. ↩
- What’s so significant about Barclays Bank lying about the interest rate they paid on loans? ↩