Dishonest acts are all too prevalent in day-to-day life. This article examines some possible psychological causes for dishonesty that go beyond the standard economic considerations of probability and value of external payoffs. The authors propose a general model of dishonest behaviour that includes internal psychological reward mechanisms for honesty and dishonesty, and they discuss the implications of this model in terms of curbing dishonesty.

Many big companies are associated with some of the biggest financial scandals in U.S. corporate history. In addition to corporate scandals, almost all companies present their employees with the conflict between selfishly pursuing their own financial goals and being honest. Although brokers are supposed to act in their clients’ best interests, the commissions system can tempt them to choose personal gains over their clients’ interests: for example brokers may experience pressure to buy and sell when they stand to gain larger commissions, they may recommend stocks or funds that are suitable for their interests, but not for the client’s interest, they may delay the trades ordered by their clients to invest their own money first. Not only companies and their employees are dishonest, consumers are too. An example is insurance fraud, so say that something is stolen, but it never happened.

Another domain that is central to consumers’ unethical behaviour involves intellectual property theft, such as music, film and software piracy. Perhaps the largest contribution to consumer dishonesty comes from tax deception, including issues such as omitting income and inflating deductions.

These examples represent only a subset of everyday deception by companies, individuals within companies, and individual consumers. Together they contribute to the U.S. economy losing hundreds of millions of dollars in tax revenues, wages and investment dollars.

Nowadays, substantial money is being invested in task forces to fight dishonest behaviour, but still there are no good results. Although the industry measures seem to have contributed to an increased awareness of copyright laws and lawsuit campaigns, people seem relatively unintimidated by them.

Given this limited success in curbing dishonest behaviour, there are two possible approaches for understanding and limiting future dishonesty. The first approach assumes that the current strategy for curbing dishonesty is the correct one, but that it is not practiced sufficiently or with sufficient force. With this approach, the major two variables, the probability of being caught and the magnitude of punishment, should increase, thus reducing or eliminating dishonesty. The second approach which is the one we take in this article, questions whether the typical path taken to reduce dishonesty is the correct path.

Economic and Psychological theories of dishonesty

The standard economic perspective of the Homo economicus is one in which the individual is a rational, selfish human being who is interested only in maximizing his or her own payoffs. The higher the external rewards from being dishonest (higher external benefits like more money, or expected external costs), the higher the extent to which an individual engages in dishonest behaviour is. Efforts to limit dishonesty have assumed that the only ways to make progress are restricted to the external costs and benefits of a dishonest act.

The higher the external costs, the lower the dishonest behaviour. Magnitude of punishment and ensuing emphasis on the pervasiveness of police force are the two simplest ways to manipulate these external costs.

Psychological theories of the effect of Internal incentives

There are also internal reward mechanisms, and that these exert influence on people’s decisions. Economists have repeatedly demonstrated altruism and reciprocity in social dilemma games. An example is the ultimatum game where money has to be split. The proposer offers a division of the money. From a game theoretical, rational point of view, the proposer should split the money unequally, in favour of him or herself. The receiver should accept every offer because something is better than nothing. Instead, however, a majority of the offers are split equally, and many offers that are not split equally are rejected. This shows that there is more than maximizing their own monetary payoffs.

Why do people consider more than just their material payoffs? Joseph Heinrich and colleagues undertook a large cross-cultural study of behaviour in ultimatum games. Two of their main findings in support of the hypothesis of internalized reward mechanisms are that:

• Observed behaviour varied substantially across societies.

• People’s preferences were not exogenous by their society’s characteristic economic and social interactions of everyday life. In other words, socialization is a key to the development of internalized reward mechanisms.

Another important factor is the fact that several studies have identified regions to represent a brain’s pleasure center that can be activated through different forms of rewards. These same brain regions are also activated in anticipation of satisfying social outcomes. Social rewards. These studies suggest that people feel good about complying with internalized social norms and values. Someone who cooperates should be rewarded, someone who defects should be punished to re-establish socially desirable behaviour.

Freud lectured about the superego, that is the part of the self that represents society’s moral norms and values that the individual internalizes during the course of his life. The superego acts as an internal judge, rewarding of punishing the individual depending on compliance with these norms and values.

Activation of internal rewards lessens sensitivity to external incentives. Mazir, Amir and Ariely studied how external and internal reward mechanisms work in concourse to influence people’s decisions to be (dis)honest. Taking the motivation for financial rewards as self-evident, Mazar, Amir and Ariely tested the extent to which the decision to be (dis) honest is driven by the possible consequences of being caught cheating (external costs) relative to the internal rewards of honesty.

Together, these findings suggest that the relationship between the external and the internal reward mechanisms is complex. In particular, we hypothesize that the internal reward mechanism is either active or inactive and influencing the tendency for acting (dishonestly) as a step function.

• Below a certain level of dishonesty, the internal reward mechanism may not be activated and thus does not influence behaviour.

• Beyond the activation threshold, when the dishonest act is noticeable, the internal reward mechanism is activated, exerts its maximal force independently of the level of external rewards.

• It is likely that when the external rewards become very large, they become tempting and may ultimately prevail. A person’s internal standards could be overridden.

These findings suggest that a model for honesty that when people behave like a homo economicus would lead to different predictions about a person’s decision to be dishonest.

Changing the activation threshold for Internal rewards. There is evidence that should support the theory that internal reward mechanisms exist. However, there is also research that suggests that it is possible to move the activation threshold. Important here is the research on objective self-awareness.

Objective self-awareness represents attention directed inward that induces self-evaluation in relation to standards that are salient or accessible in the immediate situation, which in turn increases motivation to meet the standard.

Looking into the mirror can increase an individual’s self awareness of himself as an object of the world. When awareness is increased, people are more likely to be aware of discrepancies between how they want to view themselves and how they actually behave.

In the domain of deception, this means that higher self awareness lead to more honest behaviour.

Self-deception is the discussion that has focused on deceptive acts and the activation of a threshold that ignites the internal rewards. In our conceptualization of the threshold, it is important that the amount of deception in and of itself can activate the threshold. An added complexity comes from the idea of self-deception, in which people can reframe an act in a way that makes them not perceive it as dishonest. Under such reframing (self-deceptions), dishonest act would not contribute to the activation of the threshold and thus would not influence the tendency for honesty. As a consequence, even if an individual has internalized standards for honesty, acts of dishonesty that do not influence the activation of the threshold (self-deceptions) would not influence behaviour, and the relationship between external rewards and the tendency for dishonesty would remain. In general, self-deception represents a biased, self-serving information flow within an individual. That is an active, but unconscious misrepresentation of reality to the conscious mind. Better than average effect: people think that they are 50 % more intelligent than average.

Researchers have explained of not knowing about self deception under the assumption that a person can simultaneously store both true and false knowledge, with a bias toward the true knowledge being stored in the unconscious and the false knowledge being stored in the conscious.

Self deception is the act primarily in the service of fooling oneself, but it can also act in the service of deceiving others.

Policy guidelines for reducing dishonesty

The standard rational model of decisions about honesty and dishonesty assumes that people trade off only external costs and benefits of an outcome. In contrast, the psychological model we have sketched assumes that decisions about honesty also include considerations of internal reward mechanisms. In addition, we argue that decisions about honesty can sometimes be not cognizant. As a consequence, making the right policy recommendation to decrease dishonesty depends particularly on the analysis of what is driving the deceit in a particular situation.

The four general drivers of dishonesty are:

• Lower external costs and relatively higher benefits of deception
• Lack of social norms, which results in a weak internal reward mechanism
• Lack of self-awareness, which primes the activation of the internal reward mechanism.
• Self-deception, represents a biased, self-serving information flow within an individual, that is an active, but unconscious misinterpretation of reality of the conscious mind.

Dishonest behaviour can also be caused by external rewards. If the cause for deception lies solely in greater external benefits than costs of the dishonest act, the solution is simple: The costs for dishonest action must be greater than their expected benefits. This can be achieved by increasing either the probability of begin caught or the severity of the punishment.

Eliminating the probabilistic component from all undesirable behaviors is impossible, but it is clear that there are some cases in which this is possible and desirable.

When dishonest behaviour is caused by the internal reward mechanism. If the reason for dishonest actions lies in a lack of internalized social norms, our primary recommendation would be to invest in educational efforts and socialization to increase the strength of the internal reward mechanism. When the effects of such efforts on the development of socially based internal reward mechanisms are understood, it is important to go a step further and ask what the limits of such efforts should be and whether society should allow all ideologies to participate in the creation of such internal rewards.

If dishonest behaviour occurs not because of a lack of social norms, but simply because of a lack of self-awareness and, thus, the degree to which these internalized social norms are activated, it is important to make use of contextual cues that increase awareness.

The theory of optimal punishment states that optimal punishment trades off the benefits of deterrence and the cost of punishing innocent people. If the punishment magnitude is determined in a way that makes the costs slightly higher than the benefits, the optimal punishment will be lower by that amount.

Conclusion

In summary, there is no question that dishonesty is prevalent in daily life. The standard economics perspective considers one cause for dishonesty: External reward mechanisms, and thus emphasizes the probability of being caught and the magnitude of punishment as the only ways to overcome dishonesty.

In contrast, the psychological perspective we present herein suggests that dishonesty is also influenced by internal reward mechanisms and that such mechanisms should be taken into account when considering effective measures for limiting dishonesty in daily life.

With a functional form in mind, the psychological approach could be based on increasing the long-term effectiveness of internal rewards, increasing short term effectiveness of internal rewards, or eliminating possibility of dishonest acts when the cause could be attributed to self-deception. When the role of internal rewards is better understood, both preventions and punishments of dishonesty can be made more effective.