The news earlier this week that UBS and four other banks would pay $5.7 billion in fines for manipulating foreign exchange rates and the LIBOR baseline interest rate was cause for celebration for many. But it also raises a vital question: How can governments prevent that sort of unethical behavior in the future? What might help, according to a new study, is getting bankers to consider moments when they'd faced ethical dilemmas in the past.
Psychologists Oliver Sheldon and Ayelet Fishbach reached that conclusion based on four experiments that put their subjects in a number of ethically challenging situations, including shady negotiations and determining whether to call in sick, Ferris Bueller style.
In the first experiment, the researchers assigned each of the 196 business-school students to be buyers or sellers in a simulated real estate transaction involving historic buildings. The researchers instructed the sellers to make certain that any prospective buyer wouldn't tear down the buildings before agreeing to sell. Information the researchers provided to buyers, however, hinted that the clients they represented intended to raze the historic buildings and build in their place a high-rise hotel. In other words, buyers would have to lie in order to make a deal.
When Sheldon and Fishbach instead suggested to a group of their students that their choices don't say much about their underlying personalities, those students were more likely to cheat.
Before negotiations started, Sheldon and Fishbach had half the buyers contemplate a time "when bending the rules was useful, at least in the short run." Thinking about such scenarios, the psychologists reasoned, might highlight the quandary buyers were in and make it harder for them to go through with a shady deal.
Pondering past ethical challenges did indeed make a difference. Sixty-seven percent of buyers in a control condition—having been asked to think of a time when they needed a back-up plan—reached a deal, meaning around two-thirds lied about their clients' intentions. Meanwhile, only 45 percent of the buyers who'd pondered past rule bending successfully negotiated the purchase; not exactly the most honest group on the whole, but better than the control group.
Sheldon and Fishbach replicated their findings in three other experiments, but with an important qualification: Highlighting past predicaments only improved ethics when it got individuals thinking about whether they were truly ethical people. In one experiment, for example, participants were less likely to cheat on a proofreading assignment when they thought about past quandaries—but only after the researchers had indicated that a person's choices could reveal whether they were ethical people or not. When Sheldon and Fishbach instead suggested to a group of their students that their choices don't say much about their underlying personalities, those students were more likely to cheat.
"Unethical behavior is rampant across various domains, ranging from business and politics to education and athletics," Sheldon and Fishbach write today in Personality and Social Psychology Bulletin. It could help, they suggest, to provide decision makers with warning signs of coming temptations, in the hope that that might cue more ethical behavior. No word yet, though, on whether the SEC is considering that option.
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