Why "ethical" people commit fraud

An All Things Considered segment (MP3) with Chana Joffe-Walt and Alix Spiegel looks at the circumstances that lead to people cheating and committing other frauds. They frame it with the true story of Toby Groves, whose brother had been convicted of fraud, and whose father made him swear a solemn oath to be upstanding in his business dealings. However, Groves found himself committing fraud later, and brought several of his employees in on it.

Typically when we hear about large frauds, we assume the perpetrators were driven by financial incentives. But psychologists and economists say financial incentives don't fully explain it. They're interested in another possible explanation: Human beings commit fraud because human beings like each other.

We like to help each other, especially people we identify with. And when we are helping people, we really don't see what we are doing as unethical.

Lamar Pierce, an associate professor at Washington University in St. Louis, points to the case of emissions testers. Emissions testers are supposed to test whether or not your car is too polluting to stay on the road. If it is, they're supposed to fail you. But in many cases, emissions testers lie.

"Somewhere between 20 percent and 50 percent of cars that should fail are passed — are illicitly passed," Pierce says.

Financial incentives can explain some of that cheating. But Pierce and psychologist Francesca Gino of Harvard Business School say that doesn't fully capture it.

Psychology Of Fraud: Why Good People Do Bad Things


  1. Somewhere along the way, helping your friends to the detriment of the rest of society became okay.

    Society doesn’t work that way.

      1. It depends on the situation, but I’m pretty uncomfortable with the ethos that says that you should rat your friends out to the government. The potential for abuse is high, and history is full of examples.

  2. In the emissions case, I think it’s an assymetry of consequences. Making someone’s car illegal to drive feels awfully harsh, and folks who drive the cars which fail are often too poor to fix or replace them. I think some unofficial discretion is warranted.

    1. But it’s the same sentiment that enables elderly drivers who should no longer be on the road to “pass” their required driving tests.  Oh, we don’t want to force them to be shut in at home; they need to be able to get to the store, their doctor, etc.  After all, they had a perfect driving record for 50 years.

      Personally, I know more people who have been hurt or killed by elderly drivers than by young hotshots or drunks.

      I am proud of my grandpa and dad, both of whom voluntarily decided that they were no longer safe to drive, despite the fact that the state was perfectly happy to renew their licenses.  (My dad still has a functional license, even.  He just uses it for ID purposes now.)

      1. Much easier in this situation to see the symmetry of consequences. Passing a failed driver could cause predictable, direct consequences, whereas the consequences of passing a failed emitter are attenuated from the act and only problematic in the aggregate.

        Good on your pops!

  3. In banking and brokerage, I’ve seen petty thefts committed to even a perceived inequality – shitty hours, low pay, or bad boss.  I’ve seen stupid attempts at fraud committed by otherwise intelligent people to help relatives or relatives of friends in need.  These stick out like sore thumbs and are easy to spot, but difficult for everyone to explain.

    The spookiest forms of fraud I’ve seen would remind you of that scene in “Omen” where the nurse yells, “I did it for you, Damien!  I did it all for you!” Kerthunk – splat!

    Support staff did anything to promote their trader’s interest over customers or institutions.  When I’d call them on it, the response was  “It’s what ______ would want”.

    It made me wonder if there was an unspoken agreement or if there is a point where the boss becomes insulated from crimes committed in his name.

  4. I’d argue that these are actually the right decisions, and it’s the system that isn’t all that well thought out.

    The emissions tester shouldn’t have to choose between taking away the single mother’s Honda Civic or doing right by the environment, he should be deciding whether or not the guy driving the Ferrari needs to be taxed a little more to subsidize the Honda.

  5. Also, ethics are lovely, horribly complicated things. It’s pretty easy to find yourself where a given action is ethical from one standpoint, and unethical from another.

    It also doesn’t help that people think that laws and ethics are the same thing. Breaking the law = unethical makes sense if you’e talking about murder, but most people shouldn’t have too much difficulty coming up with laws that are, from an ethical standpoint, made to be broken, in at least some occasions, or things that are overtly unethical but are legal.

  6. Ages ago I saw Bill Moyers interview Wendy Beckett.


    Ms. Beckett startled Moyers (and me) by announcing that she didn’t believe in guilt.

     She explained that she certainly believes in regret, because sometimes we do wrong unintentionally, after which remorse is natural.  But she noted that then, after we discover that we have done wrong, the next step is to stop doing it.  Period.

    Then she went on to say that guilt is what we feel when we know we are doing wrong and keep doing it anyway,  and so she doesn’t consider it an honest emotional position.

  7. some of the “fraud” is really self-defense or doing the illegal right thing like hiding non-arians from the gestapo or helping slaves escape

  8. The Duke of Sheh informed Confucius, saying, “Among us here there are those who may be styled upright in their conduct. If their father have stolen a sheep, they will bear witness to the fact.”

    Confucius said, “Among us, in our part of the country, those who are upright are different from this. The father conceals the misconduct of the son, and the son conceals the misconduct of the father. Uprightness is to be found in this.”

    To be fair, I think this comes from a very different place for Confucious than the simple human tendency to empathize with the person in front of them over the wellbeing of society at large: for Confucious I think that filial loyalty trumps legal concerns, but that places even more moral burden on the father, who would now be morally obligated not just for his crime, but for the crime he forced upon his son.

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