White-collar crime: Prevention is better than the cure (Part 2)

11 mins

Finally, we race to the finish line with three more lessons on curbing dishonesty in an ecosystem. The aim? To achieve a better, more honest world.

We roll on from Part 1 to this creatively titled “Part 2” on stopping white-collar crime in its tracks. We look at how we’re all the same, but that one bad apple in the barrel can infect the rest. We then finish up with a final lesson on how moral reminders (on top of designing great systems) may help to improve honesty.

Without too much ado, let’s get started!

4. We’re all the same

The fourth lesson is a somewhat positive one (indeed hard to believe at this stage)! We’re all the same—no matter which country we’re from. Our researchers ran the matrix test across various countries to see if regional differences in cheating exist. The countries included the following:

  • Canada
  • China
  • Israel
  • Italy
  • Turkey
  • UK
  • US.

Despite their internally-held beliefs that there was more cheating going on in their respective countries than the others, Ariely and his co-researchers found that there was no real difference in cheating across countries—on the matrix test. This is because “on a fundamental level, the matrix test is basic and abstract”. Ariely notes that “in this sense, we are not different”.

“It’s safe to say that you’ve cheated sufficiently on the matrix test. You’re human!”

However, overlay this with a cultural context and you may get different outcomes. Ariely says this:

“Our matrix test exists outside any cultural context. That is, it’s not an ingrained part of any social or cultural environment. Therefore, it tests the basic human capacity to be morally flexible and reframe situations and actions in ways that reflect positively on ourselves. Our daily activities, on the other hand, are entwined in a complex cultural context. This cultural context can influence dishonesty in two main ways: it can take particular activities and transition them into and out of the moral domain, and it can change the magnitude of the fudge factor that is considered acceptable for any particular domain.”

The short explanation is this. If we lived in a world or worked in workplaces called “Control Condition”—where cheating is not possible—then we could expect similar levels of honesty or dishonesty everywhere. However, the real world we know is divergent. It’s infused with multiple possibilities, sub-cultures and attitudes.

From a legal perspective, different countries may have similar legal frameworks. For example, countries like Australia, Ghana, India and Malaysia follow in the common law tradition (from England). While their legal traditions derive from the same source, we can agree that they have vastly different legal, regulatory and social environments.

This is a nice “segway” into our next lesson.

5. Dishonesty is contagious

The fifth lesson is that dishonesty can spread. Your environmental conditions and the peers that you find yourself around are critical. It’s the “one bad apple in the barrel” effect.

As one researcher (Francesca Gino) described it in the documentary, “dishonesty is sort of contagious” both in the real world and in lab experiments. It is hence “of enormous impact to live in a country with a huge level of social trust”.

Let’s look at examples where good or bad behaviour, or even simply talking about it, can be contagious.

Example #1. Tax time

You would know the famous saying, oft attributed to Benjamin Franklin, “… nothing is certain except for death and taxes”. We should add a third certainty, being: there will always be those for whom getting taxed is not a certainty, even if you make a profit of $11.2 billion.

The issue of tax avoidance or playing by (or just playing) the tax rules is a legally grey and amoral area of the law.

Is it immoral or dishonest to engage in aggressive tax minimisation? This is a political question. But back to the bad apple effect, we should consider how it might spread to the rest of society. The thinking would be along these lines—“If the big corporations don’t pay their fair share of tax, then why should I?”

For now, let’s put aside aggressive tax minimisation and check out a down-to-earth example of where tax is in fact due and payable by law.

The first fabulous example is from the UK. In 2012, the UK Cabinet Office and the Behaviour Insights Team published its findings into an area that most tax offices do not tread. They looked at various ways of how they could apply behavioural theories to reduce fraud, error and debt.

One study was about how effectively social norms encourage individuals to pay their tax debts more quickly. It makes a bit more sense if you read on. To pull it off, the HM Revenue & Customs (HMRC) sent a range of different letters to 140,000 taxpayers.

Some residents received a letter which had no social norms (the control situation).


Some residents received a letter telling them that “9 out of 10 people in Britain pay their tax on time”.

The devil you don’t know.

Some residents received a letter telling them that not only did “9 out of 10 people in Britain pay their tax on time”, but also that most people in the recipient’s local area, or postcode, had already paid.

“Darn it! It’s now a neighbourhood competition!”
(Note: Confidentiality of taxpayers was in fact maintained.)

As you’d have figured, the study found that “referring to the social norm of a particular area gave impressive results”. The paper concluded that:

“… there was a 15 percentage point increase from the old-style control letter which contained no social norm and the localised social norm letters. HMRC estimates that this effect, if rolled out and repeated across the country, could advance approximately £160 million of tax debts to the Exchequer over the six-week period of the trial. This would free up collector resource capable of generating £30 million of extra revenue annually.”

You should check out the graph. It has to be seen to be believed.

Percentage of late payers who had responded after three months:
– Control = 67.5%
– Social norm nationally = 72.5%
– Social norm in your postcode = 79.0%
– Social norm in your town = 83.0%

Example #2. Start with graffiti

The second example concerns the more serious question of how we can reduce violent crime. In the old bestseller, “The Tipping Point”, Malcolm Gladwell explores the point at which ideas, trends and social behaviour cross a threshold and spread like wildfire. A great read if you’re looking for non-fiction.

Gladwell looked at the epidemic theory of crime in the context of New York City in the 1980s and the 1990s. He noted that “during the 1980s, New York City averaged well over 2,000 murders and 600,000 serious felonies a year”. By the 1990s, the crime rate had dropped significantly. Murders decreased by two-thirds. There was also a sharp fall in other violent crimes.

Gladwell attributed the tipping point to the “Broken Windows Theory”, which was the concept of criminologists James Wilson and George Kelling. Gladwell puts it best:

“If a window [in a city or street] is broken and left unrepaired, people walking by will conclude that no one cares and no one is in charge. Soon, more windows will be broken, and the sense of anarchy will spread from the building to the street on which it faces, sending a signal that anything goes. In a city, relatively minor problems like graffiti, public disorder, and aggressive panhandling… are all the equivalent of broken windows, invitations to more serious crimes…”

The positive news is that when you tinker at the edges of a physical environment, you can bring about massive change. In the case of New York City, the tinkering started with a dogged mission in the mid-1980s to eliminate all graffiti from subways and trains. This sent a direct message to would-be vandals. The next step was for police to target fare evaders at train stations. It turned out that many of the fare evaders were also involved in violent crime or carried weapons.

By creating a hostile environment for low-level infractions, from graffiti to fare evasion, this tipped the balance in New York City—resulting in would-be criminals leaving the streets.

While the Australian context is different, there may be other similar interventions that can tip the balance. We often fall into the paradigm of thinking that solutions must be all-encompassing or comprehensive in order to effect change. What the examples above tell us is that while behaviour is contagious, smaller interventions can have an immense effect in bringing about change.

Looks like the City of Melbourne takes graffiti removal very seriously.
Spotted on 4 April 2019.

6. We all have moral fibre, we just need reminders

We come to the final lesson, which is—deep down, inside of us—we understand what morality is. Believe it or not! We know from the research that children can differentiate between good and bad behaviour from a young age. Strip away the social environment and personal circumstances—and you’ll find that morality is deep-wired into our consciousness.

As to this hypothesis, Ariely and his co-researchers investigated whether reminders of moral behaviour at the start of any activity might increase honesty. The types of moral reminders they tested included:

  • Signing at the start rather than at the end of an insurance claim form.
  • Recalling the Biblical Ten Commandments before taking the matrix test.

Reminder #1. Sign first!

Insurers would tell you that dishonesty often crops up in exaggerated insurance claims. It so turns out that Ariely found that if you get people to sign car insurance forms at the start, rather than at the end—you get a 10% measurable difference, in more honest reporting and lower claims.

The UK Behavioural Insights Team picked up on this:

“A large-scale field experiment has demonstrated that moving the signature from the end to the beginning of application forms can significantly increase honest reporting. The study used a randomised controlled trial on self-reporting of the number of miles driven for a car insurance application (the higher the number of miles reported, the higher the premium). Completed forms were received for 13,488 policies covering a total of 20,741 cars. The results showed that customers reported driving around 10% more miles (i.e. they were more honest) when they signed their name before filling in the form, rather than after. On average, the difference amounted to 2,428 miles per car. The authors estimate the per-mile cost of car insurance in the United States to be between four and ten cents, suggesting a minimum of $97 average difference in annual insurance premiums per car between customers depending on whether they signed at the top or bottom of the form.”

Behavioural Insights Paper, p 15

Reminder #2. The Ten Commandments

If you’re an atheist, please hold off your outrage for now. This next experiment reveals some rather odd aspects of our humanity.

In one research experiment by Mazar, Amir and Ariely, 229 student participants were divided into two groups. Each of the groups were given two minutes to write down:

  • the names of 10 books they had read in high school (“no moral reminder” group); or
  • as many of the Ten Commandments as they could remember (“moral reminder” group).

Our researchers administered the Ten Commandments task regardless of the participants’ religious beliefs, whether they believed in God, or whether they even recalled any of the Ten Commandments. It was simply a test to remind participants of their internal moral standards. In our researchers’ words, they were priming participants to “increase attention to their own moral standards and thus increase the likelihood of behavior consistent with these standards”.

After completing the initial task, our participants took the matrix test. (If you missed what the “matrix test” was—check out my previous post, People Like Us). When it came to marking the matrix test, there was a control group for the books recall and the Ten Commandments recall. This was so that our researchers could compare the average reported number of matrices that participants got right with a situation where participants could cheat.

What our researchers found stunned them.

You may not be surprised that recalling 10 books from high school didn’t have any effect on the levels of cheating. However, it was quite the opposite for the Ten Commandments participants, who were indistinguishable from the control groups. In short, none of those participants cheated on the matrix test afterwards, even if they identified as atheists!  It so turned out that it didn’t matter what people recalled about the Ten Commandments. No one recalled all ten of the Ten Commandments—in fact, the average recall was 4.3.

Ariely notes that the Ten Commandments experiment wasn’t about religiosity, or knowing the Ten Commandments. Rather, the exercise was “about reminding ourselves of our own moral fibre”.

Another variation of this experiment looked at how long people might abide by morality codes after seeing them, that is before it rubs off. At Princeton, students have to undergo the university’s “Honor Code” training when they first join. Ariely tested different groups of students over different periods of time. He found that the crash course of morality did not seem to have any effect after two weeks.

Clever little interventions?

Before you get too excited, I’m afraid that I have to pop our bubble slightly at this point. It appears that other researchers have had difficulty replicating the Ten Commandments experiment. Herein lies the difficulty of all behavioural experiments. While replicability is a basic scientific requirement, it is difficult to replicate the exact conditions again for human subjects. As the Greek philosopher, Heraclitus said “it is not possible to step twice into the same river”.

Before we decide to throw the baby out with the bathwater, it’s better to say that the Ten Commandments experiment needs further research. The insurance claim forms study in Example #1 suggests that moral reminders can be effective. All of this should make us think a bit more about how moral reminders can change behaviour. The measurable extent to which it has an effect is another question.

So, what does this mean for the law?

As a former judge’s associate tasked with “swearing up” witnesses (or more correctly, “administering oaths or affirmations”) in the box, I was once a sceptic. It was hard to believe that the simple act of swearing on the Bible, on any other religious document, or saying the magic words for the non-religious, would have any effect on the testimony. If proven, the Ten Commandments experiment tells us that it does play some part in keeping witnesses honest.

What about affidavits? Affidavits are legal documents which have the same weight and importance. In practice, there is a much longer lead time in preparing an affidavit. Despite the importance of an affidavit being the testimony of the person giving it, they are overwhelmingly drafted by lawyers. There is a partially good reason for this, given the evidentiary rules on presenting evidence. We iron out some of these issues when a witness is cross-examined on their written testimony. But this only happens if a dispute turns into a full-blown trial—very rare indeed.

And one final thing. Affidavits are signed at the end of extensive drafting, not at the start. Important affidavits go through a long and tortured process of drafting. They are akin to works of art. Key facts are brought to the fore, while less flattering matters are pushed to the background. Affidavits are the most flattering versions of a story, before it is (or isn’t) subject to excruciating cross-examination. As you know, not all affidavits will have the joy of experiencing cross-examination. Would getting a person (and their lawyer) to swear/affirm and sign at the start of drafting be a positive development? Or should we have an impartial third party, rather than lawyers, to help draft affidavits? These are matters that we take for granted our legal system.

We could have an endless discussions about how we can create better processes. For now, I will leave these thoughts swirling in your mind. If you have any initial impressions, feel free to leave a comment below. The main takeaway is that we don’t need to introduce drastic changes to achieve a better, more honest world.

Image credit // Brayden Law