The Economics of Cheating (Page all of 2) at SmartMoney.com

The Economics of Cheating (Page all of 2) at SmartMoney.com

Money and Your Mind by Ryan Sager (Author Archive) *

The Economics of Cheating *

In recent weeks, New Yorkers have been shocked, shocked to find out that taxi drivers have been taking them for a ride in both the literal and figurative sense. Using GPS technology installed in cabs a couple years ago, New York City’s Taxi and Limousine Commission discovered nearly two million trips over a 26-month period where passengers were illegally charged a higher out-of-city rate (80 cents per fifth of a mile as opposed to 40 cents per fifth of a mile) for trips within the five boroughs. The overcharges totaled more than $8 million, averaging out to $4.45 per trip. *

As shocking as some people find this taxi gouging, however, the real surprise is just how little cabbies were cheating. Those two million overcharged trips made up just 0.5% of the 361 million taxi trips during that time period. With cheating as easy as flipping a switch on their meters, the real question is why cabbies weren’t doing it all the time. *

We’re all presented with countless opportunities to screw over our fellow human beings. How easy would it be to shoplift? How easy would it be to dine-and-dash at a restaurant you’ll never visit again? How many office supplies could you theoretically fit in your bag? *

Given that, why don’t people cheat far more than they do? While a traditional model of cheating would say that people should be expected to cheat as much as is rational — assessing the chances of getting caught, multiplying them by the penalty for getting caught, and then weighing this against what can be gained by breaking the rules — the truth is that’s not how we work. Instead, research in psychology, neuroeconomics, and behavioral economics has shown that two factors other than fear of getting caught seem to restrain our behavior: our desire to adhere to social norms and our desire to see ourselves as good people. *

Of course, the fact that people generally adhere to social norms is hardly news. Though, brain scanning studies in recent years have added to our understanding in this area, showing that behaviors seen as socially good, such as being altruistic or cooperating with other people, activate the same reward centers in the brain as are activated by more intuitively rewarding things, such as food and drink and money. *

More illuminating, however, have been recent experiments looking at how much (or, rather, little) people cheat when given the opportunity — and looking at what does and doesn’t stop them from cheating. *

In an article in the Journal of Marketing Research published in 2008, University of Toronto marketing professor Nina Mazar and MIT economist Dan Ariely, author of the book "Predictably Irrational," looked at how much a group of students would cheat given the chance to, in a scenario where cheating would have financial rewards. *

In a series of six experiments, students were offered money for every answer they got right on simple tests (finding numbers in a matrix that added up to 10, or answering general-knowledge questions). The twist, however, was that some of the students were offered the chance to cheat; these students were given answer sheets and told to grade themselves. *

What the experiment found was that the vast majority of students cheated when given the chance. However, they only cheated a little. *

In fact, among 791 participants given the chance to cheat, a mere five individuals (0.6% of the total) cheated the maximum amount possible — just as in New York City a hard core of 3,000 cabbies out of a work force of 48,000 drivers overcharged passengers more than 100 times each. The rest of the students cheated between roughly 7% and 17% as much as possible. *

So, what was holding these students back? One thing that stopped them from cheating: being asked before the test to write down as many of the Ten Commandments as they could remember (it even worked for atheists). Another thing: being asked to sign an honor code. Perhaps the most counterintuitive thing that stopped cheating: increasing the amount the students could gain by cheating. When students would get 10 cents or 50 cents for each question answered correctly, they cheated away; when they would get $2.50 or $5 for each correct answer, cheating dropped to zero. *

What didn’t work: increasing the chance of getting caught. Whether students were handing in their fraudulent answer sheets to the instructor, whether they were just telling the instructor how many questions they’d gotten right, or whether they were not interacting with the instructor at all — just walking up to a jar of money and taking what they’d “earned” — didn’t seem to matter at all. *

All that mattered was how much they had to think about their cheating and whether they could look at themselves in the mirror later without seeing a criminal looking back. *

So, where does this leave our taxi drivers? The TLC is rushing out a plan to give passengers a digital notice of the rate being charged. The chance of getting caught, at least for this form of cheating, is going up. But there are plenty of other ways for cab drivers to scam people — such as, say, the tried-and-true taking-the-scenic route trick. *

How could all forms of cheating be reduced? How about a taxi honor code. Something as simple as making drivers reflect on what they’re doing — making them confront that what they’re doing is dishonest by, say, signing a screen or receipt attesting to the accuracy of the fare — could do as much or more than expensive methods of enforcement. *

We like to cheat. But we really don’t want to see ourselves as cheaters. *

Ryan Sager writes the blog Neuroworld at TrueSlant.com. *

Access Content Source***: http://www.smartmoney.com/Spending/Rip-offs/The-Economics-of-Cheating/?page=all

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http://dreamlearndobecome.blogspot.com This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.