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Are Bankers Encouraged to Cheat? Study Suggests Their Culture Corrupts

Is there something about banking that makes people want to cheat? There may be, say Swiss researchers.
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Is there something about banking that makes people want to cheat? There may be, say Swiss researchers.

They found that banking’s culture of rewarding financial gain may encourage cheating.

They ran a simple test with 138 longtime employees of a big international bank, comparing their behavior when they were strongly reminded they were bankers to how they acted when they were thinking about something else.

It was a simple coin-toss experiment. “The rules required subjects to take any coin, toss it 10 times, and report the outcomes online,” the researchers reported in the journal Nature. “For each coin toss they could win an amount equal to approximately $20 depending on whether they reported ‘heads’ or ‘tails.’”

"Non-banking employees did not become more dishonest when you reminded them of their roles."

To make things spicier, the bankers were told ahead of time if "heads" or "tails" would win. And they were told they’d only actually get the money if they did as well as or better than others in the contest.

Before they did the coin toss, the bankers filled out questionnaires. Half were asked specifically about their jobs in banking, while half were asked unrelated questions.

When the bankers were asked about leisure time or anything else unrelated to their jobs, they hardly ever cheated on the coin toss. They got a winning toss just under 52 percent of the time. On a coin toss, one can expect to get ‘heads’ 50 percent of the time and ‘tails’ 50 percent of the time.

But when bankers were asked about their banking careers, the cheat rate went up. They won more than 58 percent of the coin tosses after answering work-related questions.

It’s a timely issue. Earlier this month, international financial regulators fined five major global banks for having rigged foreign exchange markets.

“An obvious question is of course whether this effect is specific to the banking industry,” said Michel Marechal of the University of Zurich in Switzerland, one of the researchers. So they ran a similar experiment with 133 people from other industries. “These non-banking employees did not become more dishonest when you reminded them of their roles,” Marechal said.

The same held for students — they did not cheat any more often when given financial cues.

So what is going on? The researchers think the banking industry may encourage dishonesty by stressing the profit motive over other incentives.

“Our results thus suggest that the prevailing business culture in the banking industry weakens and undermines the honesty norm, implying that measures to re-establish an honest culture are very important,” they wrote.

It’s not that dishonest people are attracted to banking as a profession, the researchers stressed. “Our findings showed that the bank employees behaved on average honestly in the control condition, so this suggests that, in contrast to the public perceptions, bank employees are not more dishonest employees than others,” Marechal told reporters in a conference call.

Banks, therefore, have a responsibility, the researchers said. “Banks should encourage honest behavior,” said Alain Cohn, who worked with the research team at the University of Zurich but who now is at the University of Chicago.

“Financial incentives that reward employees for dishonest behavior should be removed."

“Of course such a cultural change takes time.” They suggest that bankers take a professional oath, akin to the Hippocratic oath taken by physicians.

“Financial incentives that reward employees for dishonest behavior should be removed,” Cohn added.

Marie Claire Villeval of the University of Lyon in France, who was not involved in the study, says the experiment could be taken a little farther to test other professionals.

“For example, the same method could be used to test whether the honesty of politicians is negatively affected by political-background priming when the participants are faced with opportunities for political gain, rather than the financial incentive used for the bankers,” she wrote in a commentary.