Thursday, December 27, 2012

Book review: The (honest) truth about dishonesty

How honest are we in our everyday lives? How many little white lies do we tell over the course of a day? Dan Ariely, a professor of psychology and behavioral economics at Duke, thinks we do a pretty fair amount of lying.

The first target in his book, The (Honest) Truth About Dishonesty, is the Simple Model of Rational Crime. Put simply, the model posits that when we need something we have to make a cost-benefit analysis as to how to acquire that thing. Do we steal it? Do we whip out our wallet and buy it? The decision is quite simple - are the costs associated with stealing the item worth risking in order to get the item? If the answer is yes, our rational criminal steals it. If the answer is no, then he doesn't.

It's a nice theory for a bunch of professors sitting around a computer trying out various mathematical formulas to simulate how we behave on a daily basis. But, as far as a useful theory in the real world - it's garbage. People commit crimes for all sorts of reasons but few base those choices on a cost-benefit analysis - defense contractors, hedge fund managers and bankers being the exception.

In researching the book, Professor Ariely conducted a series of experiments in which a group of people were asked to solve some math problems. For every correct answer the subject got something - money or tokens. Some folks would hand their papers in and the proctor would score them. Some folks would hand their papers in and tell the proctor how many they got correct. Others would run their papers through a shredder (that only shredded the outside margins) and tell the proctor how many they got correct.

The results were consistent across sex, race, religion and ethnicity. The folks who used the shredder were far more likely to cheat than any other group. And, the likelihood of someone cheating increased when the reward was not money, but something that could be exchanged for something else.

He then asked the question whether the social costs of cheating were the result of a few folks cheating a lot or a lot of folks cheating a little. When he changed the amount of compensation for correct answers he found that when the amount offered was low, more people were willing to cheat a little bit but, when the amount offered was higher, the amount of cheating dropped.

One problem I have with his analysis, however, has to do with his critique of corporate analysts. His conclusion was analysts would fudge the numbers because they believed that's what their bosses wanted them to do. His example was a report that was returned to the analyst team with the implicit understanding that the conclusions were not what the boss wanted. What Professor Ariely doesn't look at is the mindset of analysts and corporate officials when so much pressure is placed on companies to outperform quarterly projections. Instead of holding investments for the long run, we have become a nation of day traders who will dump a stock if the quarterly numbers don't meet expectations. The analysts understand this and so they write their reports in such a way to benefit their corporate clients who are paying the bills. The cheating occurs not because of peer pressure but because the financial industry is so incestuous.

My question is whether or not this analysis could be used to help us with jury selection. If we accept Professor Ariely's premise, then we know that there will be folks on that jury panel that are not being honest with us. We must also understand that there will be jurors in that deliberation room that are not going to hold the state to its burden of proof. And, if everyone cheats just a little bit, that could be enough to tip that jury to the state.

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