Bankers dishonest by training, not nature: study

Outbackjack: A study of more than 200 international bankers put their honesty to the test and found them to be fundamentally decent human beings, until they were reminded about what they do for living. At that point, the research team discovered they began cheating on their tests. Interestingly, that result was not replicated when sample groups from other professions were asked to complete similar tests.

NICK GRIMM: In the wake of a series of global financial scandals in recent times, behavioural economists have been prompted to ask the question: are bankers dishonest by nature or by training?

Their findings suggest it might be the latter.

A study of more than 200 international bankers put their honesty to the test and found them to be fundamentally decent human beings, until they were reminded about what they do for living.

At that point, the research team discovered they began cheating on their tests.

Interestingly, that result was not replicated when sample groups from other professions were asked to complete similar tests.

The research was conducted by three academics at the University of Zurich in Switzerland - a nation which is of course synonymous with banking and finance.

So for more I spoke to one of the authors of the research, behavioural economist Alain Cohn, was is now at the University of Chicago in the United States.

ALAIN COHN: So we have all heard about many scandals that have plagued financial industry during the last decade.

For example, there were several cases of rogue traders that caused large economic losses or there was reckless risk and bonus taking by investment bankers, and most recently we saw manipulation of interest rates, of the foreign exchange market et cetera.

So the scandals raise the question whether the business culture in the financial services industries is favouring or at least tolerating fraudulent or unethical behaviours to a larger degree than the business culture in other industries.

Outbackjack: NICK GRIMM: So how did you go about testing that proposition?

ALAIN COHN: So we conducted an experiment with more than 200 employees under 28 from a large international bank and 80 from other banks and the participants were randomly assigned to one of two experimental conditions.

In the experimental group we manipulated the saliency of participants' occupation and role as bank employees by asking a few questions about their professional background.

So for example, we asked them for what banks they worked for or how many years of professional experience they have so this manipulation put the occupational role and, as I said, the norms on the top of their minds.

Now in the control condition, we asked the participants questions that weren't related to their occupation, such as, for example questions about tea consumption or favourite leisure activities.

And then after this priming question, all participants were asked to participate in a conflicting task in which they could cheat and increase their earnings up to the amount of about $US200.

So they were asked to flip a coin 10 times and to self report the outcomes of the coin flip.

For example, in the first coin flip they knew that heads would give them $20 and so because they knew that heads would give them a good outcome, they could easily cheat and hide behind chance.

NICK GRIMM: So you gave those two groups an incentive to lie. What did you learn about their responses?

ALAIN COHN: Their behaviour in the coin tossing task is a measure of their dishonest behaviour and so what we can look at is how the behaviour changes when the occupational role is made more salient in the participant's mind compared to when the norms of their leisure role is made more salient.

NICK GRIMM: How did you go about testing what a normal response would be? Did you compare the bankers with other professionals?

ALAIN COHN: We ran the same experiment with participants, professionals, from in other occupations or in other industries.

So we manipulated again the salience of their professional role and there we didn't find any difference between the control condition and the experimental group.

So this implies that there is something specific in the banking industry that promotes dishonest behaviour.

NICK GRIMM: And does this tell us that bankers are inherently dishonest?

ALAIN COHN: No, not all. In contrast, they are a very honest in the control condition. Only when we rendered their professional role more salient is when they began to cheat.

So our results suggest that banks should actually encourage honest behaviour by changing the norms of (inaudible) occupational role and it's not about hiring the moralist people.

NICK GRIMM: Does it suggest though that the banking culture itself is a fundamentally dishonest one, that it corrupts those who work within it?

ALAIN COHN: Exactly, so it's about unwritten rules of behaviour in the financial services industry that encourage or maybe tolerate dishonest behaviours.

NICK GRIMM: One of the authors of the research by the team from the University of Zurich, behavioural economist Alain Cohn, he is now at the University of Chicago in the United States and he was talking to me from there.