The (Honest) Truth About Dishonesty

In case you weren’t paying attention in 2001, the basic story of the fall of the Wall Street darling went something like this: Through a series of creative accounting tricks—helped along by the blind eye of consultants, rating agencies, the company’s board, and the now-defunct accounting firm Arthur Andersen, Enron rose to great financial heights only to come crashing down when its actions could no longer be concealed. Stockholders lost their investments, retirement plans evaporated, thousands of employees lost their jobs, and the company went bankrupt.

While I was talking to John, I was especially interested in his description of his own wishful blindness. Even though he consulted for Enron while the company was rapidly spinning out of control, he said he hadn’t seen anything sinister going on. In fact, he had fully bought into the worldview that Enron was an innovative leader of the new economy right up until the moment the story was all over the headlines. Even more surprising, he also told me that once the information was out, he could not believe that he failed to see the signs all along. That gave me pause. Before talking to John, I assumed that the Enron disaster had basically been caused by its three sinister C-level architects (Jeffrey Skilling, Kenneth Lay, and Andrew Fastow), who together had planned and executed a large-scale accounting scheme. But here I was sitting with this guy, whom I liked and admired, who had his own story of involvement with Enron, which was one of wishful blindness—not one of deliberate dishonesty.

It was, of course, possible that John and everyone else involved with Enron were deeply corrupt, but I began to think that there may have been a different type of dishonesty at work—one that relates more to wishful blindness and is practiced by people like John, you, and me. I started wondering if the problem of dishonesty goes deeper than just a few bad apples and if this kind of wishful blindness takes place in other companies as well.^* I also wondered whether my friends and I would have behaved similarly if we had been the ones consulting for Enron.

I became fascinated by the subject of cheating and dishonesty. Where does it come from? What is the human capacity for both honesty and dishonesty? And, perhaps most important, is dishonesty largely restricted to a few bad apples, or is it a more widespread problem? I realized that the answer to this last question might dramatically change how we should try to deal with dishonesty: that is, if only a few bad apples are responsible for most of the cheating in the world, we might easily be able to remedy the problem. Human resources departments could screen for cheaters during the hiring process or they could streamline the procedure for getting rid of people who prove to be dishonest over time. But if the problem is not confined to a few outliers, that would mean that anyone could behave dishonestly at work and at home—you and I included. And if we all have the potential to be somewhat criminal, it is crucially important that we first understand how dishonesty operates and then figure out ways to contain and control this aspect of our nature.

WHAT DO WE know about the causes of dishonesty? In rational economics, the prevailing notion of cheating comes from the University of Chicago economist Gary Becker, a Nobel laureate who suggested that people commit crimes based on a rational analysis of each situation. As Tim Harford describes in his book The Logic of Life,^* the birth of this theory was quite mundane. One day, Becker was running late for a meeting and, thanks to a scarcity of legal parking, decided to park illegally and risk a ticket. Becker contemplated his own thought process in this situation and noted that his decision had been entirely a matter of weighing the conceivable cost—being caught, fined, and possibly towed—against the benefit of getting to the meeting in time. He also noted that in weighing the costs versus the benefits, there was no place for consideration of right or wrong; it was simply about the comparison of possible positive and negative outcomes.