The (Honest) Truth About Dishonesty

Given the reputation that cabbies have, one has to wonder whether they cheat in general and whether they would be more likely to cheat those who cannot detect their cheating. In our next experiment we asked Eynav and Tali to take a cab back and forth between the train station and Ben-Gurion University of the Negev twenty times. The way the cabs on this particular route work is as follows: if you have the driver activate the meter, the fare is around 25 NIS (about $7). However, there is a customary flat rate of 20 NIS (about $5.50) if the meter is not activated. In our setup, both Eynav and Tali always asked to have the meter activated. Sometimes drivers would tell the “amateur” passengers that it would be cheaper not to activate the meter; regardless, both of them always insisted on having the meter activated. At the end of the ride, Eynav and Tali asked the cab driver how much they owed them, paid, left the cab, and waited a few minutes before taking another cab back to the place they had just left.

Looking at the charges, we found that Eynav paid less than Tali, despite the fact that they both insisted on paying by the meter. How could this be? One possibility was that the drivers had taken Eynav on the shortest and cheapest route and had taken Tali for a longer ride. If that were the case, it would mean that the drivers had not cheated Eynav but that they had cheated Tali to some degree. But Eynav had a different account of the results. “I heard the cab drivers activate the meter when I asked them to,” she told us, “but later, before we reached our final destination, I heard many of them turn the meter off so that the fare would come out close to twenty NIS.” “That certainly never happened to me,” Tali said. “They never turned off the meter, and I always ended up paying around twenty-five NIS.”

There are two important aspects to these results. First, it’s clear that the cab drivers did not perform a cost-benefit analysis in order to optimize their earnings. If they had, they would have cheated Eynav more by telling her that the meter reading was higher than it really was or by driving her around the city for a bit. Second, the cab drivers did better than simply not cheat; they took Eynav’s interest into account and sacrificed some of their own income for her benefit.

Making Fudge

Clearly there’s a lot more going on here than Becker and standard economics would have us believe. For starters, the finding that the level of dishonesty is not influenced to a large degree (to any degree in our experiments) by the amount of money we stand to gain from being dishonest suggests that dishonesty is not an outcome of simply considering the costs and benefits of dishonesty. Moreover, the results showing that the level of dishonesty is unaltered by changes in the probability of being caught makes it even less likely that dishonesty is rooted in a cost-benefit analysis. Finally, the fact that many people cheat just a little when given the opportunity to do so suggests that the forces that govern dishonesty are much more complex (and more interesting) than predicted by the SMORC.

What is going on here? I’d like to propose a theory that we will spend much of this book examining. In a nutshell, the central thesis is that our behavior is driven by two opposing motivations. On one hand, we want to view ourselves as honest, honorable people. We want to be able to look at ourselves in the mirror and feel good about ourselves (psychologists call this ego motivation). On the other hand, we want to benefit from cheating and get as much money as possible (this is the standard financial motivation). Clearly these two motivations are in conflict. How can we secure the benefits of cheating and at the same time still view ourselves as honest, wonderful people?

This is where our amazing cognitive flexibility comes into play. Thanks to this human skill, as long as we cheat by only a little bit, we can benefit from cheating and still view ourselves as marvelous human beings. This balancing act is the process of rationalization, and it is the basis of what we’ll call the “fudge factor theory.”

To give you a better understanding of the fudge factor theory, think of the last time you calculated your tax return. How did you make peace with the ambiguous and unclear decisions you had to make? Would it be legitimate to write off a portion of your car repair as a business expense? If so, what amount would you feel comfortable with? And what if you had a second car? I’m not talking about justifying our decisions to the Internal Revenue Service (IRS); I’m talking about the way we are able to justify our exaggerated level of tax deductions to ourselves.