What really motivates people to be honest in business | Alexander Wagner

What really motivates people to be honest in business | Alexander Wagner


How many companies
have you interacted with today? Well, you got up in the morning, took a shower, washed your hair, used a hair dryer, ate breakfast — ate cereals, fruit, yogurt, whatever — had coffee — tea. You took public transport to come here, or maybe used your private car. You interacted with the company
that you work for or that you own. You interacted with your clients, your customers, and so on and so forth. I’m pretty sure there are
at least seven companies you’ve interacted with today. Let me tell you a stunning statistic. One out of seven
large, public corporations commit fraud every year. This is a US academic study
that looks at US companies — I have no reason to believe
that it’s different in Europe. This is a study that looks
at both detected and undetected fraud using statistical methods. This is not petty fraud. These frauds cost
the shareholders of these companies, and therefore society, on the order of
380 billion dollars per year. We can all think of some examples, right? The car industry’s secrets
aren’t quite so secret anymore. Fraud has become a feature, not a bug, of the financial services industry. That’s not me who’s claiming that, that’s the president
of the American Finance Association who stated that
in his presidential address. That’s a huge problem
if you think about, especially, an economy like Switzerland, which relies so much on the trust
put into its financial industry. On the other hand, there are six out of seven companies
who actually remain honest despite all temptations
to start engaging in fraud. There are whistle-blowers
like Michael Woodford, who blew the whistle on Olympus. These whistle-blowers risk their careers, their friendships, to bring out the truth
about their companies. There are journalists
like Anna Politkovskaya who risk even their lives
to report human rights violations. She got killed — every year, around 100 journalists get killed because of their conviction
to bring out the truth. So in my talk today, I want to share with you
some insights I’ve obtained and learned in the last 10 years
of conducting research in this. I’m a researcher,
a scientist working with economists, financial economists, ethicists, neuroscientists, lawyers and others trying to understand
what makes humans tick, and how can we address this issue
of fraud in corporations and therefore contribute
to the improvement of the world. I want to start by sharing with you
two very distinct visions of how people behave. First, meet Adam Smith, founding father of modern economics. His basic idea was that if everybody
behaves in their own self-interests, that’s good for everybody in the end. Self-interest isn’t
a narrowly defined concept just for your immediate utility. It has a long-run implication. Let’s think about that. Think about this dog here. That might be us. There’s this temptation — I apologize to all vegetarians, but — (Laughter) Dogs do like the bratwurst. (Laughter) Now, the straight-up,
self-interested move here is to go for that. So my friend Adam here might jump up, get the sausage and thereby ruin
all this beautiful tableware. But that’s not what Adam Smith meant. He didn’t mean
disregard all consequences — to the contrary. He would have thought, well, there may be negative consequences, for example, the owner might be angry with the dog and the dog, anticipating that,
might not behave in this way. That might be us, weighing the benefits
and costs of our actions. How does that play out? Well, many of you, I’m sure, have in your companies, especially if it’s a large company, a code of conduct. And then if you behave
according to that code of conduct, that improves your chances
of getting a bonus payment. And on the other hand,
if you disregard it, then there are higher chances
of not getting your bonus or its being diminished. In other words, this is a very economic motivation of trying to get people to be more honest, or more aligned with
the corporation’s principles. Similarly, reputation is a very
powerful economic force, right? We try to build a reputation, maybe for being honest, because then people
trust us more in the future. Right? Adam Smith talked about the baker who’s not producing good bread
out of his benevolence for those people who consume the bread, but because he wants to sell
more future bread. In my research, we find, for example, at the University of Zurich, that Swiss banks
who get caught up in media, and in the context, for example, of tax evasion, of tax fraud, have bad media coverage. They lose net new money in the future and therefore make lower profits. That’s a very powerful reputational force. Benefits and costs. Here’s another viewpoint of the world. Meet Immanuel Kant, 18th-century German philosopher superstar. He developed this notion that independent of the consequences, some actions are just right and some are just wrong. It’s just wrong to lie, for example. So, meet my friend Immanuel here. He knows that the sausage is very tasty, but he’s going to turn away
because he’s a good dog. He knows it’s wrong to jump up and risk ruining
all this beautiful tableware. If you believe that people
are motivated like that, then all the stuff about incentives, all the stuff about code of conduct
and bonus systems and so on, doesn’t make a whole lot of sense. People are motivated
by different values perhaps. So, what are people actually motivated by? These two gentlemen here
have perfect hairdos, but they give us
very different views of the world. What do we do with this? Well, I’m an economist and we conduct so-called experiments
to address this issue. We strip away facts
which are confusing in reality. Reality is so rich,
there is so much going on, it’s almost impossible to know
what drives people’s behavior really. So let’s do a little experiment together. Imagine the following situation. You’re in a room alone, not like here. There’s a five-franc coin
like the one I’m holding up right now in front of you. Here are your instructions: toss the coin four times, and then on a computer
terminal in front of you, enter the number of times tails came up. This is the situation. Here’s the rub. For every time that you announce
that you had a tails throw, you get paid five francs. So if you say I had two tails throws, you get paid 10 francs. If you say you had zero,
you get paid zero francs. If you say, “I had four tails throws,” then you get paid 20 francs. It’s anonymous, nobody’s watching what you’re doing, and you get paid that money anonymously. I’ve got two questions for you. (Laughter) You know what’s coming now, right? First, how would you behave
in that situation? The second, look to your left
and look to your right — (Laughter) and think about how
the person sitting next to you might behave in that situation. We did this experiment for real. We did it at the Manifesta art exhibition that took place here in Zurich recently, not with students in the lab
at the university but with the real population, like you guys. First, a quick reminder of stats. If I throw the coin four times
and it’s a fair coin, then the probability
that it comes up four times tails is 6.25 percent. And I hope you can intuitively see that the probability that all four
of them are tails is much lower than if two of them are tails, right? Here are the specific numbers. Here’s what happened. People did this experiment for real. Around 30 to 35 percent of people said, “Well, I had four tails throws.” That’s extremely unlikely. (Laughter) But the really amazing thing here, perhaps to an economist, is there are around 65 percent of people
who did not say I had four tails throws, even though in that situation, nobody’s watching you, the only consequence that’s in place is you get more money
if you say four than less. You leave 20 francs on the table
by announcing zero. I don’t know whether
the other people all were honest or whether they also said a little bit
higher or lower than what they did because it’s anonymous. We only observed the distribution. But what I can tell you —
and here’s another coin toss. There you go, it’s tails. (Laughter) Don’t check, OK? (Laughter) What I can tell you is that not everybody behaved
like Adam Smith would have predicted. So what does that leave us with? Well, it seems people are motivated
by certain intrinsic values and in our research, we look at this. We look at the idea that people have
so-called protected values. A protected value isn’t just any value. A protected value is a value
where you’re willing to pay a price to uphold that value. You’re willing to pay a price
to withstand the temptation to give in. And the consequence is you feel better if you earn money in a way
that’s consistent with your values. Let me show you this again
in the metaphor of our beloved dog here. If we succeed in getting the sausage
without violating our values, then the sausage tastes better. That’s what our research shows. If, on the other hand, we do so — if we get the sausage and in doing so
we actually violate values, we value the sausage less. Quantitatively, that’s quite powerful. We can measure these protected values, for example, by a survey measure. Simple, nine-item survey that’s quite
predictive in these experiments. If you think about the average
of the population and then there’s
a distribution around it — people are different,
we all are different. People who have a set of protected values that’s one standard deviation
above the average, they discount money they receive
by lying by about 25 percent. That means a dollar received when lying is worth to them only 75 cents without any incentives you put in place
for them to behave honestly. It’s their intrinsic motivation. By the way, I’m not a moral authority. I’m not saying I have
all these beautiful values, right? But I’m interested in how people behave and how we can leverage
that richness in human nature to actually improve
the workings of our organizations. So there are two
very, very different visions here. On the one hand, you can appeal to benefits and costs and try to get people
to behave according to them. On the other hand, you can select people who have the values and the desirable
characteristics, of course — competencies that go
in line with your organization. I do not yet know where
these protected values really come from. Is it nurture or is it nature? What I can tell you is that the distribution
looks pretty similar for men and women. It looks pretty similar
for those who had studied economics or those who had studied psychology. It looks even pretty similar
around different age categories among adults. But I don’t know yet
how this develops over a lifetime. That will be the subject
of future research. The idea I want to leave you with is it’s all right to appeal to incentives. I’m an economist; I certainly believe in the fact
that incentives work. But do think about selecting
the right people rather than having people
and then putting incentives in place. Selecting the right people
with the right values may go a long way
to saving a lot of trouble and a lot of money in your organizations. In other words, it will pay off to put people first. Thank you. (Applause)

80 Comments

  1. Tedaweomeness1 says:

    First!

  2. Shai Toledano says:

    If you like this comment you can help me rise to internet fame, I then will create a youtube comment empire that YOU will be welcome to!

  3. Alex Leigh says:

    I like his jacket anybody know what brand it is?

  4. Mihir Patel says:

    The answer is, if their business affects their family members, they will do it right and honestly.

  5. Merunas Grincalaitis says:

    Sorry vegetarians, dogs are still carnivorous so don't get butthurt with the reality

  6. GoatzAreEpic Maokai says:

    M O N E Y

  7. blue_tetris says:

    I think it's pretty straight-forward: Businesses do things that make profits. They are honest when honesty is profitable.

    Even when dishonesty is illegal, it doesn't always cost too much to deal with the fines/jail time. To a company, fraud is like any other investment.

  8. Alex Leigh says:

    With his accent i heard a bad word.

  9. Derek Stark says:

    Straight cash homie

  10. # says:

    Honest-business seems to be an oxymoron these days.

  11. Thiago Armstrong says:

    Thirty

  12. Fairy Lady says:

    When I start lying I get confused 🙂

  13. Don Williams says:

    Maybe some people were honest with the money game, not because they have inherent values, but because it's easier to make a habit out of being honest, or that they think there is always inherent risk with lying. So it's still the same system of working for your own self-interest.

  14. Quincy Lamar Edwards says:

    Nothing.

  15. flipchartpad says:

    Don't give me that do goody good bullshit.

  16. justgivemethetruth says:

    1 out of seven corporations commits fraud ???? that seems like almost a joke.  The biggest, richest, most powerful companies cheat on their taxes, cheapen their products, corrupt the political system giving themselves tax breaks and grants and getting the government to do their research for them while they get the patents.  The whole system is one big syndicate that grinds right over common people like it did with Africans, Native Americans, Indians, Southeast Asians, and it is still doing today, but now it includes whites as well.

    Equal Opportunity based on race is a joke, the true Equal Opportunity MUST BE BASED ON CLASS, meaning the tax system must be progressive, the health care system must be free, education must be a social and governmental priority, and we need a police and regulatory agencies that prosecute and actually fix systemic problems instead of constantly slapping wrists and allowing crime to pay.

  17. Rykahnz says:

    He should've done the experiment with 50 Francs per tails

  18. Adam F says:

    Booyaka Booyaka 619

  19. fightfanian says:

    Fear of losing money, they are only going to be honest if it cost less the being dishonest.

  20. Lane Romel says:

    Business person and honesty is an oxymoron.

  21. RevenantCheetosx says:

    Didn't Ford estimate the amount of people who would die and the settlements that would be paid for not installing certain safety features on their Pinto? Tsk tsk

  22. Two-Face says:

    Ha I did none of these things today

  23. Mark N. says:

    Nothing.

  24. Mehmet Subasi says:

    Nice work, it helps the Westerners awakening. Go and study the Eastern culture, and you will be more amazed.

  25. Ares Rey says:

    Business person and honesty iş an oxymoron

  26. Muhammad Mohsin says:

    this is the concept Islam has been teaching by HALAAL and HARAM, that haram money just doesn't make it feel good 🙂

  27. Melissa Brzescinski says:

    I've been fired and have quit jobs because of ethics issues. I don't put up with corruption or unethical practices – period! Stupid me, i screw myself financially but i can sleep at night. Let the chips fall where they may.

  28. Kongolox says:

    basically, have a good conscience.

  29. Deni Kotsev says:

    The common motives for all can only be explained in non-violent society through science.
    I believe this explanation is hiding somewhere between our freedoms, potential future freedoms, sexual selection and our limits in tolerating voluntary suffering.

  30. Thank You says:

    nothing, business isn't about honesty, it is about the illusion of honesty.

  31. Adam Bridges says:

    If I understood correctly, I believe this concept of "protected values" is no different than one's need for fulfillment in life as theorized by Maslow's Hierarchy of Needs. While money is a much-needed reward that drives many, if not all people, it's generally recognized that once people are satisfied with the money they have, they change and become interested in upholding and pursuing matters that are more important to them, such as their principles/beliefs, integrity, character, etc. – essentially anything that makes one feel morally fulfilled.

  32. Cabdullaahi Bootaan says:

    The conclusion is surround your self with good people.

    Thanks Alex

  33. Greetings From Ѭȣʥѻʦ₹ says:

    These intrinsic values of right and wrong are precisely what psychopaths are missing. Not only would a psychopath press the "4 tails button", he would feel entitled to do so. In other words he wouldn't think of it as cheating. Yet, he would also be the first to shake his head and express his contempt towards anyone who admitted they had cheated.

  34. Johnny says:

    I actually thought that most people would say 3 tails, because 4 is so unlikely and you are probably lying, while 3 are likely and provide the second most money.

  35. Star Melter says:

    such a little comfortable interesting presentations with a polite handsome orator
    could be a powerful mass-social tools.
    some words there, some little worm here, and u have a social group directed in a way, that is useful for an operator.

    be careful, search for a dirty motive of an organization, fight inside your oun brain against not your ideas.

  36. meskalurator maskuliiini says:

    Fair trade coffee and bananas taste like shet. Does that mean that I'm subconsciously pro – slavery / bad working conditions / unethical practices? 'Cause I'd rather stop drinking coffee, period, than buy that garbage.

  37. meskalurator maskuliiini says:

    "Honesty" and "getting money" could be considered, in this example, values that are competing. How big is the lie, does it harm anything, anyone? How much money are we talking about, 2dollars, 20, 200000? If you were given a whole lotta money for 0 tails, how much would the results change etc.

    I just wish I had money to do these kinds of social experiments. Or someone invited me to them 😀 One example that comes to mind is: someone gives 2 strangers ten thousand dollars: the first gets to choose his share, and the other chooses whether to accept or not. Here honesty is replaced by some sense of just treatment or whatchamightcallit, so a 90/10 split might not fly, even if it's a ton of money still to the second person.

  38. Jade Eye says:

    i'm hungry now >D

  39. vivianny kerin lopes says:

    It's very sad, but it's true!! In Brazil, we are being a victim of the corruption and fraud involving a lot of companies, politicians and judiciary power members that stolen us a long time. It needs to stop, we are tired!!

  40. Archmage Ilmryn says:

    The experiment would probably look very different with larger sums of money involved, 20 francs isn't going to drastically change anyone's life whereas the sums of money involved in corporate fraud definitely have the potential to do so.

  41. kght222 says:

    always better to win "clean" ;P

  42. Home Wall says:

    Corporations are composed of people, lots of people, and those people change over the years. If people are involved, then fraud will take place, just like in government and churches and even charities.

  43. Home Wall says:

    Apparently going to prison isn't a concern for committing fraud? We need more than charging criminals as criminals?

    It is not wrong to lie when confession helps the liar and not those who hear it.

  44. Geison Blax says:

    If the business is not more rentable, people forget their compliance politicians. That is a fact. As we saw with VW scandals about your emissions motors corruptions. And, we already forgot this nowadays. So. If you have money, you can break the rules and you keep on working with no consequences.

  45. Monarch says:

    I hope they don't attack u

  46. Monarch says:

    Lol I just came after watching wolf of the wall Street again

  47. Kenza Rbiyah says:

    I enjoy the way he talks, he expresses himself correctly

  48. Nicolas Micaux says:

    Sound is rly weird. Is that full quality?

  49. Nicolas Micaux says:

    May we have subtitles even on YouTube please

  50. Aaron Halliday says:

    Psychology came to this conclusion decades ago…

  51. Rahul Makhija says:

    As a person who holds intrinsic values above incentives, I could totally relate with the speech.

  52. Peacehammer says:

    What amazes me most about the graph at 8:51 is that the people who got no money, were nearly the number expected statistically expected.

  53. Neil Jackson says:

    This works on a scale, however if the reward was life changing money, like £1m then that graph would be hella different

  54. Overonator says:

    Screw Kant and Smith. Virtue ethics is where it's at. We don't lie about the number of times tails fell because lying in this situation is a vicious character flaw and doing so diminishes oneself. Telling the truth is virtuous helping you build a better character.

  55. 김미진 says:

    Awsome speach. Really lkike it.

  56. Rong Peng says:

    This experiment maybe have an obvious problem, the statistics from the chart- 6.25% for 4 tails, 37.5% for 2 tails – is the theoretically data in " tossing the coins". In other word, it's the probability. Only the big big enormous times to toss the coin, you can get the approximate result. So How many people participated in this experiment? ?? ——So I think if the experiment is contrast the data people said with the data people did would be more interesting, right?

  57. Fábio Vieira says:

    To be honest… fake news, currently.

  58. Juil says:

    Does anyone know where to find this survey? It sounds very useful.

  59. sunshineo23 says:

    Try 500 eruos I dear you

  60. Yasir Bakth says:

    C.R.E.A.M.

  61. mrKreuzfeld says:

    It was really interesting that noone lied about getting 0. It looked like everyone who threw 0 where honest about their result… I wish he had commented on that

  62. A C says:

    Enter the blockchain…

  63. JDParty72 says:

    Nice. I got 40 franks for free!

  64. Joe Piervincenti says:

    Interesting topic and timely. One I am quite sensitive toward as well. People seem to be afraid of telling the truth. I have twenty years of sales and sales management experience as well as experience as a social work counselor. People lie because hey are afraid that the truth will turn the customer away. However, customers are not stupid. When they learn the truth they become alienated and the company has to bear the burden of the lying employee. It's ok to not know something, simply offer to find out for them. That always works. What is wrong with humans anyway? Why do people always seem to prefer to take the low road? Where is character anymore? Most organizations have the correct solution also so why do they lie when they could easily ask and find the correct information? They lie because they don't want to appear as if they don't know. Just a frailty.

  65. Brian Tobias says:

    It is so easy now-a-days to create a business with social media and the internet. I believe anyone can create a business, however, it takes an entrepreneur to run it, and of course, succeed.

  66. Izeq El Jufri says:

    hmm

  67. Nguyen Chanh says:

    11:22 I dont know. That German sausage tastes … Germanically sausage"cal" to me. When i got one dollar, it s one dollar. I m so dishonest.

  68. FLEXCOPE INC. says:

    It's called inner peace.

  69. rautermann says:

    I also do like the Bratwurscht.

  70. Jim Frans says:

    when you only care about money more than those people who work for you, eventually all you'd get is just money, and you can proud of it if it'd be a big amount of money, however, don't you ever dare speak about loyalty!!!

  71. Charles Green says:

    🤔 This has made me question my own honesty?

  72. Matt Roszak says:

    I wish this talk was much longer and went into much more depth. I'd happily listen to this guy for an hour or more.

  73. LONG Tran Kim says:

    3:26

  74. Vamsi Krishna says:

    If the reward was 100 francs per tail instead of 5 francs, i am sure that more than 90% of the people claim they got 4 tails. It all depends on the reward for lying.

  75. Оксана Гордиенкo says:

    реклама

  76. Charlie Angkor says:

    now, add an answer "5” and measure how many % greedy liars answer this obviously false answer

  77. Charlie Angkor says:

    try lying to computer vs. lying to people

  78. TimmacTR says:

    COMPETITION.

  79. Daniel Natal says:

    The researcher says "It seems that people are motivated by certain intrinsic values" (regarding honesty and not lying to get extra money in a sociological experiment). In reality, the "values" he's describing are Western European values. (They did the experiment he described in the video in a number of different countries. The most honest countries were England, Spain, Austria, etc. The LEAST honest countries were India and China.) So the values of honesty are NOT universal. German philosopher Max Weber talks about Europe's "honesty culture" in 1904. It praises honesty and oastracizes lying. This is NOT true of the rest of the world. In most societies you have dual morality systems. Like Jews in the Talmud, enjoined to scam outsiders (while being honest to the in-group), or Muslims with the code of Taqiyya. These dual morality systems grew out of "diversity cultures" where minorities had to scam to get ahead. Europe, by contrast, had a unitary moral system: i.e., Christianity. So a "dual morality system" didn't evolve. As a result, capitalism arose in the West and not the East. In the West, you could trust people to pay back loans or to fulfill contracts. This was NOT true in places with dual morality systems. So banking systems didn't arise in highly entrepreneurial places like the Middle East. Lots of trading took place, but not a lot of trust. So they didn't loan out money for enterprises (like they did in Europe). . . . Even today, there's a Global Corruption Index. Europeans and Japanese routinely sit at the top of the most moral cultures (and have economic prosperity as the result). Countries with dual morality systems do far poorly in economic terms.

    I was reading an India Times article, where the author [an Indian] was bemoaning "Indian Lie Culture". He wrote about how, in India, parents taught their children how to lie. A man profiled in the piece beamed with pride when his 8 year-old son came home, telling him of his first scam. Because of this culture of dual morality, Indians have far higher cheating rates on college entrance exams, and in business. China, too, has scam culture (and the corresponding college cheating rates and business fraud rates).

    They recently did a study of nations where, if you dropped your wallet, it would be returned to you. All the countries that rated the highest were European countries (and Japan). China and India were at the bottom of the list.

    Long story short: The Swiss economist in the TED talk shouldn't talk about "human beings having the values of honesty". They don't. WESTERN EUROPEANS have the values of honesty. (This is NOT a "universal value"). Beware any gullible person who foolishly thinks it is. Certain cultures prize honor and stigmatize dishonesty [i.e., Western Europe, Japan] and other cultures prize lying, scamming and success at any cost [i.e., Islam, Judaism, India, China, Africa, etc.].

    Think I'm committing thought-crime by departing from the "We're-all-the-same" dogma? Go check out the Global Corruption Index. After your done with that, read "The Protestant Ethic" by Max Weber [1904].

  80. tora adhikari says:

    9.54

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