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

How Many Companies Do We Interact With Daily?

Everyday Interactions with Corporations

• The speaker prompts the audience to consider how many companies they interact with daily, highlighting common activities such as showering, eating breakfast, and commuting.

• The implication is that individuals engage with multiple corporations through everyday products and services, suggesting a pervasive corporate presence in daily life.

The Reality of Corporate Fraud

Statistics on Corporate Misconduct

• A striking statistic reveals that one out of seven large public corporations commits fraud annually, based on a US academic study.

• This study encompasses both detected and undetected fraud, indicating significant financial losses amounting to approximately $380 billion per year for shareholders and society.

Fraud in Various Industries

Examples of Industry-Wide Issues

• The speaker notes that fraud has become prevalent in industries like automotive and finance, citing the president of the American Finance Association's acknowledgment of this issue.

• Despite these challenges, six out of seven companies remain honest; whistle-blowers like Michael Woodford risk their careers to expose wrongdoing.

Understanding Human Behavior: Two Perspectives

Adam Smith vs. Immanuel Kant

• The speaker introduces two contrasting views on human behavior: Adam Smith’s self-interest theory versus Immanuel Kant’s moral philosophy.

• According to Smith, self-interest can lead to positive societal outcomes if individuals act within a framework that considers long-term consequences.

Incentives and Reputation in Business

Economic Motivations for Honesty

• Companies often implement codes of conduct to align employee behavior with corporate principles; adherence can lead to bonuses while disregard may result in penalties.

• Reputation serves as a powerful economic force; negative media coverage can significantly impact profits for banks involved in scandals like tax evasion.

Kantian Ethics: Actions Beyond Consequences

Moral Imperatives Over Incentives

• Kant's philosophy suggests some actions are inherently right or wrong regardless of their outcomes; honesty is valued above personal gain.

• This perspective challenges traditional economic incentives by proposing that people may be motivated by ethical values rather than just financial rewards.

Experimental Insights into Human Behavior

Conducting Behavioral Experiments

• The speaker discusses conducting experiments to isolate factors influencing human behavior amidst complex real-world scenarios.

Understanding Human Behavior in Economic Decisions

The Experiment Setup

• Participants were asked to report the number of tails from four coin tosses, with a financial incentive for reporting higher numbers.

• This experiment was conducted at the Manifesta art exhibition in Zurich, involving real people rather than students.

• Statistically, the probability of getting four tails is only 6.25%, highlighting the unlikelihood of such claims.

• Surprisingly, about 30-35% claimed they had four tails throws despite the low probability; 65% did not exaggerate their results.

• The findings challenge traditional economic predictions about self-interested behavior.

Intrinsic Values and Protected Values

• People are motivated by intrinsic values that influence their honesty in reporting outcomes.

• A "protected value" is defined as one where individuals are willing to sacrifice something to uphold it, leading to greater satisfaction when earning money aligned with these values.

• Success without violating personal values enhances the perceived value of rewards (e.g., "the sausage tastes better").

• Individuals with stronger protected values discount dishonest earnings significantly; lying reduces the perceived worth of money received by about 25%.

• The speaker emphasizes understanding human behavior rather than imposing moral judgments.

Implications for Organizations

• There are two approaches: incentivizing behavior through benefits/cost or selecting individuals who align with desired organizational values.

• Research indicates similar distributions of protected values across genders and educational backgrounds but lacks clarity on how these develop over time.