The Ponzi scheme of disgraced financier Bernard Madoff may have ripple effects on moral behavior, according to recent research published by Dan Ariely, James B. Duke Professor of Behavioral Economics.
In a paper published in the March issue of Psychological Sciences, Ariely and Shahar Ayal, an associate in research at the Fuqua School of Business, found that social norms play a large role in determining how people behave after observing dishonesty.
Ariely said his findings are applicable to Madoff's Ponzi scheme, in which the former NASDAQ chairman scammed investors out of billions of dollars.
"The people who identify with Madoff are likely to increase their cheating," Ariely said.
He added that those who were close to Madoff, or within his social circle, have been exposed to extreme levels of dishonesty and might adopt a less stringent moral code.
For the experiment, Ariely, Ayal and Francesca Gino, assistant professor at University of North Carolina at Chapel Hill's Kenan-Flagler Business School, instructed students from Carnegie Mellon University to tally the number of correct math problems they could solve in five minutes. The students were given $10 in the beginning and allowed to keep 50 cents for each correct answer.
In order to determine whether or not students would cheat, the researchers did not monitor one of the student groups.
"The main question is what the cheating behavior of one member does to the other members of the group," Ayal said.
The unmonitored students, who tallied their own scores and shredded their tally sheets, reported solving 50 percent more questions than students who were monitored, according to a Duke News press release.
In the next phase of the experiment, the researchers hired an actor who posed as a participant. After a minute, the actor stood up and announced that he had solved all of his puzzles correctly, according to Ariely's blog.
The researchers found that when the actor wore a plain T-shirt and blended into the student group, cheating increased. On the other hand, Ariely wrote on his blog that when the actor wore a rival university's shirt, cheating decreased.
"If the cheater is perceived as part of a group, his cheating can be contagious [to others within that group]," Ayal said.
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Both Ayal and Ariely said they agree that although social norms can influence dishonesty, it is also possible to influence people to behave honestly.
"Dishonesty is much more apparent than honesty," Ariely said. "If we can come up with ways to show honesty, it would work in the same way."
In a similar experiment, the researchers had one group of participants attempt to recall the Ten Commandments, while another group recalled the names of 10 books. The researchers found that those who recalled the Ten Commandments cheated less.
Ariely added that honor codes-such as the Duke Community Standard-could decrease cheating, much in the same way recalling the Ten Commandments decreased cheating.
"Any behavior that gives saliency to moral norms and standards will help prevent cheating," Ayal said.