Reducing Bounded Ethicality: How to Help Individuals Notice and Avoid Unethical Behavior

Abstract

Research on ethics has focused on the factors that help individuals act ethically when they are tempted to cheat. However, we know little about how best to help individuals notice unethical behaviors in others and in themselves. This paper identifies a solution: instilling a mindset of vigilance. In an experiment, individuals playing the role of financial advisers recommended one of four possible investments to their clients. Unbeknown to these advisers, one of the funds under consideration was actually a fraudulent feeder fund of Madoff Investment Securities. Results from this empirical study demonstrate that instilling vigilance by asking individuals to indicate their suspicions prior to making a decision was critical to helping them notice fraudulent behavior and act on that information. In contrast, committing to a decision prior to contemplating suspicions precluded individuals from subsequently integrating critical information about the fund’s fraudulent activity. We extend these findings to other interventions aimed at helping managers notice unethical behavior.