Cognitive Bias and the Need for “Behavioral Ethics and Compliance”

The Conflict of Interest Blog is focused not only on traditional COIs but also on what can be called “Conflicts’ Cousins” – other phenomena that, like COIs, can subvert sound ethical (and sometimes legal) decision making.  One of these – “moral hazard” – has been the subject of several posts to date.  We now begin our examination of another –  “cognitive bias.”                                                      

From its beginnings two decades ago, the C&E area has suffered from a misperception among both business leaders and enforcement officials that promoting law abidance and ethicality in business organizations is easy work.  In the case of the former group, this has  translated into C&E programs that receive insufficient resources and too little high-level attention.  In the case of the latter, it has led to weak efforts by governments to incent companies to develop programs that are truly effective.

While this problem should be attacked on many fronts, one non-obvious but promising approach comes from the field of “behavioral ethics.”  Behavioral ethics is based on a broader area of psychology sometimes known as behavioral economics which has identified numerous seemingly irrational ways in which individuals make decisions due to “cognitive biases.”

As described by business school professors Max H. Bazerman of Harvard and Ann E. Tenbrunsel of Notre Dame in Blind Spots: Why We Fail to Do What’s Right and What to Do about It,  behavioral ethics seeks to understand how “people actually behave when confronted with ethical dilemmas.”  Based on various studies in this field, the book shows that:

– Individuals often make inaccurate predictions with respect to how they will respond to an ethical dilemma, with decisions actually being made much more by one’s “want self” rather than one’s “should self.”

– Various processes of everyday life contribute to “ethical fading,” which diminishes ethical dimensions in decision making.

– Post-decision “recollection biases” contribute to moral disengagement.

– “Outcome biases” permit us to ignore bad decision making if it happens to lead to desirable results, which can encourage future bad decision making.

– Vested interests can make it difficult to address situations without bias, even for honest individuals.

– Overloaded (busy) minds tend to be particularly vulnerable to ethical compromise.

– There is a powerful tendency to over-discount the future – which can have serious ethical implications when it forces others to pay for one’s own mistakes.

– Slippery slopes lead to “bounded ethicality” regarding not only one’s own conduct but also in noticing the unethical behavior of others.

– “Motivated blindness” also contributes to our not noticing others’ wrongdoing.

Of course, from their day-to-day work, C&E professionals will be familiar with some – and possibly many – of these phenomena.  But, there is a big difference between knowing something anecdotally and being able to prove it with data.  In my view, this body of knowledge helps to demonstrate that – absent significant assistance – companies cannot be reasonably sure that their executives and other employees will do what is right in their jobs. 

The way companies can supply that assistance is, of course, by  maintaining  strong C&E programs.  But, as can be seen from the case of antitrust law,  absent sufficient government incentives, many companies are unlikely to take this step.   So, behavioral ethics should help the government understand the need for enforcement-related C&E program incentives.

Additionally, behavioral ethics knowledge can help companies make  C&E programs more effective – i.e., it can contribute to not only the “why” but also the “how” of such programs.  Hence the point of adding  “and compliance” to the more generally used term “behavioral ethics.”

In various posts to follow, we will examine what types of C&E measures companies can take based on behavioral ethics learning, first in the area of COIs, then concerning risk assessment, to be followed by discussions of other C&E functions – including training and discipline.  We will also consider what behavioral ethics contributes to the debate over the importance of “values-based” C&E programs.

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