Science of Good Business

How can managers prevent people justifying unethical behavior after it happens?

Firm management should lead with principles, not just rules and ensure that principles guide rather than follow action.

How is GM an example of a company who disabled honest and useful reporting?

GM had an explicit statement that said they're committed to maintaining a culture that promotes prevention, detection and resolution of misconduct. When someone actually noticed a problem and tried to report it, they had a strong bureaucratic system in place

How do reputational inferences increase cooperation?

Having a reputation makes you accountable for your actions and thereby increases cooperation. High probability of repeated interaction increases cooperation. Low probability of repeated interaction decreases cooperation.

What did Asche's line experiment show?

He put four lines on a paper; one line and then a group of three lines. he would have one true participant and a bunch of actors. The participant was asked which of the three lines was the same size as the isolated one. The actors purposely gave the wrong answer which pressured the actual participant into giving the wrong answer.

How does the money market compete with social market?

Money enables independence from others, moving out of communal relationship into exchange relationship; ethics are fundamentally social and can create potentially unwanted competition rather than cooperation. Also destroys trust

What is the issue with reward systems and how can we solve it?

Reward systems don't consider the means to which eople may go to achieve the goals or the potential impact on other goals. When setting goals, brainstorm all of the side-effects of achieving the stated goal. Involve those who are actually being rewarded and ask to identify the likely behaviors that will result

What are the 4 barriers to promoting ethical behavior inn organizations?

Reward systems, sanctioning systems, moral compensation, moral compensation, informal systems

What is naive realism?

The belief that we see the world precisely as it actually is in truth - "seeing is believing". "It is difficult to get a man to understand something when his salary depends on his not understanding it"

What is Moral Disengagement?

The process that enables people to engage in negative behaviors, from small misdeeds to great atrocities, without believing that they are causing harm or doing wrong.

What is the best solution conflict of interest dilemmas?

The real solution is to avoid it by aligning incentives; either reduce unethical temptations or by rewarding ethical behavior

Why is "It's all about motives-bad acts are guided by bad intentions, good acts by good intentions" a myth?

Truth: Context is surprisingly powerful. Bad can be done with good intentions (ethical blindness)

Why are we ill-equipped to regulate ourselves?

WE do not recognize bias in ourselves and so we underestimate the risks of COI in ourselves

What is the holier-than-thou effect?

We estimate the extent to which our own actions are guided by our good intentions, leading us to sometimes think we are more ethical than we actually are.

Why can paying people money to do something be a problematic solution?

When people do things for nothing, the question is "Is it good?" For money, the question becomes "What's in it for me?" So if you pay somebody, but they don't deem the money to be worth the hassle, then they will simply refuse to do it, (or not do a good job)

What is confirmation bias and how does it play into ethics in the workplace?

You're more likely to seek evidence that confirms one's beliefs than disconfirms it. Since everyone thinks their an ethical person, they are typically unresponsive to looking for evidence to thecontrary

How effective is disclosure at reducing problems with conflicts of interest?

disclosure is seen as effective and reduces firm liability, and is easy and costless to implement. The problem is that people are unsure how to discount for biased information and have discomfort expressing distrust. People who disclose conflict of interests are empowered to act more unethically since they warned you

Why are the following two seemingly inconsistent facts actually true? 1. People think they are ethical 2. People behave unethically

We misunderstand ourselves (can be less ethical than we think). Ethical fading-fail to recognize the ethical implications of our own actions. Rationalization says we interpret our own unethical behavior as ethical.

How is there often a disconnnect between belief and reality?

We often fail to detect mismatches between intention and outcome. Our minds can even make sense of unmade choices.

How are Intention/behavior gaps an example of how we misunderstand ourselves?

We overestimate how willing we are to stand up for ourselves in situations. Think milgram experiments where people think they wouldn't shock the partcipate but they almost always do. Or the fact that people think they would confront racism more than what they actually do.

What is the fundamental attribution error?

We overestimate the degree to which behavior caused by consistent intentions, abilities, or dispositions, and underestimate the power of the situtiation to weaken the relationship between actions and intentions. we focus on "bad apples" rather than bad barrels or rogue cultures

How are we at evaluating the effects of social influence?

We underestimate our ability to influence others, but we are more likely to recognize social influence in others than in ourselves meaning we think we're not gonna be influenced like everyone else

What is normative social influence? How powerful is it?

influence resulting from a person's desire to gain approval or avoid disapproval. **going along to get along** a study showed that Californians were more likely to cut energy usage when they were told others were doing it

What is the psychological framework for ethics?

**E**xplicit beliefs **Th**oughts during judgement **I**ncentives **C**ultural norms

What are the two factors that govern human behavior?

**Resistance**- barriers that restrain behavior (psychological social, or environmental barriers) **Force**-factors that enable or drive behavior

How do incentives affect which goal you pursue?

It's hard to pursue multiple goals at once, pursuing one reduces focus on another.

What is bystander nonintervention? What factors influenced how likely someone was to help?

when people see someone in need but fail to help them. Experiments proved that as the number of observers increased, the less likely each person was to act, and the longer they took to act if they did.

How do you design a more ethical culture?

1. Articulating principles- Identifying focal values, communicating central principles,creating a missing statement 2. Enacting principles-organizational policies and structures that implement principles to create shared norms, beliefs, values (culture)

What are the types of ethical fading?

1. Attention: behaving without ethics in mind 2. Construal: Failing to interpret an act in terms of ethics 3. Ethical Distancing-disconnecting the self from unethical action

What is the benefit of Ethical behavior?

1. Improved reputation (helps hiring, sales, pricing, borrowing, stock price) 2. Illegal conduct can be extremely costly-large imediate drop in stock price beyond fine itself. Performance suffers for years. Loss of high quality board members and network partners. 3. Unethical firms are inefficient; higher costs of surveillance and monitoring, reduced cooperation within firm, increased turnover, decreased job satisfaction, reduced performance

What are 3 ways markets can crowd out morals?

1. Incentives affect which goal you purse 2. Incentives alter construal of behavior 3. Incentives are a signal to the type of relationship you're dealing with

What are the four "myths" about morality?

1. It's the people-there are good guys and bad guys 2. It's all about motives-bad acts are guided by bad intentions, good acts by good intentions 3. It's about ethical principles-ethical actions are guided by ethical reasoning 4. Everyone is different-everything is relative

What are some costs of unethical behavior?

1. LEgal risk in a relatively fair system that monitors ethics 2. Reputation degradation which costs in hiring talent and hurts customer relationships 3. Inefficiency-mismatch between values of employee and organization 4. Increased surveillance- financial and health costs

What are 4 barriers to helping others in bystander nonintervention?

1. Lack of time- people are less likely to help when in a rush 2. Ambiguity-people are less likely to helpp if they aren't sure it is an emergency 3. Uncertainty- people are less likely to act when people around them don't seem alarmed 4. Lack of presumed expertise- what can i do about it?

What are the 3 guiding principles in ethical design?

1. Make desired behavior easy; enable good people to be good 2. Protect from risk; identify opportunities for unethical behavior and design systems to minimize risk, people have limited time, attention, perspective, self-restraint-what are people like this likely to do in a given situation 3. Design to be better, not perfect; don;t let perfection be a barrier to improvement

How do you design a statement that sticks in memory? What is SUCE?

1. Only include core principles to your mission as a company 2. Say it in a way that is actionable and memorable Simple-complex doesn't fit Unexpected-obvious isn't forgotten Concrete-be specific Emotional-statement should make you feel something

How was the citibank an example of howpeople don't notice unethical behavior?

1. only 4 people in quality assurance department 2. Conflicted incentives because people wanted to bring in sales by any means necessary 3. Nobody slowed down to stop and ask "is this right"

What did Deutsche Bank Review find about the business benefits of good ethics?

100% of academic studies agree that companies with high ratings for ethics lower cost of capital in terms of debt (loans and bonds) and equity. In effect, the market recognizes that these companies are lower risk than other companies and rewards them accordingly. This makes good ethics the business of every executive of every company.

How is a firm a superorganism and what is the biggest threat to it?

A corporation is "a collection of many individuals united into one body... having perpetual succession... [given by law] the capacity of acting in several respects as an individual". The risk to the firm is **defection** i.e. an individual who puts their own interest ahead of the group's interest

How do incentives alter construal of behavior? How did the daycare fine experiment prove this?

A fundamental principle in economics is that prices reflect value of a good or services, but they may also alter meaning or perception of a good or service. think of the day care center fines from lecture. Fining parents for picking up their kids early from school actually increased late arrivals because parents saw the ine as simply an additional childcare cost. When there was no fee, picking up kids late was a moral violation.

What is culture?

A set of principles, beliefs, values, expectations, knowledge or behavioral norms shared by a group of individuals. **the way things are done around here**

First, what are ethics? What do behaviors we call ethical all have in common?

All ethics are social they involve the treatment of others. The golden rule: "Do unto others as you would have them do unto you"

How do we treat ethics as a design problem rather than a belief problem?

Alter organizational contest to enable ethical behavior.

What is the self-advocacy effect?

Attempts to persuade others are not successful but people easily persuade themselves as measured by pre/post ratings from speakers

What 5 themes do liberals and conservatives value according the Haidt's framework?

Conservatives weigh all 5 at a moderate level (harm, fairness, authority, community, purity) Liberals place a high emphasis on fairness and harm and lowly rate authority and purity

What is informational social influence?

Behavior taken as a strong signal of others' beliefs, attitudes, values (even when they shouldn't be)

What was the takeaway from the split or steal game?

Can run the game under two conditions: small group: repeated, identified where you earn a reputation, and in a large group where you're anonymous. People steal less in the first case and those who split earn more over than those who steal

How do prevent ethical distancing as a barrier?

Collect facts, present them to people who care, identify harmful consequences and helpful solution. Be persistent

How does being academically trained in economics affect your social behavior according to studies? Why is this?

Economics professors give less to charity than other professors. They're more likely to deceive for personal gain and behave more selfishly than other students. Economics trains people to expect the worst in others which brings out the worst in us.

What is the link between anonymity and unethical behavior?

Ehtical behavior is enforced by moral judgement through reputation. Crime is more likely at night, and more likely to cheat when wearing dark sunglasses. The more violent tribes change thier appearance in war.

What is Haidt's analogy of the mind as a rider on an elephant?

Elephant is emotional, impatient, myopic, quick while the rider is rational, analytical, reasonable, rule-based and slow.

How does designing cooperation help ethics?

Enabling repuational inferences increases cooperation and reduces selfish exploitation. Being observed by others increases cooperation and is aninformal sanctioning system through the Norm of Reicprocity

How can incentives become a signal?

It is a signal to the relationship you are in (exchange or communal). Is a signal to the appropriate norms for behavior (selfish or social). And is a signal to your values and expectations.

How do we reduce barriers to enable action?

Evaluate how easy reporting is: do people know who to talk to?

What does the "E" in ETHICS framework stand for? What is the significance of it?

Explicit beliefs tone at the top; the explicit belifs that guide the design of the organization?

What is ethical fading?

Failing to recognize the ethical implications of our own actions.

What is the relationship between Fairness and loyalty when it comes to whistleblowing?

Fairness and loyalty can conflict when it comes to whistleblowing. When fairness outweighs loyalty, we get more whistleblowing. When loyalty outweighs fairness, we have less whistleblowing. Individuals who value fairness are more likely to whistleblow.

What are the 5 moral themes according to Haidt?

Fairness, Harm, purity, community (group loyalty) and authority

Why do people notice but don't report unethical behavior?

Fear of retaliation (may be exaggerated fear); Fear (selfish motive) Loyalty (prosocial motive) social isolation (i must be the only one) reporting is hard

Why is organizational culture important?

It is important because people tend to go with the social norms?

What is the unethical premium?

If working for a "good" company is valuable, then people should be willing to work there for less money. So hiring someone for a "bad" company/role will require you to pay more. (private lawyer v. public defender lawyer; survey research, fees for expert witness testimony (pro industry expert witness testimony typically charges alot but public interest expert witness testimony is usually pro-bono)

How does illusion of transparency create a barrier to bystander intervention?

Illusion of transparency is the idea that people overestimate the degree to which their personal mental state is known by others. It creates pluralistic ignorance in a group where everybody is alarmed but noone acts because they think they're the only one who is alarmed.

What are the 3 benefits of a strong organizational culture?

Increases intrinsic motivation and cohesion Increases commitment to a goal (and hence action) Increases coordination (e.g., shared goals, language, and knowledge)

What is correspondence bias?

Inferring correspondence between other's actions and underlying mental states (beliefs, attitudes motives)

What is the issue with informal systems and how can we solve them in the workplace?

Informal cultures and peer pressure can dominate well-intended formal ethics systems. To solve this, inventory the organization's informal systems and work to understand the underlying pressures on employees. Strive to create positive informal cultures that reinforce ethical behavioir and shun unethical behavior.

How do we solve the problem of people wanting to do good but financial incentives altering construal of behavior and signaling?

Know the market you're in and frame accordingly. pay in the appropriate currency and reward meaningful jobs with meaning and purpose.

How can we avoid ethical unawarenesss as a barrier to improvement?

Know your mission statement. Know your personal responsibility.

How do you create an ethical organization?

Knowing "How" Requires understanding "Why". Ethical behavior involves actions towards others. Understanding how to create an ethical organization requires an understanding of why people behave ethically or unethically toward others.

What is moral dumbfounding?

Maintaining a moral belief despite not being able to construct evidence to support it. People were asked about incest and creative uses of a dead chicken. People obviously were turned off by these ideas, even when the reasons for why it was wrong were removed.

What is market pricing v. communal sharing?

Market Pricing: **Money Market**- based on proportionality in social exchange, attending to ratios and rates of exchange. Interactions involve prices, wages commission. Communal sharing: **Social Market**- based on equivalence and lack of differentiation between groups who share common genetics, affection, identity. Treat others as part of the self, no currency or exchange

What is the issue with moral compensation and how can we solve the issues that come with it?

Moral compensation- ethical acts can be used for justification for unacceptable behavior in another domain. To solve this, have separate standards for ethical and unethical behavior. set a zero-tolerance policy for unethical behaivor. set high expectations for ethical behavior and stress the importance of continually raising the ethical standards.

Is unethical behavior more likely when ethics are crystal clear or ambiguous?

More likely when ethics are crystal clear. An experiment found people cheat more when paid $.1- or $.50 per item than when paid $2.50 or $5.00

Why is it a myth that "its the people-there are good guys and bad guys"?

Mythical figures are evil or good. Good people can do bad things under predictable circumstances.

What is moral licensing?

Past moral behavior makes people more likely to do potentially immoral things without worrying about feeling or appearing immoral

Why are checklists a good way to think about ethics?

People are more likely to think about ethics when ethics are brought to mind. You might not think about whether something is suspicious unless explicitly asked to do so.

What is reactive egoism?

People behaving selfishly because they believe others will.

How can our decisions be influenced without our awareness both before and after we make it?

Pre-decision: we have different informational thresholds for things we want to believe v. things we don't want to believe Post-decision: WE are adept at rationalizing information post-hoc to support a desired conclusion when facts are ambiguous

Why is articulating principles alone not enough to design a more ethical culture?

Principles are only important when you are thinking of them. actual behavior can be more powerful than stated principles- norms are very powerful

Why is it a myth that there are "good guys and bad guys"?

Psychopaths in the wild are rare (<1% of genpop). The banality of evil says that people do not have to be sadistic and terrifying to do terrible things.

Why is it a myth to say that ethical actions are guided by ethical reasoning?

Reasoning often follows action to justify, explain, or rationalize it

What are the three barriers to whistleblowing?

See no evil, speak no evil, hear no evil 1. Don't notice problem 2. Notice but don't report 3. Report but others don't listen

What is the banality of evil v. banality of heroism?

That it doesn't take an exceptional person for someone to do really good or really bad things. The situation is more important than anything.

Why is it a myth that "everyone is different- everything is relative"?

There are basic moral foundations to build on, even amid differences generated by individual experiences, background and immediate context.

What is the problem with the four myths of morality?

These myths lead to a general misperception that unethical behavior is BELIEF problem

How can prosocial incentives be effective in the workplace?

They are suprisingly powerful at motivating people, and they're cheap. Try to sprinkle prosocial incentives into work at your company; let employees reward each other and learn why their work matters

What does the "Th" stand for in ethics?

Thoughts during judgment What was the focus of attention? Asking "is it right?" Asking "is it legal?" Any ethical fading, rationalization, motivated reasoning to enable unethical behavior?

How do we solve the problem of financial incentives altering which goal we pursue?

Tie performance incentives to firm's ethical values

Why do we have a moral sense?

To enable mutually beneficial cooperation between individuals. Cooperation at one level leads to success at the next higher level and a moral instinct evolved because it enabled individual success through cooperation with others.

How do you design whistleblowing?

Train employees about entire system to recognize the consequences of their own actions and empower accountability through teams who work together to make it easier to report. tell them reporting is helping and not harming the firm.

How do you earn trust when mixing money and social markets?

Trust is a social good so you earn trust by signaling trust and utilizing reciprocity

What does the "I" in EThIC framework stand for? What are the impacts on business?

What incentives are in place? Financial, purpose,meaning, and belonging. Are they aligned with ethical values, prosocial incentives and any conflicted interests?

What does the C in EThIC framework stand for?

What is the culture like?What are the presumed/actual norms for behavior within the organization. **tone in the middle**?

How do we take advantage of "Tone in the middle," and the power of social norms?

create norms that emphasize that emphasize, reflect, and reward ethical principles in hiring, compensation, evaluation, and strategy

What is the problem with sanctioning systems and how can we solve it?

punishing unacceptable behavior encourages ethical fading and increases probability that the behavior will be evaluated via cost-benefit analysis rather than on its ethicality. Include ethical assessments when making decisions related to personnel strategy, or operations. Make sure that the question "What ethical implications might arise from this decision?" is asked routinely

What is the identifiable victim effect?

the tendency to be more moved by the vivid plight of a single individual than by a more abstract number of people. Enables more intervention