Banking industry culture primes for cheating, study suggests

French trader Jerome Kerviel was sentenced in 2010 to three years for his role in a trading scandal. A new study suggests the corporate culture of banking encourages lying, particularly when financial incentives are involved.
(Martin Bureau / AFP-Getty Images)

Is your banker honest? Not if you remind him of where he works, a new study suggests.

Employees of an international bank were more inclined to lie for financial gain if they were thinking about their jobs than if they were thinking about their home life, according to a study published online Wednesday in the journal Nature.

The conclusions imply that cheating propensity is embedded in the business culture of the banking industry, and not in the type of person who goes into banking.

“These are not generally dishonest people,” said University of Chicago behavioral economist Alain Cohn, lead author of the study. “What our results suggest is that current norms in the banking industry tend to favor dishonesty and that the banks should initiate a change in norms.”


Researchers have demonstrated that the written and unwritten rules of ethics tend to vary with people’s multiple identities, such as worker, parent, student, consumer, taxpayer.

Cohn and his colleagues from the University of Zurich wanted to see whether bankers prompted with their work identity would be less honest than those prompted with their at-home identity. They enlisted 128 employees of an international bank (they promised to keep its name secret) to play a simple coin-flipping game.

Those randomly assigned to one group answered questions unrelated to their profession, while others answered questions about their professional background at the bank.

Then they flipped a coin 10 times, without anyone watching, and reported the results. The catch: Each volunteer was told which outcome would pay out a $20 reward on each of the 10 trials. They also were told they would collect only if their overall results were equal to or higher than those of a person from a random pilot study.

Despite the clear incentive for cheating, participants who answered questions about their personal life reported results that were only slightly above chance: 51.6%. The primed volunteers, however, reported a much higher success rate: 58.2%. That, researchers said, isn’t just dumb luck. It’s cheating.

The study was not designed to detect individual cheaters, but researchers could calculate that slightly more than a quarter of the primed participants exaggerated their results.


Which department they worked in, whether that department offered financial incentives, and how important competition was to the participants didn’t factor into the results, the study found. Nor did the participants’ assumptions of what their peers would do, the study found.

What did seem to matter was how much they agreed with a statement that social status is primarily determined by financial success. Hearty accord was associated with reporting more successful outcomes of the coin toss.

“Those who were reminded of occupational roles most strongly endorsed this statement,” Cohn said. “And we also found that those who have a higher inclination toward materialism are more likely to cheat.”

Still, researchers were curious if the effect was isolated to the one anonymous bank, or to banking at large, which has been rocked by big-dollar scandals in the last decade. They tested another 80 employees from a handful of other financial institutions.

“They didn’t behave significantly different than the ones from the large international bank,” said fellow author Ernst Fehr, a behavioral economist at the University of Zurich.

And when they repeated the experiment with people from non-banking jobs, the difference between the primed and unprimed groups was insignificant.


That pointed researchers toward the banking culture.

“This suggests that the social norms in the banking industry tend to be more lenient toward dishonest behavior and thus contribute to the reputational loss in the industry,” said coauthor Michel Andre Marechal, also of the University of Zurich.

For an economic sector with a scarred reputation, the results were a bit of good news mixed with bad.

“In some sense, it’s kind of optimistic because it says they’re just people like all of us,” said Duke University behavioral economist Dan Ariely, who was not involved in the study. “In some sense, it’s pessimistic because it says it’s the culture that’s so corrosive.”

That corrosion changed the way the bankers in the study saw themselves, Ariely said. “Bankers do think of themselves as dishonest – not in a conscious way, necessarily, but in an unconscious way. Because otherwise this priming would not work.”

Researchers are hopeful that business culture can change. Decades ago, there were far fewer scandals, and bankers enjoyed a reputation for honesty and scruples, they noted.

Banks should remove financial incentives that might unintentionally promote unscrupulous behavior, and adopt ethics training programs that are far more specific and detailed.


“We are not arguing that you should remove all incentives; we are arguing that maybe we should reduce the strength of this incentive,” Fehr said.

Cohn suggested drafting the finance equivalent of medicine’s Hippocratic Oath. Requiring employees to sign their name before starting an ethically perilous task also may help – studies have shown that signing an insurance form before filling out details decreases false claims, he noted.

Fehr warned that just writing tougher guidelines or strengthening monitoring, both popular among politicians and corporate heads, are unlikely to solve the problem. “Just pleading for integrity is not enough,” Fehr said. “You really have to exactly and precisely name the behaviors that you want to rule out and the behaviors that you deem desirable.”

John Hall, a spokesman for the American Bankers Assn., said the bank that is the primary focus of the study is not representative of the whole industry.

“America’s 6,000 banks set a very high bar when it comes to the honesty and integrity of their employees,” he said in an email. “Banks take the fiduciary responsibility they have for their customers very seriously.”

Kirk Hanson, executive director of the Markkula Center for Applied Ethics at Santa Clara University, said the study demonstrated the influence of culture on behavior, but it raised the question of how to define a bank.


The financial industry is so broad and made up of so many different kinds of institutions that to say that this is the “banking culture” makes one ask, “What is a bank?” Hanson said. “Banks changed in their character and became more and more separated from the consumer and real people, and increasingly focused on monetary indicators alone, over a period of time leading up to the early 2000s.”

And while participants earned personal rewards in the study, Hanson said, it is unclear whether these bankers would be driven by self interest or the interest of a larger group.

“This does not indicate that these individuals are padding their own pockets, necessarily,” Hanson said. “It indicates that they are part of a culture where the job is to use sharp business practices to increase your business unit’s performance. Those are some complexities that would be wonderful to explore.”

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