Biases and Decision Making

From the things we say to the actions we take each day, our world- and that of business- is comprised of thousands of decisions, both big and small. How we come to make those decisions is the result of intuition and analysis and, in most cases, influenced by biases that we may or may not be aware of. 

We know about blind spots in decision making, mostly because of the work of ES collaborators Max Bazerman and Ann Tenbrunsel. A recent graph published in Business Insider: Australia, and included below, depicts additional biases that all would be wise to learn and attempt to obviate when analyzing ideas and programs.

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Professionalism and Ethics: A missed connection?

What does professionalism mean to you? Often, people who identify as a professional think of themselves not only as knowledgeable in their discipline, but also rational, objective and serving a higher purpose (e.g., the client’s needs). These are laudable goals, but new research shows that these characteristics could actually lead to people making self-interested, and ultimately unethical or damaging, decisions.  

In a paper on Professionalism and Moral Behavior, Maryam Kouchaki of the Kellogg School of Management at Northwestern University, tests the hypothesis that an emphasis on one's professional identity has a greater likelihood of an individual engaging in unethical behavior. This is an important inquiry in light of ethical failures in companies where lawyers and accountants often act as “gatekeepers” on ethics and compliance issues vis a vis corporate practices. Based on evidence from her lab studies and employee surveys, Kouchaki concludes that priming professionalism may actually lead to increased misbehavior.

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Very Worrying: VW, Leadership and Ethical Culture

Guest post from Dennis Gentilin of the National Australia Bank and author of the forthcoming book, “The Origins of Ethical Failures

As we all know, last week the car manufacturer Volkswagen admitted to installing software in over 11 million of their diesel engine cars that was designed to cheat emission tests. At worst, some commentators have suggested that Volkswagen are responsible for the premature death of people with respiratory conditions. At best, it is extraordinarily deceitful and unethical conduct.

It is highly unlikely that a scandal of this magnitude is the work of a handful of rogues. Rather it points to a systemic disrespect for principled conduct at numerous levels of the organization. No doubt the pending investigation will uncover failures in governance and compliance. However, as with all corporate scandals of this nature, my hypothesis is that at least one (or some) of the following five factors would have been at play:

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Bad Apples, Bad Barrels or Bad Barrel Makers?

The prominence of compliance in organizations continues to rise. Recently, the US Department of Justice (DOJ) named Ms. Hui Chen as its Compliance Counsel- a much anticipated new role which many have applauded as a step forward for addressing the criticism that the DOJ doesn’t appropriately credit companies who implement effective compliance programs.

Ms. Chen comes well prepared from a background in both corporate compliance and prosecution, which she will likely lean heavily upon when tackling the difficult task of helping prosecutors recognize whether an incident is symptomatic of an unethical corporate culture or the result of a rogue employee. This is the distinction that has challenged social psychologists for decades: is it the individual or the system that is to blame?

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Featured Collaborator for October: Dolly Chugh

Interview with Dr. Dolly Chugh, Associate Professor in the Department of Management and Organizations, NYU Stern School of Business. [Find Dolly on Twitter]

What are your main areas of research? How can people better be attuned to their bounded ethicality?

I have always been fascinated by the three dimensional reality of human behavior. That is, none of us are perfectly ethical all of the time, and it's that reality that I am most interested in. In what ways are we less ethical and less egalitarian than we intend to be? Under what conditions? Why? Those questions lie at the heart of my work on bounded ethicality, which refers to the systematic and ordinary psychological constraints on our ethical behavior.  

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​Opportunism as a Managerial Trait

We ordinarily think of people as honest or dishonest, a broad-brush description which implicitly assumes that honesty is a personal characteristic that generalizes across decision domains. If so, a student who cheats on an exam is also more likely to shoplift or lie to a friend or partner. Does knowing that a corporate manager is opportunistic in one decision domain tell us much about whether the manager will misbehave in some other domain? In other words, are some managers just `bad apples’? 

Recently, in the paper “Opportunism as a Managerial Trait: Predicting Insider Trading Profits and Misconduct” Usman Ali, Portoflio Manager at MIG Capital, and I study these questions by examining whether corporate managers who profit by insider trading in their firms’ stocks engage in other forms of misbehavior as well.

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An Executive Order Promoting Behavioral Science

As we have long said, behavioral sciences are the key to unlocking better decision making, from study halls to the halls of power. This week, the White House echoed our view via an Executive Order outlining that behavioral insights be used to better serve the American people. What began as a nudge, is now a full-on push.

Ethical Systems praises this initiative as a major step towards not only making behavioral science more widespread but also in advancing the incorporation of ethical system design in business. When businesses adopt these systems, research shows their employees are happier, more productive and, as a result, the business is more profitable. 

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Did You Get the Memo? Confronting Corporate Wrongdoing

After the financial crisis of 2008 and the current, ongoing instances of large fines levied against banks and other financial companies, many people continually bemoan why penalties have not also included jail time and prosecution of executives who have behaved unethically. The message has finally reached the highest levels of government and change is on the horizon. 

In a speech at NYU Law last week, hosted by the school's Program on Corporate Compliance and Enforcement, Deputy Attorney General Sally Quillian Yates presented the memo covering a new Department of Justice initiative designed to fight corporate fraud and other misconduct by going after individuals who perpetrated the wrongdoing. In addition to punitive actions against an organization (what many see as a macro-level punishment that does little to deter misconduct on the micro, or personal, level), the DOJ will now turn its considerable resources to affecting change at the source, i.e. those that engage in personal malfeasance under the guise of doing their job.

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Corruption, Trends and Predictions: An Interview with Richard Bistrong, Part 2

Part two of our interview with Richard Bistrong, CEO of Front-Line Anti-Bribery LLC [read part 1]

How has corruption changed since you were prosecuted? Could someone get away with the same behavior now?

The FBI has tripled its investigatory resources, and the real teeth of international law enforcement cooperation, which I experienced as a covert cooperator in the US and UK, has significantly increased, becoming more sophisticated over the last 5 years, as we have seen in a number of global investigations.

My own getting caught should be a cautionary tale for others.

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Testing, Testing: Drawing Conclusions From Test Environments

One challenge identified in academic literature on behavioral ethics and business is finding practical applications for the lessons learned from test environments. All of us at Ethical Systems, including our collaborators and partners, are working on how to best leverage these findings.

This challenge is succinctly presented by Donald C. Langevoort of Georgetown University in a recent article about behavioral ethics and behavioral compliance. As he points out, the lessons from behavioral ethics are intuitive and while the outcomes aren't necessarily predictable, they are often unsurprising. It makes sense, for example, that 'just in time' communications improve ethical decision-making because the reminder of the moral fallout of one's choices become prominent. In another example, Langevoort describes the concept of ethical blind spots- as popularized by two ES collaborators, Max Bazerman and Ann Tenbrunsel- distorting good judgment and sensible decision making. 

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