Study confirms that bankers will lie for financial gain

Swiss researchers have come up with what they say is compelling scientific evidence that bankers have a tendency to lie if they’ll gain from it financially.

The team at the University of Zurich used game playing experiments to show “that the prevailing culture in the banking industry weakens and undermines the honesty norm, implying that measures to re-establish an honest culture are very important”.

The study, published in the leading journal Nature, probes the psychology behind what the researchers call “a dramatic loss of reputation and a crisis of trust in the financial sector”, as a result of rogue trading, rigged interest rates such as Libor and tax evasion scandals.

Two hundred bankers took part in the study (including 128 from a single unnamed international bank). The researchers divided participants randomly into two halves. Before the game, the “treatment group” was asked a series of questions about work (such as “what is your function at the bank?”) while the “control group” answered questions about everyday life (such as “how many hours of television do you watch per week?”).

In the game, participants tossed a coin ten times, unobserved by anyone, and reported the results online to the researchers. The players knew in advance whether heads or tails would win a $20 reward for each successful toss.

If everyone was completely honest, the proportion of winning tosses across each group would be 50 per cent. The control group came close to this with 51.6 per cent. The treatment group, who had been primed by the preliminary questions to think about banking, reported 58.2 per cent winning tosses – a statistically significant tilt towards dishonesty; the proportion who cheated was estimated at 26 per cent.

The bankers “behave on average honestly in a control situation,” said Michel Maréchal, one of the Zurich team. “When their identity as bank employees is made salient, a significant proportion of them become dishonest.”

To check whether the effect is specific to banking, the researchers carried out the same procedures with people from other industries (pharmaceuticals, telecoms, IT) and with students. In these cases, priming participants with questions about their work did not lead to more cheating.

Commenting on the study, Marie Claire Villeval, economics professor at the University of Lyon, said: “These findings confirm some popular opinions about practices in the financial sector?.?.?.?It is crucial to ensure a business culture of honesty in this industry to restore trust in it.”

The most important thing according to Alain Cohn, another member of the Zurich team, is that “management should lead by example, showing commitment to an honest business culture”.

The Zurich researchers suggest a series of measures that could restore honesty to the financial sector. For example, they support the idea of bankers taking a professional oath akin to the Hippocratic oath for physicians, which would “prompt them to consider the impact of their behaviour on society rather than focusing on their own short-term benefits”.

The Financial Times