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Investigating Dishonesty with Experimental Applications: Evidence from the Lab and the Field

Periodic Reporting for period 1 - IDEA (Investigating Dishonesty with Experimental Applications: Evidence from the Lab and the Field)

Reporting period: 2015-06-01 to 2017-05-31

Trust plays a very important role in economic and social interactions. It reduces transaction costs, promotes efficiency in markets, improves cooperation, and increases the ability of people, organizations and countries to adapt to complexity and change. Trust is also very fragile and can be easily break with extremely detrimental consequences for society. The project “IDEA” developed a pioneer analysis of what is considered one of the most fundamental threats of trust, and, a major concern of modern society: dishonesty. The central objective of “IDEA” was to better understand the determinants and consequences of cheating and lying behavior, and develop more effective and efficient mechanisms to discourage these counterproductive behaviors and preserve trust. More specifically, “IDEA” investigated what individual characteristics are more/less likely to be associated with dishonest behavior and whether it is possible to outline the identikit of a dishonest individual. It also studied, from a methodological perspective, whether laboratory experiments on cheating are externally valid, and to what extent scrutiny is a problem in the laboratory. Furthermore, it examined the nexus between dishonesty, competition and social information, in order to determine why competitive pressures induce more cheating, and which informational features of the competitive environment are linked to more dishonesty. Finally, by exploring the deterrence effect of information disclosure on audits and the frequency of controls, “IDEA” identified an optimal system of sanctions which discourages dishonesty and minimizes the monetary costs of the enforcement authority.
"During the first 18 months of research, I worked on the objectives of Work Package 1 (WP1) and Work Package 3 (WP3). In particular, I finalized the design and theoretical aspects of the field and lab experiments defined in WP1 and WP3 and collected all the relevant data. I also analyzed the data and wrote two articles. These two articles are publicly available as GATE working papers and are published in two international peer-reviewed journals. One article builds on the research and Objectives (1A and 1B) defined in WP1. A second article covers the Objectives (3A and 3B) described in WP3.

In terms of results, I show that when there is an opportunity to earn more money by behaving dishonestly and there is no risk of detection, people display very heterogeneous behaviors: some individuals do not cheat at all, while others act partially dishonestly and others cheat fully to maximize their earnings. This diversity of behavior in the laboratory tasks replicated the diversity of the degrees of moral firmness of the same individuals in their day-to-day life. These findings indicate that simple lab experiments can capture the dishonest behavior of ordinary people in real life. A result which has important methodological implications since it provides support to the external validity of lab experiments in a domain that is not easily observable in the field because of its secretive nature. In line with Objectives 1A and Objective 1B, I also provide a complete and accurate behavioral and demographic profile of a dishonest person. To meet Objectives 3A and 3B, I I have tested the effectiveness and efficiency of alternative systems to deter cheating behavior – including crackdown policies (i.e. high frequency controls in a limited period of time). The results show that concentrated crackdowns are less effective and efficient than random controls. In addition, I find that prolonged crackdowns reduce fare-dodging during the period of intense monitoring but induces a burst of fraud as soon as they are withdrawn. Similarly, the announcement of this type of controls has only a short-term effect and tends to accentuate fraud outside the period of control.

In the remaining last 6 months of research, I worked on the objectives of Work Package 2 (WP2). In particular, I designed and conducted an experiment to study the relationship between dishonesty, competition and social information in line with Objectives 2A, 2B, and 2C. After a preliminary analysis of the results, we found that men and women do not display the same dishonest behavior under competition and respond differently to the provision of social information. To further investigate these gender effects, Prof. Villeval and I decided to run additional experiments which were not initially planned in the Work Package. These experiments are scheduled for autumn 2017, and, therefore, will not be part of the final report.

The publication of papers in highly-ranked peer-reviewed international journals constituted the most important channel for the dissemination of the aforementioned results. All papers were presented in major scientific conferences, internal and external seminars, and workshops.The economic and policy implications of my findings have been disseminated for a general audience during some outreach activities such as the participation to the ""Nuit Européenne des Chercheurs"" and the EURAXESS roadshow. I have also written a non-scientific article for a local magazine and given an interview for the CORTEX mag in order to give visibility to the outcomes of my research activities to the general public."
"The project ""IDEA"" provided several contributions which go significantly beyond the current state of the art.

It provided the first study comparing the behavior of actual fare-dodgers and non-fare-dodgers across experimental tasks, allowing to test the external validity of lab measures of dishonesty in different contexts. It also provided a measure of the immediate effect of a fine in the field on subsequent dishonesty in the lab, by testing whether fare-dodgers who have just paid a fine fraud more or less when given a new opportunity to cheat. Furthermore, it contributed to a better knowledge of the moral norms and individual characteristics of fare-dodgers.

It also offered the first comprehensive investigation of the relative efficiency and effectiveness of various crackdown policies using a lab-in-the-field experiment with a representative sample of the people for which these policies are directly relevant. The findings of this research are very valuable for policy-makers who are contemplating which policy interventions to adopt against law-breaking behavior. The results suggest that under ambiguity and in the domain of losses, systematic controls in a limited amount of time are, at best, as effective as random controls and potentially very inefficient in the long-run both in terms of achieved compliance and revenue for the law-enforcement institution.

The socio-economic and societal implications of these findings are major. These results in fact shed light on one of the main problems of modern society which is relevant to many spheres of economic and social life: dishonesty. Particularly in times of deep economic slowdown, it is very important to better understand the causes and consequences of dishonest behavior, and provide more effective tools to discourage it in order to restore trust and well-being. The project ""IDEA"" is particularly relevant and timely given its strong contribution to applied and policy-relevant research. By providing an original economic analysis of deceptive behavior, and testing optimal mechanisms to fight dishonesty, it provides policy makers with key economic insights on how firms and governments can fight dishonest behavior."
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