Like most of you, I consider myself an honourable member of society: Trustworthy, honest and moral. Yet I don’t always act accordingly — and judging by the magnitude of insurance fraud, tax deception and the illegal downloading of music, films and games, most of you are like me.
One could say that we are hypocritical. However, to standard economists, most of what people say is just cheap talk: It’s meaningless. Only what people do is meaningful: Actions speak louder than words. This is what economists call, ‘revealed preferences’, and to an economist, it means that all those who say they
care about morality — but then go ahead and engage in various transgressions — don’t really care.
To a behavioural scientist like me, the world looks a bit more complex. We believe that for some of those who say they care about morality, it’s not just cheap talk: They really mean it. In fact, we believe that this is true for many people. In short, these people are good, but they face ‘situational circumstances’ that might appear unimportant — that they might not even be aware of — that keep them from being their true ‘authentic selves’. As a consequence, if we make small, smart changes to these situational circumstances, we may be able to help people behave more authentically — and act more morally.
To me, this a much better world to live in. Just think about your own life. I’m sure you can all think of plenty of situations in which you were tempted to transgress from your moral code because you could benefit from it. Say, when filling out your tax form, or an insurance claim. And I bet, in those situations, you suddenly became very good at rationalizing why it would be okay to transgress, so that if you did give in, you didn’t feel too bad. We are very good at rationalizing so that we can ‘have our cake and eat it, too’ — and it turns out that some situational circumstances make rationalizations easier to come by than others.
My co-authors and I recently teamed up with a car insurance company in the U.S. This company regularly sends out ‘audit forms’, asking policy holders to indicate the odometer mileage for their cars. Insurance premiums are then adjusted to correspond with how much a car is driven. The logic is, ‘the more miles driven, the more likely an accident, and the higher the insurance premium’.
As a result, when policy holders receive the audit form, many are tempted to under-report their mileage. Almost immediately, their rationalizations start working: ‘I already pay such a high insurance rate!’ I’m not the problem, I’m a good driver’. Suddenly, they are under-reporting their mileage, and not feeling bad about it at all. And by the time they reach the end of the form — where they are asked to confirm with their signature that they have filled it out truthfully — they have managed to convince themselves that everything is indeed legit.
People are good, but they face ‘situational circumstances’ that keep them from being their true ‘authentic selves.’
By comparison, in a court of law, people are asked, up front, to swear that they will ‘tell the truth, the whole truth, and nothing but the truth’. Only then do they testify. In short, we ask people to commit to being truthful before, not after they face temptations to misreport. This is a very interesting twist, because such a pre-commitment to the truth is likely to increase people’s attention to their own moral standards — to keep them top of mind, and therefore, harder to ignore in the face of temptations. If this is the case, we posited, perhaps we could use this insight to redesign those insurance audit forms.
That’s exactly what we did: We randomly assigned a policy holder to either receive the standard audit form (with a signature field at the end), or a form that was identical except for one thing: the signature field was moved to the top. The result: Policy holders who signed the audit form at the top magically seemed to be
driving more; on average, 2,500 miles more per car. To put this in perspective, if each of the 13,000 policy holders in our experiment had received the revised form, this would have resulted in an additional $2 million in insurance premiums for the company. And this is just from a small subset of policy holders, from one company.
In Ontario alone, auto insurance fraud accounts for up to $1.6 billion yearly — three times the province’s budget to fight its chronically-high youth unemployment rate. Just imagine what our small, costless change to the audit form could do here. Our findings show that the reason people fudge their numbers is not that they’re cold blooded and calculating. If people only cared about the likelihood of being caught and the magnitude of the punishment, moving the signature field to the top should make no difference. Instead, many people do care about being virtuous, and moving the signature field to the top makes it possible for them to ignore the devil on their shoulder, encouraging them to fudge the numbers.
It’s important to point out though that there’s nothing special about morality: We can find mismatches between what people say they care about, and how they act in many other areas. Even in life and death type of situations. Take, for example, organ donation. Every day more than 20 people die in the U.S. because of a lack of available organs. In Canada, it’s two people every three days.
If everyone registered as an organ donor today, this crisis would be a thing of the past. So I ask you, why are half of all the people in the U.S. and three quarters of the people in Canada not registered? If you believe that actions speak louder than words, you would say, ‘People just don’t care. Even Canadians!’
On the other hand, if you ask people ‘Do you support organ donation?’, everything looks much rosier: About 90 per cent of people say they do. So, which one is it? If we believe that this mismatch between what people say they care about, and how they act, is mostly due to situational circumstances, then we should be
willing to nudge them towards more authentic behaviour.
The good news is, most people are good. And if we become more sensitive to situational circumstances, we may be able to nudge them towards more authentic behaviour. This approach holds great potential in many areas, beyond insurance fraud and organ donation. Credit card delinquency, obesity, and energy conservation come to mind immediately. If we can systematically and responsibly harness these insights, what a wonderful world this could be.
Nina Mažar is an Associate Professor of Marketing and Co-Director of Behavioural Economics in Action at Rotman (BEAR) at the Rotman School of Management. Named one of the 40 Most Outstanding B-School Profs Under 40 In The World by Poets & Quants, she has served as Senior Behavioural Scientist of the World Bank’s Global Insights Initiative in Washington, DC. This article is adapted from her presentation at TEDx Toronto.
Rotman faculty research is ranked #3 globally by the Financial Times.
This article originally appeared in 'The Behavioural Issue' (Spring 2017) of Rotman Management magazine.
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