Friday, March 10, 2023

Social production of moral indifference - 5e

The incentive structure in banks is often unethical, rewarding employees for steering customers to financial products that aren’t in their best interest. Many times, behaviour might seem over the top, but we often take comfort when our actions fall in line with the social norms of those around us. In The Honest Truth about Dishonesty, Dan Ariely quotes a letter that he received from a young consultant:

I graduated a few years ago with a BA degree in Economics from a prestigious college and have been working at an economic consulting firm, which provides services to law firms. The reason I decided to contact you is that I have been observing and participating in a very well documented phenomenon of overstating billable hours by economic consultants. To avoid sugar coating it, let’s call it cheating. 

From the most senior people all the way to the lowest analyst, the incentive structure for consultants encourages cheating: no one checks to see how much we bill for a given task; there are no clear guidelines as to what is acceptable; and if we have the lowest billability among fellow analysts, we are the most likely to get axed. These factors create the perfect environment for rampant cheating.

The lawyers themselves get a hefty cut of every hour we bill, so they don’t mind if we take longer to finish a project. While lawyers do have some incentive to keep costs down to avoid enraging clients, many of the analyses we perform are very difficult to evaluate. 

Lawyers know this and seem to use it to their advantage. In effect, we are cheating on their behalf; we get to keep our jobs and they get to keep an additional profit.  Here are some specific examples of how cheating is carried out in my company:

  • A deadline was fast approaching and we were working extremely long hours. Budget didn’t seem to be an issue and when I asked how much of my day I should bill, my boss (a midlevel project manager) told me to take the total amount of time I was in the office and subtract two hours, one for lunch and one for dinner. I said that I had taken a number of other breaks while the server was running my programs and she said I could count that as a mental health break that would promote higher productivity later.
  • A good friend of mine in the office adamantly refused to overbill and consequently had an overall billing rate that was about 20 percent lower than the average. I admire his honesty, but when it was time to lay people off, he was the first to go. What kind of message does that send to the rest of us?
  • One person bills every hour he is monitoring his email for a project, whether or not he receives any work to do. He is “on-call,” he says.
  • Another guy often works from home and seems to bill a lot, but when he is in the office he never seems to have any work to do.

These kinds of examples go on and on. There is no doubt that I am complicit in this behavior, but seeing it more clearly makes me want to fix the problems. Do you have any advice? What would you do in my situation?

Sincerely yours,


Unfortunately, the problems noted in the letter are commonplace. One tends not to notice them because they are an accepted part of 'business as usual'. The people think of themselves as highly moral people because their actions are relatively small and, most important, several steps removed from my pocket.  Biased incentives can—and do—lead even the most upstanding professionals astray. When the rules are somewhat open to interpretation, when there are grey areas, people are tempted to cheat and most people cheat by small amounts. 

A common example of an area where people easily tempted into indulging in unethical behaviour is accounting. It has a vaguely titled body of suggestions — known as Generally Accepted Accounting Principles (GAAP) — that accountants are supposed to follow. These guidelines are so general that there’s considerable variation in how accountants can interpret financial statements. (And often there are financial incentives to “bend” the guidelines to some degree.) 

For instance, one of the rules, “the principle of sincerity,” states that the accountant’s report should reflect the company’s financial status “in good faith.” What does it mean? Toward whom is this good faith directed? The people who run the company? Those who would like the books to look impressive and profitable (which would increase their bonuses and compensation)? Or should it be directed toward the people who have invested in the company? Or is it about those who want a clear idea of the company’s financial condition?

The behaviours mentioned in the letter are the the result of the negative view of human nature that is widely held. When a communal ethos has been replaced by a view of humanity as competing individuals, the result is indeed the survival of the fittest. This view regards people as basically thieves and shirkers who need to be constantly monitored in order to keep them in line. This results in proliferation of contracts, rules, and regulations. A paradox of the individualist ideology is that it invariably results in an excess of interference.   

The moral degeneration in modern life is illustrated by the statement by the economist John Maynard Keynes that “For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not.” (It is fantastic to assume that after a century of internalizing this norm, society will magically revert to one populated by do-gooders.) The Western political tradition relies upon external rather than internal restraints and on institutional rather than self-imposed ethical limits to control those who are in power. 

This has given rise to different types of ethics in different fields: bioethics, media ethics, medical ethics, contract ethics, care ethics, etc. As a result of this proliferation, a Kafkaesque bureaucracy has sprung up from which no one can escape, and codes and regulations are running rampant. The frustrations we experience from a host of petty regulations cause us to focus more on observing the rules and lose sight of the true significance of ethics. 

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