Can we use incentives to prevent corruption and fraud?
A project by: Ismael Rodriguez-Lara
Every year corruption and fraud create trillions of dollars of losses in the global economy, but what drives people to cheat in this way?
We already know that incentives can drive this behaviour. For example research has shown that performance-based bonuses can cause people to cheat in pursuit of financial gain.
However what if incentives could be used to prevent corruption and fraud? In 2015 we ran a set of experiments that had very unexpected results. These hint at the possibility of new strategies for preventing corruption and fraud but we need your support to help us pursue this promising new line of research.
We are currently raising £2,500 to fund the cost of further experiments. We are offering a range of rewards for donors including the opportunity to be credited as a supporter in any publications based on the research.
Read on to learn more about the rewards on offer and the exciting findings from our first experiment!
Our original experiment was very simple. We paid participants to roll a single ten-sided die and then report their score. No one could see them doing this so only they knew their real score. The die had an equal chance of landing from any number from 1 to 10. We repeated the task three times with three groups of participants.
Group A were the ‘control group’, they were told that they would be paid a fixed amount of money to roll the die and report their score. As we expected, the participants reported a roughly even distribution of scores from 1 to 10. This suggests that there is no cheating when there is no associated financial gain.
Group B were the ‘gain group’, they were told they would be paid based on their score. The higher the score they reported the more they would be paid. Perhaps unsurprisingly, this group reported a suspiciously high number of scores of 8, 9 and 10! This suggests the opportunity to make a financial gain caused some of them to cheat.
Group C were the ‘loss group’, they were also told that they would be paid based on their score. However instead of being paid after reporting their score, they were given the maximum amount of money they could earn at the beginning of the experiment. Based on their score they would very probably have to give back some or all of this money. When we collated the results from this group we found they had reported a roughly even distribution of scores from 1 to 10. This was very unexpected.
Humans are loss averse. We do not like losing what we already have and find losses twice as painful as we find gains pleasurable. As such we expected the participants in the ‘loss group’ to cheat at least as much as the ‘gain group’, if not even more. Yet they don’t appear to have cheated at all.
Why does this matter?
The fact that the ‘loss group’ were honest is both surprising and exciting. We had expected these participants to cheat, they had a financial incentive to cheat and yet they did not cheat. The big question is: why didn’t they cheat?
In a world where corruption and fraud costs trillions of dollars every year, this is a question that urgently needs an answer. If we can understand how to stop people from cheating in our experiments, we may be able to use the same strategies to prevent real-world corruption and fraud.
We are currently raising £2,500 to fund the next stage of our research. The money you give will be used to meet the cost of hiring lab space for our experiments and to fund the cost of providing financial incentives (a maximum of 5 Euros per person) for participants.
We are offering a range of rewards to our donors, including a special opportunity for up to four donors to be credited as financial supporters in publications based on the research.
Ismael Rodriguez-Lara is a Senior Lecturer within the Department of Economics at Middlesex University London. Ismael obtained his PhD in Quantitative Economics in Universidad de Alicante (Spain). His research focuses on experimental and behavioural economics, with a special emphasis on justice principles, principal-agent relationship and behavioural finance. Ismael has published in leading journals such as the Journal of Money, Credit and Banking, Experimental Economics and the Journal of Economic Behavior and Organization.
Gary Charness is Professor of Economics at the University of California Santa Barbara, where he is also the director of the Experimental and Behavioral Economics Laboratory. Some of his research interests include behavioral game theory, experimental labor economics, communication, contract design, field interventions, and individual decision making. He is a main editor at Games and Economic Behavior. His articles have been published in Science, Econometrica, American Economic Review, Management Science and the Journal of the European Economic Association.
Celia Blanco completed her BSc Economics and MSc in Industrial Economics at the University of Valencia. She is doing her PhD on Behavioural Economics under the supervision of Prof. Francesco Feri and Dr. Michael Naef. Celia is completing her PhD at Royal Holloway.
Lara Ezquerra completed her BSc Economics and MSc in Quantitative Economics at the University of the Basque Country. She is doing her PhD at Middlesex University London. Her research interests include delegation and cheating behaviour. She works under the supervision of Prof. Kujal, Prof. Branas Garza and Dr. Ismael Rodriguez-Lara.
Dr Ismael Rodriguez-Lara
Dr Rodriguez-Lara joined Middlesex University in September 2013. He was previously working as Lecturer in Economics at Universidad de Valencia (Spain). Ismael obtained is Phd. in Quantitative Economics in Universidad de Alicante (Spain). His research focuses on experimental and behavioural economics, with a special emphasis on justice principles, principal-agent relationship and behavioural finance.
Ismael has published in leading journals such as Journal of Money, Credit and Banking, Experimental Economics or Journal of Economic Behavior and Organization.