Do Fines Deter Unethical Behavior? The Effect of Systematically Varying the Size and Probability of Punishment

64 Pages Posted: 25 Apr 2018

See all articles by Katharina Laske

Katharina Laske

University of Cologne

Silvia Saccardo

Carnegie Mellon University, Department of Social and Decision Sciences

Uri Gneezy

University of California, San Diego (UCSD) - Rady School of Management

Date Written: April 5, 2018

Abstract

Unethical behavior is widespread, with large economic consequences. Understand- ing how to deter it is important. In experiments in which participants can lie to achieve an economic advantage, we systematically vary the fine and probability associated with being audited. In all our experiments, lying decreases with the size of the fine. For probabilities, the results are mixed: when participants decide only once, and deterrence parameters are presented in isolation, lying behavior is insensitive to changes in detection probabilities. However, when individuals can compare different detection probabilities, or when they experience the same probability level over time in a repeated setting, lying decreases with higher detection probabilities. In all settings, changes in the magnitude of fines are more effective than equivalent changes in expected earnings obtained by altering the probability of punishment. We organize previous findings in light of our results and propose policy interventions aimed at deterring unethical behavior.

Keywords: Deception, Deterrence, Lab Experiment, Unethical Behavior, Risk, Punishment

JEL Classification: D91, C91, D81

Suggested Citation

Laske, Katharina and Saccardo, Silvia and Gneezy, Uri, Do Fines Deter Unethical Behavior? The Effect of Systematically Varying the Size and Probability of Punishment (April 5, 2018). Available at SSRN: https://ssrn.com/abstract=3157387 or http://dx.doi.org/10.2139/ssrn.3157387

Katharina Laske

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Silvia Saccardo (Contact Author)

Carnegie Mellon University, Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States

Uri Gneezy

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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