Bankers will lie at the toss of a coin – but only when at work, says new study

Heads or tails this banker will cheat. Nomad_soul via shutterstock

There is something in the culture of banking that lends itself toward making otherwise fairly good people do bad things. That’s the finding of a new study published in the journal, Nature. And it may simply confirm the suspicions of many following endless news of bankers being outed for bad behaviour.

The list is almost too endless to mention (but here goes anyway): manipulating the foreign exchange market, LIBOR and the gold market; mis-selling interest-rate swaps, mortgage backed securities and payment protection insurance; aiding money laundering; disregarding sanctions on a country; tax avoidance; providing compromised investment advice; trading scandals – the list could go on.

In total, these fines have directly cost banks more than US$100 billion in the US alone. Some have suggested this could soon bring the total bill for fines since 2008 to more than US$300 billion.

And, however astronomical this number sounds, the fines are just the start of it. There are legal fees, processes of internal change, consultants and, of course, new risk and compliance departments which need to be paid. On top of this, there are huge reputational costs. One recent study of UK banks found that for every £1 they paid out in fines they lost £9 off their share price. So banks would probably do well to address this seemingly fundamental issue of having a corrupt culture, as shown in this study.

The study

Economists at the University of Zurich, Michel Maréchal, Alain Cohn and Ernst Fehr, set out to learn whether bankers are in fact more likely to cheat. They particularly focused on whether people who consciously thought of themselves as bankers (and acted under this moniker) were more likely to cheat than when they had their non-professional hats on. They suspected it was something about the identity of being a banker that made people more likely to cheat.

To test this question, they asked a group of people working for a financial organisation to complete a simple questionnaire. The respondents were divided into two groups. The first was initially asked a set of questions about their job as bankers (such as which division they worked in). The second was asked about their everyday life (such as how much television they watched). This primed the first group to think of themselves as “bankers”; the second as “everyday people”.

After this step, both groups were then asked to play a simple game. They were asked to flip a coin ten times and record their results. Before they flipped the coin, they were also told if you got heads (for instance) you will receive US$20. Because it was an online test, no-one could check the results – so there was lots of room for lying.

The results were surprising. The people who were primed to think about themselves as an everyday person did not lie about their results (despite the fact there was ample room to do so). But the group who were primed to think of themselves as bankers tended to lie significantly more – they misrepresented their results about 16% of the time and more than a quarter of the “bankers” group cheated.

Much of this lying and cheating can be attributed to the small population of bankers who were quite happy to lie in almost every flip of the coin if it benefited them. But the study indicates that by simply prompting a person in the financial services industry to think about themselves as a banker means they are more likely to cheat.

Identity is the crucial factor

At this stage you might object, and say that identity is not the crucial factor at work here. Maybe it was just thinking about money which led to bad behaviour? The study also tested members of other professions who, when prompted to think about themselves in professional terms, did not lie and cheat more. There was no difference among the cheaters and non-cheaters in terms of competitiveness.

Cheating was also not simply the result of people thinking that everyone else was doing it and so it was OK. What seemed to prompt bankers to cheat on this test was when they thought of themselves as bankers.

What is more, it is not just that people who identify as bankers tend to lie and cheat more than the general population. In fact, the study showed that this behaviour was expected of them by others. This can be seen when participants were asked how often they thought bankers would cheat on this test (when compared to other interest groups). Respondents tended to think that bankers would cheat more than prison inmates on the test. This says something for what expect of the people we trust with our money.

Profound implications

This neat experiment has some profound implications for how banks are run and regulated. It suggests that one of the reasons why banks might be such cesspits of bad behaviour is not the actual people working in them – who act morally when they’re not in working mode.

So, while rejigging balance sheets with the fines that have recently been meted out is important, it is unlikely to fix underlying cultural issues in the banking industry. It is possible to begin to fix the problem by identifying people who are extreme cheaters and are likely to lie on every occasion possible. Simple tests might weed these individuals out.

Changing the definition of a banker

But to address the deeper-seated cultural issues, it is crucial to change this “banker” identity. There may be some ways to do this. In the short term, banks might consider removing various prompts within their institutions which encourage their employees to think about themselves as bankers.

These identity prompts might include all the paraphernalia we associate with banks like their slick corporate headquarters down to constant flashing share prices and images of money. And the prompts that encourage other identities at work could be increased. For instance in some banks, employees are now asked whether they would be proud of selling a product to a family member.

It is also possible to encourage employees not to think about themselves as a banker. Some new retail banks encourage their employees not to think of themselves as bankers but as “advisors” or even “hosts”.

In the long-term, however, it is necessary to change what it means to be a banker altogether. Things like “Greed is good” and associations with winning at any cost might be downplayed. Other characteristics, such as being trustworthy and having integrity could be played up. Over time this would hopefully lead to bankers thinking about their collective identity in a different way. And the result would, hopefully, be that when they are faced with a situation where no one is looking, they do the right thing – like the rest of the population usually does.