April 15th — Cheating and taxes
Tax Season is here and cheating is in the air. We are all trying to find receipts, and figure out what we can reasonably claim as deductions. Did we end up talking about work last summer when we invited our co-workers for a BBQ?
Let me tell you about an experiment we did at MIT on cheating with some unsuspecting students. We took a sheet of paper with twenty simple math problems that everybody could solve given enough time, but we didn’t give people enough time to solve them all. We handed the participants the quiz and told them that we would pay them a dollar per correct answer. When the five minutes were over, they handed the sheet back to us. On average, they solved four problems and we paid them each four dollars.
We then gathered another group for the same experiment. But this time, when the five minutes were up, we asked them to shred the piece of paper and simply tell us how many questions they solved correctly. Interestingly, on average participants in this group said they solved about 7 problems correctly.
So what happened? Our students didn’t become smarter all of a sudden. Instead, they cheated. But it’s not as if a few students cheated a lot. What we found was that a lot of students cheated a little bit. Sounds a little bit like the tax issue right?
But here is something else we did. We asked a third group of students to sign an honor code before solving the problems, ” I understand that this survey falls under the MIT honor code.” When the five minutes were over they shredded the piece of paper. But it turns out that these students who signed the honor code didn’t cheat at all.
What does this tell us about the tax code? Well, imagine what would happen if instead of signing your tax form at the bottom, you signed a pledge up front: “I declare that everything I say here will be the truth, the only truth and nothing but the truth so help me God and everybody else,” and then fill out your tax form. Would cheating be lower under that condition? I am not sure but if I were the IRS, I would definitely try it out.
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And here is a youtube version of this
This is all so interesting, I just can’t stand it. Bizarrely, I came upon your blog through a knitting forum – the reach of knitters is very surprising. I would rather correspond privately
(re: pain experiences)but clicking on your email link got me nowhere. Would you consider sending it to me at my email? Lastly, your advice to the parents of the post-college young lady resonated here – we’ve got two of them!
Hi Mary,
Very curious about the knitting link
My email is dan@predictablyirrational.com
best
Dan
I heard you this morning on NPR while driving to work and had to pull aside so I could write down your name and research this more. I’m fascinated by the implications of a study like this, beyond the profound impact it could have on tax evasion.
Several colleagues and I are launching a new residential real estate brand and each of us is focused on different areas. My core focus is on how to help our franchisees become better business managers. One of the areas I am trying to shed light on is small business fraud and your study has obvious implications there.
Most brokers have very small “mom and pop” operations. You would think internal fraud was non-existent given the family environment but the data indicates otherwise. The prevalence is meaningful (3% of a very large pool) and the average loss per scheme is nearly $200,000. That’s a bit different than the “a lot of students cheated a little bit” message from your study but I suspect that’s going on, too, and is simply not being reported. What I have studied elsewhere that your experiment supports is that, unfortunately, even otherwise-honest people often cheat if the opportunity exists. But the opportunity has to be combined with a rationalization and the key, often, to stopping the cheating is to take steps to counter the rationalization.
One of the very simple messages I’m trying to convey is that every business, regardless of size, needs to have an ethics policy. My feeling is that even a one-page policy that every employee signs would immediately create an environment that would discourage cheating/fraud.
Your study helps convey a message like that far more succinctly than any theoretical argument I could contrive. I hope I can cite your work when I speak to brokers.
Thank you.
Nicolai Kolding
Dear Nicolai,
Thanks for the comments. It is clear that there are many reasons for people to be dishonest, and I was talking about one of them. But I do share your intuition that this is an important factor and to the extent that we can learn how to overcome it we will be better off.
Dan
In my former career I was a professor, but since gone back to school so now I am actually with some of my former students in class/clinics. I have to say, from this perspective, I think the only reason the honor code was followed, as in your third group, was likely because the students thought that you may have a camera going in the room. I have noticed a huge difference in the behavior or students on campus and off, in terms of following the honor code. It is interesting work, and I definitely would like to see more work in this area because I have been really shocked by the amount of cheating I see going on around by these “professional” students. I honestly don’t know what it means. An example, we lost a student first year for cheating on exam (caught on camera), which was known as one of the easiest exams of our whole 4 year program. The type of exam you could pass just by reading the questions, never having taken the course (professor was a very poor question writer). I knew the student and there was no need to cheat, and I have been baffled by it ever since. Of course despite the tape she still denies it, so I can’t ask her for any insights.
Hey Dan:
Have you thought about a way to relate your research on cheating with the use of steroids in sports (arguably a form of cheating)?
Actually, IRS is already doing this. This has been at the bottom of Form 1040 (and most other tax documents) for years:
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.
It’s arguable whether most people take it seriously, or even notice it.