A.B.C.'s of Behavioral Forensics: Applying Psychology to Financial Fraud Prevention and Detection

PART III

A CALL TO ACTION

Given that fraud, folly, and foibles are all part of human nature, what are the implications for fraud prevention, deterrence, and detection?

This issue raises an interesting question. All of the information, theories, and citations are nice, but do they affect your performance as a (risk) manager, an auditor, a regulator, an investor, a financial analyst, or a business leader? Can you improve in how you perform in your position? Depending on how you want to utilize what you have learned thus far, this can be a complex issue because it has many component parts.

We are dealing with one of the most productive and yet potent forces on the face of the earth: the human mind. We ask a simple but profound question: What causes people to do some of the things they do?

In answering this question we need to be concerned about two well-known biases in psychology: the fundamental attribution error, and the confirmation bias. The fundamental attribution error is a bedrock concept in social psychology. When we are trying to understand and explain another's behavior, we tend to do so in terms of that person's internal disposition, such as personality traits, abilities, and motives, as opposed to external situational factors (which may be highly relevant). This can be a result of the so-called actor-observer bias, because our focus is on the person more than the situation, about which we may know very little or nothing at all. We also could be quite uninformed, and even ...