Behavioral Economics for Leaders

CHAPTER 42Unethical Behavior Rises and Falls with Incentives—Make It Hard for People to Get Rich Doing the Wrong Thing

Saint Augustine stated that every lie—independent of its scope and consequences—constitutes a grave sin. Economists think less in terms of black and white. They weigh the costs and benefits of a certain conduct, for example, deliberate deception.

A business consultant once regaled me with the following tale from his professional life: he worked for a midsize company that was in the midst of negotiations for being taken over by a larger group. The company’s management very much wanted to complete the takeover successfully and quickly. But the negotiations bogged down again and again, and the management of the corporation kept everybody on pins and needles awaiting a decision. The entire process was quite protracted, something nobody had expected. The company in the end decided to take a desperate—and immoral—move to change the course of negotiations, utilizing their very last bit of strength. It hired Chinese‐born actors who showed up at the company in a luxury car to act as alleged potential buyers. A convenient time for the big show had been set prior so that the negotiating team of the corporation got wind of it. Due to this bluff, a decision was made relatively quickly that was favorable for the midsize company, followed by a binding takeover offer that was gladly accepted.

This anecdote—however reprehensible it may be from a moral point of view because ...