How To Stop Cheating

By TAN Kee Wee

(MediaCorp 938LIVE’s Money Talks, Thursday, 2 October 2008, 7.50 am and 7.20 pm)

Another scandal from China has gripped us. This time it’s tainted milk. In their bid to increase profits, some Chinese companies added melamine into the milk they sold.

They must know that tainted milk can harm. Then why did they do it? It’s easy to make the sweeping statement that Chinese businessmen like to cheat us because they do not have morals. And that’s because they are the products of a communist system that has no religion, and nothing that teaches them right from wrong.

But then how do we explain the unscrupulous behaviour of some Wall Street banks behind the sub-prime mess? They come from a nation rich with numerous religions whereby the teaching of morals is widespread. They should know that their tainted investment products will make people lose money.

Economists are also interested in understanding why people cheat. Those cheating others consider only the benefits to themselves. But the costs they impose on the whole economy are very large.

Studies have shown that people do not cheat because they do not have any morals. People cheat because the benefits of cheating exceed the costs.

Two economists in particular, Cliff Nowell and Doug Laufer, in a 1997 paper, demonstrated this behaviour with an experiment on 300 college students. The students were given multiple-choice tests that were collected and secretly photocopied.

The originals were returned to the students soon after. The students were then told to mark their own tests and report their scores to the examiner. The examiner would then check the actual scores with the scores the students gave themselves.

Did the students cheat? Unfortunately, the results showed that about 25% of the students cheated. The experiment found that students with the highest expected benefits, and the lowest expected costs, were most likely to cheat.

And it has nothing to do with morals. In other similar studies to see whether the teaching of morals would discourage cheating, the students were told to be honest before the tests. The examiners appealed to their conscience and integrity. Even after all that, the level of cheating did not drop.

In other words, cheating is a normal part of human behaviour. Human beings make rational choices about when and where to cheat. If that’s the case, how do we stop cheating?

How about, let’s say, imposing heavy punishments on the students who are caught cheating? This could be in the form of an expulsion, a heavy fine, or a public shaming. Apparently, studies show that such punishments have little impact on reducing the level of cheating.

In the real world, it’s not easy to impose punishments without working through rather cumbersome legal procedures. There’s a lot of paperwork, and court hearings take an emotional toll on both parties. And if only minor damages are at stake, the cost of administering punishments may not be worth it.

Studies show that the best way of reducing cheating is to make it difficult for people to cheat in the first place. In the student tests, for example, more examiners were recruited to police the students. And the students were told that their colleagues would look over their shoulders. When such measures were taken, cheating was reduced drastically.

This means to say that if we want to stop another case of tainted milk in China, or another case of tainted investment products from Wall Street, it’s useless to teach them morals.

What we must do is to impose strong regulations on Chinese factories and Wall Street banks. Of course, these regulations must be strictly enforced, and bribery must be prevented.

Only then will it lead to an improvement in the quality of Chinese-made goods. For Wall Street, we’re seeing the end of a long prosperous era of American laisser-faire capitalism. It’s the beginning of an era of government intervention and re-regulation. For all of us, this may be a good thing.