Experimental evidence of the effect of financial incentives and detection on dishonesty

Abstract

AbstractWe revisit two fundamental motivations of dishonesty: financial incentives and probability of detection. We use an ability-based real effort task in which participants who are college students in India can cheat by over reporting the number of puzzles they could solve in a given period of time. The puzzles are all unsolvable and this fact is unknown to participants. This design feature allows us to obtain the distribution of cheating outcomes at the individual level. Controlling for participant attributes, we find that introducing piece-rate financial incentives lowers both the likelihood and magnitude of cheating only for individuals with a positive probability of detection. On the other hand, a decrease in the probability of detection to zero increases magnitude of cheating only for individuals receiving piece-rate incentives. Moreover, we observe that participants cheat significantly even in the absence of piece-rate incentives indicating that affective benefits may determine cheating. Finally, an increase in own perceived wealth status vis-à-vis one’s peers is associated with a higher likelihood of cheating while feeling more satisfied with one’s current economic state is associated with a lower magnitude of cheating.