(By Sri Ramamoorti) In, A.B.C.’s of Behavioral Forensics: Applying Psychology to Financial Fraud Prevention and Detection (Wiley, 2013, see esp. Chapter 6 of the ABC book), my co-authors and I distinguish the predator from the “accidental fraudster,” calling the former the “malignant bad apple” and the latter, the “benign bad apple.” Predators are highly motivated to commit fraud; “accidentals” not so much.
Recently, during the process of collaborating on research, a reviewer challenged our use of the term “accidental fraudster.” The anonymous reviewer remarked that mens rea (a fragment of the Latin phrase, actus reus non facit reum nisi mens sit rea, which means “the act is not culpable unless the mind is guilty”) or “guilty mind,” is an essential element of fraud. Therefore, by using “accidental fraudster,” for us to even suggest that the fraud was an “accident” was simply wrong-headed. Accordingly, we have since eschewed use of “accidental fraudster,” and replaced it with the term “situational fraudster.”
Which brings me to Tufts University social psychologist, Dr. Sam Sommers, who created quite a stir with his well-received 2011 book, Situations Matter: Understanding How Context Transforms Your World (NY: Riverhead Books). Early on, he declares the foundational premise: “To understand human nature, you need to appreciate the power of situations.” To underscore the powerful influence of context, he writes: “Every day we overlook the enormous power of situations in our lives. We fail to appreciate that life’s basic details—where we are, whom we’re with, and even whether we’re in a hurry—affect how we think and act.” Nationally prominent behavioral economist, Dr. Daniel Ariely of Duke University, gives the book a thumbs up in his review.
Decades ago, management consultant Stan Davis wrote a seminal article suggesting that management decision-making, to be effective, requires a good knowledge of the context of the situation. Essentially (and probably in different wording), Dr. Davis asserted that in just about every situation, the meaning of that situation is pretty well defined by its context. Dr. Sommers appears to endorse this thinking in his reference to the “power of situations (i.e. contexts).”
In a 2012 Psychology Today article, Dr. Sommers applied this kind of thinking to speculate about how context drives unethical behavior, even fraud, and that “bad behavior is about much more than bad people.” Citing a research study by University of Notre Dame researcher, Dr. Ann Tenbrunsel, he points out that being primed to be in an “ethical frame of mind” as opposed to thinking about a business decision context might, by itself, promote ethical behavior. In other words, the framing of the decision context is important; the “salience” of the ethical context even more so. We discuss this aspect in the ABC book using the idea of the “fundamental attribution error” in social psychology, wherein the “actor-observer” bias compels us to attribute the cause of observed behaviors to the person—ostensibly a “good person”—rather than to the context, or situation, that may actually have an outsize and true causal effect. “Or, it isn’t always the person, but the circumstances that may have lead to certain behaviors.”
Next, citing Stanley Milgram’s famous studies of obedience to authority, Sommers notes that “big bursts of bad behavior often start with a slow trickle.” He describes this phenomenon: “The little white lie that snowballs out of control. The ambiguous résumé half-truth that evolves into the outright fabrication perpetuated in public. The fudged expense report that eventually becomes out-and-out embezzlement.” In the ABC book, we similarly describe the slippery slope, and how fraud typically starts out small, then balloons out of control, becoming impossible to hide. Of course, we also pointedly ask our colleague and fellow blogger Dr. Joseph Koletar’s question: “Have you ever heard of a fraud perpetrator who stole a million dollars then worked his way down?”
Perhaps this behavior is best explained by the “boiling frog syndrome:” Initial insensitivity to a worsening situation that gradually increases in severity until it reaches calamitous proportions. The metaphor derives from a 19th century parable about boiling a frog, in which a frog placed in boiling water will immediately try to jump out to save itself, but one placed in cool water that is gradually brought to a boil will ignore the heat until it is veritably boiled to death.
Sommers then proceeds to suggest that “unethical behavior can be contagious.” In fact, he proposes several ways in which “observing the questionable behavior of others affects our own actions….” (the behavior thus becomes the context or situation). His conjectures:
• Perhaps seeing someone else get away with something convinces you that the odds of getting caught are lower than you previously figured.
• Maybe seeing others behave poorly loosens the social conventions that otherwise pressure you into behaving well.
• Or it could be that seeing the transgressions of others simply brings the notion of ethics to the forefront of your mind?
Sommers cites research studies by Francesca Gino, now at Harvard University, who has greatly enhanced our understanding of contextually-driven ethical/unethical behavior (some of her co-authored research studies are referenced below). In this connection, the ABC book offers a simple, but powerful taxonomy: the bad apple, the bad bushel, and the bad crop. We’ve also expanded our thinking in this blogsite by broadening the taxonomy to include “bad farmer’s markets,” wherein regulators, the referees, policy makers, and standard setters may be also compromised through “regulatory capture,” the overseers and governors (e.g., the Board of Directors and auditors) may lack independence and thus be conflicted, the laws themselves may be weak, or the enforcement lax, and the “system of checks and balances” that is assumed to be in operation, is actually compromised and rendered ineffective. This torrid portrait is what we saw happen during the Wall Street financial crisis of 2007-2009 (see for instance, the Report of the Financial Crisis Inquiry Commission, 2011).
Yes, context matters, but only for situational fraudsters. Predators, though, can create the context, and are often more predictable. After all, we don’t ask: “Why do bad people do bad things?”
Bazerman, M. H. & Tenbrunsel, A. E. (2011). Blind Spots: Why We Fail to Do What’s Right and What to Do About It. New Haven, CT: Princeton University Press.
Financial Crisis Inquiry Commission (FCIC) Report (2011). Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States. U.S. Government Printing Office, January/February 2011.
Gino, F., Gu, J., & Zhong, C. B. (2009). Contagion or restitution? When bad apples can motivate ethical behavior. Journal of Experimental Social Psychology, 45(6), 1299-1302.
Gino, F., Ayal, S., & Ariely, D. (2009). Contagion and differentiation in unethical behavior: The effect of one bad apple on the barrel. Psychological Science, 20(3), 393-398.
Gino, F., & Pierce, L. (2009). The abundance effect: Unethical behavior in the presence of wealth. Organizational Behavior and Human Decision Processes, 109(2), 142-155.
Sommers, Sam (2011). Situations Matter: Understanding How Context Transforms Your World. New York: Riverhead Books.
Sommers, Sam (2012). When Good People Behave Badly: Exploring the psychology of fraud and unethical behavior. Posted Jun 05, 2012 in Psychology Today, see https://www.psychologytoday.com/blog/science-small-talk/201206/when-good-people-behave-badly



The Behavioral Forensics Group is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives.  The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics Group.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, BFG is a premier, pioneering practice in this field.

We are blogging at: http://www.bringingfreudtofraud.com

Leave a Reply

Your email address will not be published. Required fields are marked *