(By Sri Ramamoorti) In, A.B.C.\u2019s of Behavioral Forensics: Applying Psychology to Financial Fraud Prevention and Detection<\/a> (Wiley, 2013, see esp. Chapter 6 of the ABC book), my co-authors and I distinguish the predator from the \u201caccidental fraudster,\u201d calling the former the \u201cmalignant bad apple\u201d and the latter, the \u201cbenign bad apple.\u201d Predators are highly motivated to commit fraud; \u201caccidentals\u201d not so much.
\nRecently, during the process of collaborating on research, a reviewer challenged our use of the term \u201caccidental fraudster.\u201d The anonymous reviewer remarked that mens rea (a fragment of the Latin phrase, actus reus non facit reum nisi mens sit rea<\/em>, which means “the act is not culpable unless the mind is guilty”) or \u201cguilty mind,\u201d is an essential element of fraud. Therefore, by using \u201caccidental fraudster,\u201d for us to even suggest that the fraud was an \u201caccident\u201d was simply wrong-headed. Accordingly, we have since eschewed use of \u201caccidental fraudster,\u201d and replaced it with the term \u201csituational fraudster.\u201d
\nWhich 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<\/em> (NY: Riverhead Books). Early on, he declares the foundational premise: \u201cTo understand human nature, you need to appreciate the power of situations.\u201d<\/strong> To underscore the powerful influence of context, he writes: \u201cEvery day we overlook the enormous power of situations in our lives. We fail to appreciate that life\u2019s basic details\u2014where we are, whom we\u2019re with, and even whether we\u2019re in a hurry\u2014affect how we think and act.\u201d Nationally prominent behavioral economist, Dr. Daniel Ariely of Duke University, gives the book a thumbs up in his review.
\nDecades 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 \u201cpower of situations (i.e. contexts).\u201d
\nIn a 2012 Psychology Today<\/em> article, Dr. Sommers applied this kind of thinking to speculate about how context drives unethical behavior, even fraud, and that \u201cbad behavior is about much more than bad people.\u201d Citing a research study by University of Notre Dame researcher, Dr. Ann Tenbrunsel, he points out that being primed to be in an \u201cethical frame of mind\u201d 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 \u201csalience\u201d of the ethical context even more so. We discuss this aspect in the ABC book using the idea of the \u201cfundamental attribution error\u201d in social psychology, wherein the \u201cactor-observer\u201d bias compels us to attribute the cause of observed behaviors to the person\u2014ostensibly a \u201cgood person\u201d\u2014rather 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.”
\nNext, citing Stanley Milgram\u2019s famous studies of obedience to authority, Sommers notes that \u201cbig bursts of bad behavior often start with a slow trickle.\u201d He describes this phenomenon: \u201cThe little white lie that snowballs out of control. The ambiguous r\u00e9sum\u00e9 half-truth that evolves into the outright fabrication perpetuated in public. The fudged expense report that eventually becomes out-and-out embezzlement.\u201d 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\u2019s question: \u201cHave you ever heard of a fraud perpetrator who stole a million dollars then worked his way down?\u201d
\nPerhaps this behavior is best explained by the \u201cboiling frog syndrome:\u201d 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.
\nSommers then proceeds to suggest that \u201cunethical behavior can be contagious.\u201d In fact, he proposes several ways in which \u201cobserving the questionable behavior of others affects our own actions\u2026.\u201d (the behavior thus becomes the context or situation). His conjectures:
\n\u2022 Perhaps seeing someone else get away with something convinces you that the odds of getting caught are lower than you previously figured.
\n\u2022 Maybe seeing others behave poorly loosens the social conventions that otherwise pressure you into behaving well.
\n\u2022 Or it could be that seeing the transgressions of others simply brings the notion of ethics to the forefront of your mind?
\nSommers 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\u2019ve also expanded our thinking in this blogsite by broadening the taxonomy to include \u201cbad farmer\u2019s markets,\u201d wherein regulators, the referees, policy makers, and standard setters may be also compromised through \u201cregulatory capture,\u201d 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 \u201csystem of checks and balances\u201d 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).
\nYes, context matters, but only for situational fraudsters<\/strong>. Predators, though, can create the context, and are often more predictable. After all, we don\u2019t ask: \u201cWhy do bad people do bad things?\u201d
\nReferences:
\nBazerman, M. H. & Tenbrunsel, A. E. (2011). Blind Spots: Why We Fail to Do What’s Right and What to Do About It.<\/em> New Haven, CT: Princeton University Press.
\nFinancial 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.<\/em> U.S. Government Printing Office, January\/February 2011.
\nGino, F., Gu, J., & Zhong, C. B. (2009). Contagion or restitution? When bad apples can motivate ethical behavior<\/em>. Journal of Experimental Social Psychology, 45(6), 1299-1302.
\nGino, F., Ayal, S., & Ariely, D. (2009). Contagion and differentiation in unethical behavior: The effect of one bad apple on the barrel<\/em>. Psychological Science, 20(3), 393-398.
\nGino, F., & Pierce, L. (2009). The abundance effect: Unethical behavior in the presence of wealth<\/em>. Organizational Behavior and Human Decision Processes, 109(2), 142-155.
\nSommers, Sam (2011). Situations Matter: Understanding How Context Transforms Your World<\/em>. New York: Riverhead Books.
\nSommers, Sam (2012). When Good People Behave Badly: Exploring the psychology of fraud and unethical behavior<\/em>. Posted Jun 05, 2012 in Psychology Today, see https:\/\/www.psychologytoday.com\/blog\/science-small-talk\/201206\/when-good-people-behave-badly<\/p>\n

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The\u00a0Behavioral Forensics Group<\/i>\u00a0is 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.\u00a0\u00a0The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the\u00a0Behavioral Forensics Group<\/i>.\u00a0\u00a0Acting in synergy to help organizations prevent, find, and\/or reduce fraud, BFG is a premier, pioneering practice in this field.<\/span><\/p>\n

We are blogging at:\u00a0<\/span>http:\/\/www.bringingfreudtofraud.com<\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

(By Sri Ramamoorti) In, A.B.C.\u2019s 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 \u201caccidental fraudster,\u201d calling the former the \u201cmalignant bad apple\u201d and the latter, the \u201cbenign bad apple.\u201d Predators are highly motivated […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-679","post","type-post","status-publish","format-standard","hentry","category-audit"],"_links":{"self":[{"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=\/wp\/v2\/posts\/679","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=679"}],"version-history":[{"count":3,"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=\/wp\/v2\/posts\/679\/revisions"}],"predecessor-version":[{"id":686,"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=\/wp\/v2\/posts\/679\/revisions\/686"}],"wp:attachment":[{"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=679"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=679"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=679"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}