Economics and Finance seminar: John Thanassoulis (Warwick Business School)

The slippery slope: misconduct despite ethics

We study the decision of ethical managers to double down on misconduct such as securities fraud. We use neuroscience evidence to appropriately model ethics in the utility function. We characterise lying equilibria as a function of:

    the category of ethics induced;

    the punishment regime;

    and the longevity of the business opportunity.

We show when punishment reinforces, rather than deters, misconduct. We demonstrate an in-too-deep threshold such that, no matter how ethical a manager is, misconduct is possible in any punishment regime with insufficient leniency for self-referral. However we show leniency regimes can create lying regions: lying first before confessing.

Room A406