Delusions Morality and Fraud

By: Tonya Mead, CFE, CHFI,  PI, MBA, MA Educational Psychology

In reflecting upon the upcoming September issue of The Atlantic and the article How America Lost its Mind,[1] I think back to the research published by Harvard Business School Professors Cole, Kanz, and Klapper demonstrating that “incentives have the power to change not only how we make decisions, but how we perceive reality.” [2, para 1].

In this work, the authors explore the rationale behind the loan decisions made by bankers to entrepreneurs for commercial projects. In hindsight, most loans should not have been approved. The researchers sought to determine whether greed (as expressed by performance bonuses tied to loan volume) was the only explanation for the faulty decisions.

Their findings proved interesting. Cole says, “When evaluating identical applications, participants receiving an origination bonus issued higher ratings than those receiving incentives that were tied to a loan’s success. It wasn’t simply that receiving an origination bonus increased the likelihood that an officer would approve an application for a loan; it was that the bonus made him or her truly believe that the application was more worthy.” [2, para 16].

What is the link between Andersen’s conclusions appearing in the Atlantic; How America Lost its Mind and Harvard Business School professors?

Both appear to suggest some sort of delusional state. For instance, HBS researchers say, “people’s true judgment was distorted because of their incentives” [2, para 20]. Similarly, Andersen reflects that America has become a nation populated by people who live by the motto “Do your own thing, find your own reality, it’s all relative.” [1, para 1].

I would suggest two reasons for this phenomenon.

  1. Average Americans believe that they must work harder and harder each day to fend for themselves in an economic system they perceive to be structured against them; some may even resort to fraud to get ahead. For instance, 71% of Americans according to a Fortune survey think the US economy is rigged.
  2. Faulty decision-making and misjudgments are byproducts of stress, uncertainty and a weak economy. According to sixteen years of research undertaken by the Institute of HeartMath, “our emotions are much more important in the decision-making process than previously thought.” The poor choices we make in haste are often the byproduct of unmanaged emotions and stress. When we are calm, our decisions are less biased and influenced by emotion-laden worries and fears. I’d like to add tranquil or chaotic environments can acerbate or deter crime [see Social Disorganization Theory].

An estimated 75-90% of visits to primary-care physicians are for stress-related problems. According to the Institute, confusion, irritability, frustration, anxiety, anger severely impacts effective decision making.

Further, ThinkQuest  reports that decision-makers, when under stress, lose concentration, and hinder their ability to learn (perceive new information).  In fact, chronic stress may damage the hippocampus, the part of the brain responsible for learning and memory.

So what does this have to do with fraud?

Ernest and Young in training its auditors to detect fraud warns them to be cautious about “judgment biases [that] can lead to bad decisions and to overlooking possible indications of fraud.” [3, pg 18].  According to Censure, financial stress is one of the primary reasons why people commit fraud. And, don’t forget the Social Disorganization Theory mentioned above.

Maybe what we are really getting at is corruption?

Let’s look beyond microeconomic decisions at the individual level, a firm or industry; to the macroeconomic system. In reflecting upon the corrupt system in South Sudan, Miamingi of the Sudan Tribune had this to say,  “the destiny of any nation depends on the character of the people living in, and or leading it. Thus, when a geographical entity, in its quest for nationhood, is abundantly blessed with confused, factionalized and extremely corrupt elites with limited sense of nationhood, the state simply becomes a primary instrument of primitive accumulation [4, para 6].”

Miamingi crafted his article such that he wanted his readers to look to America’s system as worthy of emulation. He directed his audience to aspire to our values and our culture as expressed by Thomas Jefferson, “the American people should be ‘inherently independent of all but the moral law’ and referring to George Washington, he wrote “that private morality is the ‘surest pledge that the foundation of our national policy will be laid in the pure and immutable principles of private morality’ [4, para 5].”

Let’s focus again on the two articles

The red herring is the question of morality. While Democrats, Republicans, Independents, and the Unaffiliated can agree to disagree on policy, I can’t get past the fact that there exists an unwritten code held by many that one party holds a higher moral authority than the other. And thus, it is ok to ostracize non-members of the socially acceptable group. Anyone who dares to think or act outside of the socially accepted line of thinking is deemed delusional or lacking in reality. Therefore they are fair game for attack.

But you may say, it’s not the delusional, surreal thinking held by these outsiders that is the problem, it’s their lack of morals. Let’s dissect morality.

Maybe it is a lack of Morality

It is generally accepted that “those perceived to have reduced mental capacity (e.g. insane persons) are deemed less responsible for their transgressions” and yet they are afforded equal rights [6, para 10]. However researchers shared their findings in the journal,  Psychological Inquiry  demonstrating that the concept of morality is multi-dimensional, not binary. Not only do we judge individuals as being moral, or making morally sound decisions or converse; we also make our judgments of them based upon our perceptions of them. These perceptions are colored (or distorted) by our own experiences and stereotypes held of an individual or group’s ability to act with self control (and other assorted characteristics).

You may like these related articles on morality and integrity


So there you have it. There appears to be a lack of coherent cohesion because individual Americans no longer believe that their values, attitudes and beliefs are collectively intertwined together to make one nation. Without consideration of the unique differences but similar challenges we all hold in the pursuit of happiness I hear, “the other side is so immoral”  they mutter to themselves and cry out in disdain. Ronald Reagan once said, “If we ever forget that we are one nation under God, then we will be a nation gone under.” I hope we haven’t reached that point yet. Thanks to Andersen, Miamingi, and the HBS researchers for holding a positive discourse to address modern problems facing humanity.

Resources (not hyperlinked)
“The Fraud Resistant Organization, Ernst and Young, November 17, 2014.

Tonya J. Mead, CFE, CHFI, PI, MBA, MA, Certified K-12 Administrator and School Psychologist is author of Fraud in Education: Beyond the Wrong Answer and president of Shared Knowledge, LLC

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