Designing to Avoid “Ordinary Unethicality”: A Q&A with Yuval Feldman

Yuval Feldman, the Mori Lazarof Professor of Legal Research at Bar-Ilan University Law School in Israel, recently published the book The Law of Good People: Challenging States’ Ability to Regulate Human Behavior. The book examines how behavioral ethics could change legal design and enforcement. I started by asking him to explain what he means by “behavioral ethics.”

Yuval Feldman: As the book’s title suggests, behavioral ethics starts from the position that our organizations and institutions are, by and large, populated by generally good people. However, these same people are biased, by both automatic and deliberative processes, to interpret self-interested behavior in ways that can be justified by their conscience. People often fail to recognize the extent to which self-interest affects their understanding of both moral and legal rules, and consequently they underestimate how self-interest affects their behavior.

People are adept at interpreting outcomes that are aligned with their self-interest as acceptable, particularly when contexts allow enough ambiguity to make those sorts of interpretations relatively easy to generate.

There will always be bad people intent on mischief, but the lesson to legal policymaking from behavioral ethics is to thoughtfully design environments, rules, and regulations in ways that don’t invite unethical behavior from ordinary people.

Dave Nussbaum: Can you give me an example from your research of how this sort of unethical behavior plays out in ordinary people?

The classical studies of behavioral ethics give people various opportunities to lie, and the studies then examine how far people are willing to go to promote their self-interest. This could be in a dice-under-the-cup task (where people need to report the number they rolled when the result is known only to them) or in a matrix (where they need to report how many correct answers they have).

As a legal scholar who studies behavioral ethics, my approach is different. I focus on how people interpret legal rules in a way that will maximize their self-interest but still allow them to maintain an ethical self-image.

For example, in a joint study with Doron Teichman and Amos Schur, we examined how people interpret the word “reasonable” in a lab context that imitated a contractual context. Participants were asked to do a “reasonable mixture of hard and easy questions.” People could choose to do either hard or easy questions summing up to twenty questions overall. Since participants were rewarded based only on outcomes, the self-interested choice was to do as many easy questions as possible. Some of the participants were in a loss-framing condition, in which they were endowed with 20 NIS (New Israeli Shekel; about five dollars) and lost 1 NIS for every mistake, and some were in the profit-framing condition and got 1 NIS for every correct answer.

People often fail to recognize the extent to which self-interest affects their understanding of both moral and legal rules.

The amazing effect was in how people interpreted what was reasonable in the two conditions. While in the profit condition a “reasonable” mixture was approximately 7 hard question and 13 easy ones, in the loss condition participants interpreted reasonable as 3 hard questions and 17 easy ones. Since losses loom larger than profits, through a process of motivated reasoning, people interpreted the word “reasonable” in a way that allowed them to gain more money and still feel that they had interpreted the contract in a fair way.

This captures one of the key insights of behavioral ethics, which is that most people are reasonably good people who, though not perfectly ethical, are also not out to cheat at every opportunity. However, the more we allow them wiggle room to justify self-interested behavior—as in the experiment I just described—the more likely they are to rationalize a self-interested choice to violate a legal or ethical norm, and therefore the more likely they are to act on it. These usually are not egregious violations, but minor instances of “ordinary unethicality,” where people can still feel comfortable enough with their ethical choices.

Why do you think that that ordinary unethicality is so important from a legal perspective? Isn’t it more important for the legal systems to focus on major violations of the law?

Legal enforcers might naturally focus on the gross violations of the law because they need smoking guns, but the many more-benign violations of the law actually accumulate to huge impacts on both law and society. In addition, we know from the behavioral-ethics literature how contagious ethical violations are, and how unethical behavior gradually becomes larger and larger. Finally, the numerous subtle rule violations create new social norms of what is a permissible legal behavior, and they have much larger effects on the destruction of social capital and trust than the few gross violations by the really “bad” people.

People can safely assume that their financial adviser is not Bernie Madoff. However, the various conflicts of interest that many financial advisers (as well as many service providers) operate in might make it hard for people to fully trust their financial advisers, even if advisers have no ill intentions.

What do you think is the most important implication of behavioral ethics to the legal scholarship?

People’s inability to recognize their own wrongdoings and inability to understand how self-interest affects their reasoning could explain many of the disputes across almost all legal fields. Naturally, people’s tendency to view themselves as moral and objective can explain why activities such as discrimination, corruption, and commercial disputes are so prevalent. If situational legal policy could help ordinary people recognize their own wrongdoing in advance and then take the right preventive steps, it could dramatically reduce enforcement costs of an ex-post regime that focuses on deterrence and attribution of responsibility, which are not very effective in most contexts of ordinary unethicality.

The lesson to legal policymaking from behavioral ethics is to thoughtfully design environments, rules, and regulations in ways that don’t invite unethical behavior from ordinary people.

There has been a trend toward considering behavioral economics in the legal sphere—does that suggest an opening for behavioral ethics as well?

Due to the dominance of law and economics, the behavioral approach to law has been based on behavioral economics. But behavioral ethics emerged in the management literature, and it doesn’t focus on deviations from rationality. Nonetheless, its potential contribution to the core subjects of legal policymaking (e.g., compliance, enforcement, institutional governance) is huge, and the book just scratches the surface in terms of the full potential of the field. Creating a just society with respect for the rule of law and improving peoples’ ethical behavior and cooperation with the laws and regulations of the states they live in is no less important than improving people’s financial decision-making, their health, or the products they purchase, which are the focus of most nudges today.

From the perspective of behavioral ethics, what would an effective intervention look like?

Since many of the findings of behavioral ethics suggest that contexts drive people to engage in ordinary unethicality, it might suggest that from a legal standpoint, we need to hold organizations liable for creating situations that cause their employees to engage in wrongdoing. Thus, for example, a situation when employees’ salaries are outcome-based may push salespeople to engage in aggressive sales practices that quickly erode into lying and misrepresentation. Similarly, ambiguous organizational rules might cause employees, through processes of motivated reasoning, to come up with self-serving interpretations of these rules, leading them to behave unethically.

You are somewhat critical of the concept of ethical nudge; do you think that ethical nudges are less likely to be relevant to good people?

On the contrary, one of the strong implications of the book is that states should focus on dealing with (good) people’s awareness of their own wrongdoing. Clearly, nudges could have an important role there, but they need to be designed to integrate with more traditional legal instruments. Classical nudges help people overcome their cognitive biases to avoid getting into financial debt or consuming unhealthy products, so they align with self-interest. Ethical nudges are quite different. People are motivated to ignore nudges that make it harder to deceive themselves about their own level of ethicality, so there’s an extra challenge for nudge architects to overcome.

Numerous subtle rule violations create new social norms of what is a permissible legal behavior, and they have much larger effects on the destruction of social capital and trust than the few gross violations by the really “bad” people.

There is also a concern from a legal perspective. Take for example Shu et al.’s work (which finds that signing at the beginning of documents increases honesty), and consider what would happen if we make that into a law—is the power of these nudges likely to erode over time as people become accustomed to it?

Another challenge of nudges in ethical contexts is that we might not want to give up on people’s ethical motivation. We might want people to hire minorities not just because of some choice architecture intervention or because they were blinded to the candidates’ identity, but also because they believe in diversity. In contrast to pension or organ donation, where the outcome is most important, in many legal and ethical contexts, the law wants to create moral individuals. For that reason, much of the discussion in the book is on more complex approaches, which will combine nudges with modified versions of the current legal instruments.

If the paradigm of good people were adopted by legal scholars and policymakers, how would the field change?

I hope that the book will cause more behavioral scholars to focus more on ethical questions that are relevant for the legal scholarship. I also hope it will lead more legal scholars to research how to deal with the mechanisms that cause so many people to engage in wrongdoing. For example, through various collaborations with legal scholars, psychologists, and management scholars, we use big data to try to create regulations that preempt unethical behavior by changing the situations that are likely to create those behaviors. Overall, there is a need for many more studies that identify the behavioral-ethics challenges in the existing legal doctrines and suggest better alternatives.