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Abu Ghraib: Lessons from behavioural finance and for corporate governance

The conditions that turn good people bad

In order to understand the factors that lead good people to behave in a bad way, we can turn to the work of Albert Bandura[11]. Bandrua has spent many years studying the factors that lead to moral disengagement. His major findings can be summarised as follows:

Moral justification – behaviour is reconstructed so it is no longer deemed to be immoral. The clearest examples of such behaviour are wars in which the enemy is seen as a ruthless oppressor, and thus those fighting the war are morally justified.

Euphemistic labelling – language is very important as it shapes and frames our thoughts. Harmful conduct can be made seemingly respectable if it is given the right name. For instance, the euphemism of ‘resettlement’ for the mass murder, ‘voluntary refugee camps’ for concentration camps and ‘collateral damage’ for civilians killed during military actions.

Advantageous comparison – how behaviour is viewed is coloured by what it is compared against. Setting up off balance sheet entities to hide transactions may seem perfectly reasonable when compared to the evils of murder.

Displacement of responsibility – this is the key finding from Milgram’s work. People seem able to suspend moral judgement if a ‘legitimate’ authority accepts responsibility for their actions. The ‘I was only following orders’ defence.

Diffusion of responsibility – moral disengagement is easier in groups. Bandura et al[12] found that people acted far more cruelly under group responsibility than when they hold themselves personally accountable for their actions.

Disregard or distortion of consequences – it is easier to do the wrong thing when the consequences are ignored or minimised. The shareholder is a pretty abstract concept from a manager’s point of view, so the consequences of harming the shareholder may be easily minimised. In the same way, smart bombs and surgical strikes enable us to wage war from a distance never before known.

Dehumanisation – It is far easier to hurt or harm someone who we view as non-human. In the Bandura et al study cited above, in one of the experiments a group of subjects were led to believe that they were overhearing the research assistant tell the experimenter that the students from another college were ready to start the study in which the listeners would be administering electric shocks to these students from another college.

The exact phrasing they overheard was randomly selected from one of three possible choices. The visiting students were either described as ‘nice’, ‘animal-like’ or without any descriptive label. The shock intensity varied massively with the description the students overheard.

When the visitors were described as ‘animals’, the shock level rose linearly over ten rounds. Those labelled ‘nice’ were given the least shock. So, just overhearing a single word proved to be enough to dehumanise in this study. It is also worth noting the limits to self-control that we outlined in last week’s note. The more we use self-control, the less self control we have ready to use for the next occasion.


11 See for example, Bandura (1999) Moral disengagement in the perpetration of inhumanities, Personality and Social Psychology Review, 3

12 Bandura, Underwood and Fromson (1975) Disinhibition of aggression through diffusion of responsibility and dehumanization of victims, Journal of Research in Personality, 9

By Dr James Montier

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