Friday, March 15, 2019

In the lab: Those with an East German background cheat significantly more on an abstract die-rolling task than those with a West German background, but only when exposed to West Germany's system

The impact of two different economic systems on dishonesty. Dan Ariely et al. European Journal of Political Economy, March 13 2019.

Abstract: Using an artefactual field experiment, this paper tests the long-term implications of living in a specific economic system on individual dishonesty. By comparing cheating behaviour across individuals from the former socialist East with those of the capitalist West of Germany, we examine behavioural differences within a single country. We find long-term implications of living in a specific economic system for individual dishonesty when social interactions are possible: participants with an East German background cheat significantly more on an abstract die-rolling task than those with a West German background, but only when exposed to the enduring system of former West Germany. Moreover, our results indicate that the longer individuals had experienced socialist East Germany, the more likely they were to cheat on the behavioural task.

Keywords: Social behaviourCheatingDishonestyArtefactual field experiment


1. Introduction
Individual dishonesty is very costly for society as a whole. For example, the average annual tax gap in the US for the years 2008-2010 is estimated to be $458 billion (Internal Revenue Service, 2016). The costs of insurance fraud (excluding health insurance) is estimated to be more than $40 billion per year, which translates to costs in the form of increased premiums between $400 and $700 per year for an average US family (U.S. Department of Justice, 2018). Understanding determinants of dishonest behaviour is thus a major concern for society. In this paper, we investigate a context effect of dishonesty by asking the question: What are the long-term implications of living in a specific economic system for individual dishonesty? We explore whether existing economic systems, socialism and capitalism, have a different effect on people’s dishonesty. To understand how exposure to real economic systems influences individual behaviour, we make use of an historical event, the division of Germany into two different formerly existing economic regimes within a single country, socialist East and capitalist West Germany. Specifically, we compare cheating behaviour between East Germans, who were exposed to socialism for over 40 years, and West Germans, who were at the same time living in a market economy. Several studies have documented differences in individual behaviour between citizens of former East and West Germany, for example in national solidarity (Ockenfels and Weimann, 1999; Brosig-Koch et al., 2011) or preferences for redistribution and levels of social trust (Alesina and Fuchs-Schündeln, 2017; Heineck and Süssmuth, 2013). Heineck and Süssmuth (2013) even find that specific cultural traits appear to be passed down through generations. We add to this strand of literature by investigating the persistence of behavioural differences in dishonesty. Moreover, we compare the impact of two really existing economic systems within one single country to better understand the effect of extant socialistic versus capitalistic regimes on individual dishonesty. 
 It is important to note that social interactions—between friends as well as strangers—seem to influence dishonest behaviour. People cheat more when they observe others behaving dishonestly (Gino et al., 2009). In this vein, Diekmann et al. (2016) and Rauhut (2013) find support for social conformity to the observed behaviour in the form of contagiousness and spread of norm violations. Mann et al. (2014) also show a transmission through social networks and documents that people’s tendency to lie is associated with the lying behaviour of their friends and family members. However, social interaction can also lead to anti-conformity in behaviour. An experimental study by Fortin et al. (2007) finds evidence of a social anti-conformity effect, which suggests that individuals prefer to deviate from the tax compliance behaviour of their reference group, using an income reporting task. In the specific case of former East and West Germany, fairness considerations may spur social interaction effects, since fervent debate erupted after the reunification of Germany about whether economic and social injustice befell parts of the country because of the reunion (Schmitt and Maes, 1998). Individuals who believe they were treated unfairly in an interaction with another person are more likely to cheat in a subsequent unrelated game (Houser et al., 2012). Moreover, when individuals are aware that they were poorly compensated relative to another group, they cheat more to increase their earnings (John et al., 2014). In this paper, we explore whether social interactions might explain individual differences in dishonesty between citizens from socialist versus capitalist systems. We use an artefactual field experiment (Harrison and List, 2004) to investigate the impact of different economic systems within a single country on individual cheating behaviour. We compare cheating among people exposed to the two existing economic systems of former Germany. In particular, we compare Germans living in Berlin, where citizens with East and West German backgrounds co-exist, with Germans living outside of Berlin, where citizens typically live with peers sharing only the same historical background. To measure cheating behaviour, we use a die task adapted from previous research where participants were paid based on the number of dots on reported die rolls (Fischbacher and Föllmi-Heusi, 2013; Jiang, 2013; Mann et al. 2016; see Garbarino et al. 2016 and Abeler et al. 2018 for two excellent meta studies). It has been shown that even abstract cheating tasks predict behaviour in the field. A widely used reporting task in the lab significantly predicts classroom misbehavior in middle and high school students (Cohn and Maréchal, 2018) and it has been shown that abstract as well as contextualized cheating tasks in the lab correlate with rule violations in real life (Dai et al., 2017). Our results show that social interaction is an important mechanism underlying individual cheating: participants with an East German background cheat significantly more on an abstract die-rolling task than those with a West German background, but only when exposed to the enduring capitalist system of West Germany. Moreover, our results indicate that the longer individuals living in Berlin had experienced socialist East Germany, the more likely they were to cheat on the behavioural task. In contrast, we did not observe differences in cheating behaviour between East and West German individuals living in the respective cities of Leipzig (East Germany) and Dortmund (West Germany). Unlike in Berlin, individuals from Leipzig and Dortmund have less opportunity for comparison against the alternative economic system, due to being situated at some distance from the former inner German border. The remainder of the paper is structured as follows. Section 2 outlines related literature on differences between former East and West Germany. Thereafter, section 3 presents our materials and methods. Section 4 lays out the empirical results of our study. Section 5 concludes. 

 2. Differences between former East and West Germany

From 1961 to 1989, the Berlin Wall divided one nation into two distinct economic and political regimes: socialism (East Germany) and capitalism (West Germany). Socialist systems in the past have been characterized by extensive scarcity, which in the case of East Germany, ultimately led to the collapse of the German Democratic Republic (GDR). In many instances, socialism pressured or forced people to work around official laws. For example, in East Germany stealing a load of building materials in order to trade it for a television set might have been the only way for a person to be able to acquire such a valuable good and connect to the outside world (Hornuf and Rieger, 2017). Moreover, a high degree of infiltration by intelligence apparatuses is also considered as a key characteristic of socialist systems. In East Germany, the secret service (Staatssicherheit) kept records on more than one third of its citizens (Koehler, 1999). Unlike in democratic societies, freedom of speech was not a virtue upheld in socialist regimes and it was therefore often necessary for citizens to misrepresent their thoughts to avoid repression. Earlier studies have shown differing degrees of national solidarity between East and West Germans. In a laboratory experiment with economics students, East Germans showed significantly less solidarity five years after the German reunification (Ockenfels and Weimann, 1999). Asked how much money Germans would be willing to hand over to anonymous future losers if they won 10 Deutsche Mark in a solidarity game, East Germans were willing to give up roughly half as much as West Germans. Interestingly, East Germans also expected to receive much less from potential winners. These results were recently confirmed by another study showing that there was no convergence in solidarity 20 years after the German reunification, which the authors attribute to slow changes in social behaviour due to the necessity of coordination on social norms in the society as well as complementarities involved in individual social behaviour (Brosig-Koch et al., 2011). Based on data from the German Socioeconomic Panel (GSOEP), Alesina and Fuchs-Schündeln (2007) provide evidence that East Germans have stronger preferences for public policies that involve redistribution. They find that economic and political regimes greatly shape individual preferences for state interventions and that these preferences tend to change slowly. According to the authors’ analysis, one fourth of the effect that East Germans’ have stronger preferences for state intervention is because East Germans became poorer during the socialist epoch, while the remainder can be attributed to the impact of socialism on individual preferences itself. Yet, one limitation of the study is that people might distort their true preferences when responding to a survey like GSOEP. For example, people might overstate their willingness to contribute to redistributive policies because they do not actually have to pay for them. Using a discrete choice experiment, another study shows that the stated preferencesof East Germans towards redistribution indeed differ from their actual preferences (Pfarr et al., 2013). While East Germans indicate that they prefer higher degrees of redistribution, they are not actually willing to pay for such policies. Based on the GSOEP data Heineck and Süssmuth (2013) investigate the effect of the economic regime on individuals’ trust and risk preferences as well as their cooperativeness. Relative to West Germans, East Germans showed persistently lower levels of social trust and were less inclined to see others as fair. This study also suggested that East Germans are more risk-loving. Most importantly, the authors find that these cultural traits appear to be passed down through generations. While this research provides valuable insights on differences in solidarity and individual social preferences, little is known about how the economic systems of former East and West Germany influenced individual dishonesty. Torgler (2003) indicates that at one point in time, East Germans were more likely than West Germans to say that cheating on their taxes cannot be justified, but that this difference disappeared seven years after the German reunification. However, this finding is based on self-stated preferences in a survey and therefore might not reflect individuals’ actual behaviour when put in a position where dishonesty financially pays off.