Behavioral Ethics, Behavioral Compliance

Abstract

The design of an effective legal compliance system for an organization fearing prosecution for white-collar crime or regulatory violations requires skill at predicting human behavior. It is entirely plausible to use the economist’s simplifying assumptions of rational choice and pecuniary self-interest in making these predictions. But the realism of these assumptions has been under attack for decades now, suggesting that we should at least consider more nuanced behavioral possibilities when designing and implementing compliance programs. The label “behavioral compliance” can be attached to the design and management of compliance that draws from this wider range of behavioral predictions about individual and organizational behavior. As in conventional economics, incentives matter. Indeed, a core portion of work in the psychology of ethical choice explains how and why people can behave selfishly or cheat but do not construe their own behavior as bad or wrong. If that is so, their (or their team’s) moral compass becomes unreliable as a matter of self-regulation, a particularly frustrating insight in the compliance realm: good people doing bad things. But human nature is complex. This chapter surveys some of the contemporary research in what has become known as behavioral ethics, and its relevance to the practice of compliance.

Keywords: legal compliance, behavioral ethics, law and psychology

JEL Classification: K00, K30, K39