Who Cheats?

Well, just about everyone, if the stakes are right. You might say to yourself, I don't cheat, regardless of the stakes. And then you might remember the time you cheated on, say, a board game. Last week. Or the golf ball you nudge out of its bad lie. Or the time you really wanted a bagel in the office break room but couldn't come up with the dollar you were supposed to drop in the coffee can. And then took the bagel away. And told yoruself you'd pay double the next time. And didn't.

For every clever person who goes to the trouble of creating an incentive scheme, there is an army of people, clever and otherwise, who will inevitably spend even more time trying to beat it. Cheating may or may not be human nature, but it is certainly a prominent feature in just about every human endeavor. Cheating is a primordial ECONOMIC ACT: gettign more for less. So it isn't just the boldface names－inside-trading CEOs and pill-popping ballplayers and perk-abusing politicians－who cheat. It is the Wal-Mart payroll manager who goes into the computer and shaves his employees' hours to make his own performance look better. It is the third grader who, worried about not makeing it to the fourth grade, copies test answer from the kid sitting next to him.......

......If morality represents the way we would like the world to work and economics represents how it actually does work, the the story of Feldman's bagel business lies at the very intersection of morality and economics. Yes, a lot of people steal from him, but the vast majority, even though no one is watching over them, do not. This outcome may surprise some people－including Feldman's economist friends, who counseled him twenty years ago that his honor-system scheme would never work. But it would not have surprised Adam Smith. In fact, the theme of Smith's first book, The Theory of Moral Sentiments, was the innate honesty of mankind. "How selfish soever man may be supposed," Smith wrote, "there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it."

There is a tale, "The Ring of Gyges," that Feldman sometimes tells his economist friends. It comes from Plato's Republic. A student named Glaucon offered the story in response to a lesson by Socrates - who, like Adam Smith, argued that people are generally good even without enforcement. Glaucon, like Feldman's economist friends, disagreed. He told of a shepherd named Gyges who stumbled upon a secret cavern with a corpse inside that wore a ring. When Gyges put on the ring, he found that it made him invisible. With no one able to monitor his behavior, Gyges proceeded to do woeful things－seduce the queen, murder the king, and so on. Glaucon's story posed a moral question: could any man resist the temptation of evil if he knew his acts could not be witnessed? Glaucon seemed to think the answer was no. But Paul Feldman sides with Socrates and Adam Smith－for he knows that the answer, at least 87 percent of the time, is yes.

Chapter 1, Freakonomics, Steven D. Levitt & Stephen J. Dubner