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1:20 pm
Tue May 1, 2012

Psychology Of Fraud: Why Good People Do Bad Things

Originally published on Wed May 9, 2012 8:44 am

Enron, Worldcom, Bernie Madoff, the subprime mortgage crisis.

Over the past decade or so, news stories about unethical behavior have been a regular feature on TV, a long, discouraging parade of misdeeds marching across our screens. And in the face of these scandals, psychologists and economists have been slowly reworking how they think about the cause of unethical behavior.

In general, when we think about bad behavior, we think about it being tied to character: Bad people do bad things. But that model, researchers say, is profoundly inadequate.

Which brings us to the story of Toby Groves.

Chapter 1: The Promise

Groves grew up on a farm in Ohio. As a kid, the idea that he was a person of strong moral character was very important to him. Then one Sunday in 1986, when Groves was around 20, he went home for a visit with his family, and he had an experience that made the need to be good dramatically more pressing.

"I can picture this," he recalls. "I'm walking through our dining room, and I look out in the backyard. It was a beautiful day. And I look out and I see my dad doubled over. And he's shaking. And I think he's having a heart attack. So I run out, and he's sobbing — sobbing uncontrollably."

Toby says his father simply thrust a newspaper at him. "I didn't even know he had it — he just pushes it over, and it's the Cincinnati Enquirer, and I open it up and there's my brother, on the front page."

Toby's brother was almost 20 years older than Toby and worked at a local bank. The story said his brother had been convicted of bank fraud. "I don't remember the exact headline, but you know, our last name and fraud was in there — and that's all I needed to know."

Toby says he always had a difficult relationship with his brother. At least to Toby's thinking, his brother was a bad character: selfish and manipulative.

So it's against this emotional backdrop that what happens next occurs. There in the backyard, under a blue Ohio sky, Toby's father turns to him. "He said, 'Promise me that you will never, ever get in any trouble like this.' And I did — I swore to him that I wouldn't."

Now for Toby, this was an easy promise to make. Toby believed he was a fundamentally good person. He could never get involved in fraud.

Which is what makes the addendum to this story all the more startling. You see, 22 years after Groves made that promise to his father, he found himself standing in front of the exact same judge who had sentenced his brother, being sentenced for the exact same crime: fraud.

And not just any fraud — a massive bank fraud involving millions of dollars that drove several companies out of business and resulted in the loss of about a hundred jobs.

In 2008, Toby went to prison, where he says he spent two years staring at a ceiling, trying to understand what had happened.

Was he a bad character? Was it genetic? "Those were things that haunted me every second of every day," Groves says. "I just couldn't grasp it."

This very basic question — what causes unethical behavior? — has been getting a fair amount of attention from psychologists and economists recently, particularly those interested in how our brains process information when we make decisions.

They say that if you want to understand unethical behavior — and how such behavior spreads over large groups of people to create scandals like Enron or the subprime mortgage crisis — you really need to better understand how people's minds cognitively process the ethical decisions they face.

And so researchers have been setting up lab experiments and conducting studies of large groups of people who have all been involved in fraud. And they've come up with a concept called "bounded ethicality": That's the notion that cognitively, our ability to behave ethically is seriously limited.

"We may really want to get it right, and be ethical and be moral, but the problem is that we just have all these cognitive biases and cognitive limitations that just don't let us get it right," says Lamar Pierce, a professor at Washington University in St. Louis.

The vast majority of us, these researchers argue, are capable of behaving in profoundly unethical ways. And not only are we capable of it — without realizing it, we do it all the time.

Chapter 2: The First Lie

Which brings us back to Toby Groves. Since getting out of prison two years ago, Toby has been a man obsessed with understanding his own behavior. This has made him unusually open to talking about his crimes. So the idea was to go and get his story, then run it past some of the psychologists and economists who have been doing this work, to get their perspective on what caused him to behave as he behaved.

Early in his career, Toby founded his own mortgage loan company, and he says that as he built it, his promise to his father was very much on his mind.

"I was trying to be very transparent," Toby says. "I think I went an extra mile to be transparent in everything that I did."

That's also what we heard from people who worked with Toby at his company.

"Our culture was, if you do things right, you'll be successful. There's no need to ever be dishonest. You knew you don't cross those lines," says Jim Cergol, a former loan officer at the company.

"People wanted to come to work for Toby Groves because of the kind of person that he was," said another employee, a former manager named Kevin Moore.

And for years, through the '90s and early 2000s, Toby's mortgage company prospered. Then one day in 2004, Toby says, he sat down at his computer to crunch some numbers and discovered that his fantastically successful company was no longer so fantastically successful.

The problems began, according to Toby, when he decided to make some fundamental changes in the way his business operated. At the same time, he started a side project that consumed a large amount of his time and attention.

He says he was distracted and, until that moment at his computer, hadn't fully realized what was happening. But there it was, undeniable: His company was almost a quarter of a million dollars in the hole.

"I remember sitting ... thinking ... I can fix this," Toby says.

What Toby decided to do to fix this shortfall his business faced was to take out a mortgage on his own property, a beautiful farmhouse outside the city.

There was, however, a problem with this plan: If Toby told the truth about his income, his application would likely be rejected.

And so Toby decided to lie — to tell the bank that he was making $350,000, when in reality he was making nowhere near that.

This is the first lie Groves told — the unethical act that opened the door to all the other unethical acts. So, what was going on in his head at the time?

"There wasn't much of a thought process," he says. "I felt like, at that point, that was a small price to pay and almost like a cost of doing business. You know, things are going to happen, and I just needed to do whatever I needed to do to fix that. It wasn't like ... I didn't think that I was going to be losing money forever or anything like that."

Consider that for a moment.

Here is a man who stood with his heartbroken father and pledged to behave ethically. Anyone involved in the mortgage business knows that it is both unethical and illegal to lie on a mortgage application.

How could that promise be so easily broken?

Chapter 3: Why We Don't See The Ethical Big Picture

To understand, says Ann Tenbrunsel, a researcher from Notre Dame who studies unethical behavior, you have to consider what this looks like from Toby's perspective.

There is, she says, a common misperception that at moments like this, when people face an ethical decision, they clearly understand the choice that they are making.

"We assume that they can see the ethics and are consciously choosing not to behave ethically," Tenbrunsel says.

This, generally speaking, is the basis of our disapproval: They knew. They chose to do wrong.

But Tenbrunsel says that we are frequently blind to the ethics of a situation.

Over the past couple of decades, psychologists have documented many different ways that our minds fail to see what is directly in front of us. One small example: the way a decision is framed. "The way that a decision is presented to me," says Tenbrunsel, "very much changes the way in which I view that decision and then, eventually, the decision it is that I reach."

Essentially, Tenbrunsel argues, certain cognitive frames make us blind to the fact that we are confronting an ethical problem at all.

Tenbrunsel told us about a recent experiment that illustrates the problem. She got together two groups of people and told one to think about a business decision. The other group was instructed to think about an ethical decision. Those asked to consider a business decision generated one mental checklist; those asked to think of an ethical decision generated a different mental checklist.

Tenbrunsel next had her subjects do an unrelated task to distract them. Then she presented them with an opportunity to cheat. Those cognitively primed to think about business behaved radically different from those who were not — no matter who they were, or what their moral upbringing had been.

"If you're thinking about a business decision, you are significantly more likely to lie than if you were thinking from an ethical frame," Tenbrunsel says.

According to Tenbrunsel, the business frame cognitively activates one set of goals — to be competent, to be successful; the ethics frame triggers other goals — to be fair and not hurt others. And once you're in, say, a business frame, you become really focused on meeting those goals, and other goals can completely fade from view.

Tenbrunsel listened to Toby's story, and she argues that one way to understand Toby's initial choice to lie on his loan application is to consider the cognitive frame he was using.

"His sole focus was on making the best business decision," she says, which made him blind to the ethics.

Obviously we'll never know what was actually going through Toby's mind, and the point of raising this possibility is not to excuse Toby's bad behavior, but simply to demonstrate in a small way the very uncomfortable argument that these researchers are making:

That people can be genuinely unaware that they're making a profoundly unethical decision.

It's not that they're evil — it's that they don't see.

And if we want to attack fraud, we have to understand that a lot of fraud is unintentional.

Chapter 4: Fraud Spreads

Tenbrunsel's argument that we are often blind to the ethical dimensions of a situation might explain part of Toby's story, his first unethical act. But a bigger puzzle remains: How did Toby's fraud spread? How did a lie on a mortgage application balloon into a $7 million fraud?

According to Toby, in the weeks after his initial lie, he discovered more losses at his company — huge losses. Toby had already mortgaged his house. He didn't have any more money, but he needed to save his business.

The easiest way for him to cover the mounting losses, he reasoned, was to get more loans. So Toby decided to do something that is much harder to understand than lying on a mortgage application: He took out a series of entirely false loans — loans on houses that didn't exist.

Creating false loans is not an easy process. You have to manufacture from thin air borrowers and homes and the paperwork to go with them.

Toby was CEO of his company, but this was outside of his skill set. He needed help — people on his staff who knew how loan documents should look and how to fake them.

And so, one by one, Toby says, he pulled employees into a room.

"I was really open," Toby recalled. "I said, 'Look, I screwed up.' And essentially, you know, 'If you can help me, great. If you can't, I understand.' "

"Maybe that was the most shocking thing," Toby says. "Everyone said, 'OK, we're in trouble, we need to solve this. I'll help you.' You know, 'I'll try to have that for you tomorrow.' "

According to Toby, no one said no.

Most of the people who helped Toby would not talk to us because they didn't want to expose themselves to legal repercussions.

Of the four people at his company Toby told us about, we were able to speak about the fraud with only one — a woman on staff named Monique McDowell. She was involved in fabricating documents, and her description of what happened and how it happened completely conforms to Toby's description.

If you accept what they're saying as true, then that raises a troubling scenario, because we expect people to protest when they're asked to do wrong. But Toby's employees didn't. What's even more troubling is that according to Toby, it wasn't just his employees: "I mean, we had to have assistance from other companies to pull this off," he says.

To make it look like a real person closed on a real house, Toby needed a title company to sign off on the fake documents his staff had generated. And so after he got his staff onboard, Toby says he made some calls and basically made the same pitch he'd given his employees.

"It was, 'Here is what happened. Here is the only way I know to fix it, and if you help me, great. If you won't, I understand.' Nobody said, 'Maybe we'll think about this.' ... Within a few minutes [it was], 'Yes, I'll help you.' "

So here we have people outside his company, agreeing to do things completely illegal and wrong.

Again, we contacted several of the title companies. No one would speak to us, but it's clear from the legal cases that title companies were involved. One title company president ended up in jail because of his dealings with Toby; another agreed to a legal resolution.

So how could it be that easy?

Chapter 5: We Lie Because We Care

Typically when we hear about large frauds, we assume that financial incentives drove the behavior, because it's very clear that whenever there are financial incentives to cheat, you will see some cheating.

But the psychologists and economists making these new arguments about unethical behavior say financial incentives don't fully explain it. They're interested in another possible explanation: Human beings commit fraud because human beings like each other.

We like to help each other, especially people we identify with. And when we are helping people, we really don't see what we are doing as unethical.

Lamar Pierce, of Washington University, points to the case of emissions testers to explain this. Emissions testers are supposed to test whether or not your car is too polluting to stay on the road. If it is, they're supposed to fail you. But in many cases, emissions testers lie.

"Somewhere between 20 percent and 50 percent of cars that should fail are passed — are illicitly passed," Pierce says.

Financial incentives can explain some of that cheating. But Pierce and psychologist Francesca Gino of Harvard Business School say that doesn't fully capture it.

They collected hundreds of thousands of records and were actually able to track the patterns of individual inspectors, carefully monitoring those they approved and those they denied. And here is what they found:

If you pull up in a fancy car — say, a BMW or Ferrari — and your car is polluting the air, you are likely to fail. But pull up in a Honda Civic, and you have a much better chance of passing.

Why?

"We know from a lot of research that when we feel empathy towards others, we want to help them out," says Gino.

Emissions testers — who make a modest salary — see a Civic and identify; they feel empathetic.

Essentially, Gino and Pierce are arguing that these testers commit fraud not because they are greedy, but because they are nice.

"And most people don't see the harm in this," says Pierce. "That is the problem."

Pierce argues that cognitively, emissions testers can't appreciate the consequences of their fraud, the costs of the decision that they are making in the moment. The cost is abstract: the global environment. They are literally being asked to weigh the costs to the global environment against the benefits of passing someone who is right there who needs help. We are not cognitively designed to do that.

"I've never talked to a mortgage broker who thought, 'When I help someone get into a loan by falsifying their income, I deeply consider whether or not I would destabilize the world economy,' " says Pierce. "You are helping someone who is real."

Gino and Pierce argue that Toby's staff was faced with the same kind of decision: future abstract consequences, or help out the very real person in front of them.

And so without focusing on the ethics of what they were doing, they helped out a person who was not focusing on the ethics, either. And together they perpetrated a $7 million fraud.

Chapter 6: Denouement

As for Toby, he says that in 2006, two FBI agents showed up at his office, and he quickly confessed everything. He says he was relieved.

Two years later, he was standing in front of the same judge who had sentenced his brother. A short time after that, he was in jail, grateful that his father wasn't alive to see him, wondering how he ended up where he did.

"The last thing in the world that I wanted to do in my life would be to break that promise to my father," he says. "It haunts me."

Now if these psychologists and economists are right, if we are all capable of behaving profoundly unethically without realizing it, then our workplaces and regulations are poorly organized. They're not designed to take into account the cognitively flawed human beings that we are. They don't attempt to structure things around our weaknesses.

Some concrete proposals to do that are on the table. For example, we know that auditors develop relationships with clients after years of working together, and we know that those relationships can corrupt their audits without them even realizing it. So there is a proposal to force businesses to switch auditors every couple of years to address that problem.

Another suggestion: A sentence should be placed at the beginning of every business contract that explicitly says that lying on this contract is unethical and illegal, because that kind of statement would get people into the proper cognitive frame.

And there are other proposals, of course.

Or, we could just keep saying what we've always said — that right is right, and wrong is wrong, and people should know the difference.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

AUDIE CORNISH, HOST:

Next, we're going to talk about fraud. Business and financial fraud in particular have been a recurring theme over the last decade or so - Enron, WorldCom, Bernie Madoff, the list goes on.

ROBERT SIEGEL, HOST:

Given the frequency of those scandals, psychologists have been trying to understand what happens in our minds when we're confronted with an ethical decision. What they've come up with is a radically different way to look at bad behavior.

To explain these ideas, NPR's Alix Spiegel and Chana Joffe-Walt have the anatomy of one fraud and what it tells us about why we do wrong.

ALIX SPIEGEL, BYLINE: Part of the reason it's so surprising that Toby Groves went to jail for fraud is that growing up he was one of those kids who took being good very, very seriously.

CHANA JOFFE-WALT, BYLINE: He did, especially after this one very formative experience he had as a young man. He was around 20 years old and at home visiting his parents outside Cincinnati.

TOBY GROVES: I'm walking through our dining room and I look out in the backyard. It was a beautiful day. And I look out and I see my dad doubled over. And he's shaking. And I think he's having a heart attack. So I run out and he's sobbing, sobbing uncontrollably.

SPIEGEL: Toby remembers grabbing his father.

GROVES: You know, what's wrong? And just like thrust this paper - I didn't even know he had it - he just pushes it over and it's the Cincinnati Enquirer and I open it up and there's my brother on the front page.

JOFFE-WALT: Toby's brother was almost 20 years older than Toby and worked at a local bank. He'd been successful - had been.

GROVES: It was a story about, you know, bank fraud. I don't remember the exact headline but, you know, our last name and fraud was in there. And that's all I needed to know.

SPIEGEL: Toby says he always had a difficult relationship with his brother. At least in Toby's thinking his brother was a bad character - selfish and manipulative. So it was against this emotional backdrop that what happens next occurs. There in the backyard, Toby's father turns to him.

GROVES: He said promise me that you will never ever get in any trouble like this. And I did. I swore to him that I wouldn't.

SPIEGEL: So, like right there on the grass, he turns to you and he says promise me that you will never become this person?

GROVES: Yes. Yeah, we stood right there.

JOFFE-WALT: Now, for Toby, this was an easy promise to make. Toby, Toby believed, was fundamentally a good person. He could never get involved in fraud.

SPIEGEL: Which is why the addendum to this promise story is so very remarkable. You see, 22 years after his promise, Toby Groves found himself standing in front of the exact same judge who had sentenced his brother, being sentenced himself for the exact same crime: fraud.

JOFFE-WALT: And not just any fraud, a massive bank fraud involving millions of dollars that drove several companies out of business and resulted in the loss of close to a hundred jobs.

SPIEGEL: So what happened? Typically we think that unethical people do unethical things. But Toby, for most of his life, did not seem like an unethical character. A growing group of psychologists interested in ethics have been fascinated by people like Toby. And they're proposing a radically new way of explaining what drives people to do wrong - people like you and me, everyone

JOFFE-WALT: So let's take a look at what happened with Toby because, really, if there was anyone you would think would not end up in prison for bank fraud, it would be Toby Groves.

KEVIN MOORE: People wanted to come to work for Toby Groves because of the kind of person that he was.

JOFFE-WALT: Early in his career, Toby founded a mortgage loan company and Kevin Moore, the guy you just heard, was a manager there. And Moore, like many others we talked to about Toby, says for years Toby had a reputation as an ethical, honest business man.

SPIEGEL: We also talked to Jim Cergol, who was a loan officer at Toby's company.

JIM CERGOL: Our culture was if you do things right, you know, you'll be successful and there's no need to ever be dishonest. You knew you don't cross those lines.

SPIEGEL: But then in 2003, Toby says his business began to run into problems. Toby was expanding his company. There was a whole lot going on and he says he got distracted. So, the way he tells it, it was a shock when one night in 2004, he sat down at his computer to crunch some numbers and discovered that his fantastically successful company, it was a quarter of a million dollars in the hole.

Toby Groves.

GROVES: And I'm just - I'm blown away.

SPIEGEL: Toby decided that the best way to make up the shortfall was to take out a loan on his own house. There was just one problem with this: If he told the truth about his current income...

GROVES: I'm not going to get this loan if I state what my current income is because, obviously, my company right now is losing money.

SPIEGEL: So, Toby decided to lie on his loan application, tell the bank that he was making $350,000, when in reality he's making nowhere near that.

When you look back on Toby's story, this is his first bad act. But Toby says in his mind at the time, he didn't see that.

GROVES: There wasn't much of a thought process. I think it was - I felt like at that point that was a small price to pay and almost like a cost of doing business. You know, things are going to happen and I just needed to do whatever I needed to do to fix that. It wasn't - at that point I didn't think I was going to be losing money forever or anything like that.

SPIEGEL: Was it hard to put that number 350,000 in the box?

GROVES: No.

JOFFE-WALT: Now, at this point in Toby's story, I can see where he's coming from. He thinks if I just fudge the number a little, I'll fix this big problem. I'll save the company, save jobs. But what Toby did next, that I find much harder to understand.

SPIEGEL: See, Toby soon found more losses, huge losses. Toby had already mortgaged his house. But he says he felt he needed more money to save his business.

GROVES: My answer was to take an entirely false loan and pay off the mounting losses.

SPIEGEL: So, like, a loan to buy a house that didn't exist?

GROVES: Right. They call it an air loan.

JOFFE-WALT: How do you do that?

GROVES: You - basically you document a loan.

JOFFE-WALT: That is you fraudulently document a loan for a house that does not exist. You ask the bank to loan money to a made up person, interested in living in a made up house, and then use the money to cover up losses.

SPIEGEL: Problem was, to do this, Toby needed help; people on his staff, who could fabricate all of the documents needed. And so, one by one, Toby says he pulled employees into a room.

GROVES: I was really open about, you know, look, I screwed up. You know, if you will help me, great. If you don't, I understand.

SPIEGEL: So, essentially, you were asking people to do something which is illegal and immoral?

GROVES: Yes. Yeah, I did.

SPIEGEL: How did they respond?

GROVES: Maybe that was the most shocking thing. They - OK, we're in trouble and we need to solve this. I'll help you. Every single person complied. You know, I'll try to have that, you know - work on that and I'll try to have that for you tomorrow.

JOFFE-WALT: Every single person?

GROVES: Yeah. Every single person.

SPIEGEL: And did they say, I'm comfortable doing this. I don't - this is illegal.

GROVES: No.

SPIEGEL: Now, much of the people Toby is talking about here wouldn't talk to us. Of the four people at his company Toby told us about, only one, Monique McDowell, agreed to talk off-tape.

McDowell was intimately involved in fabricating documents and her description of what happened and how it happened completely conformed to Toby's description.

JOFFE-WALT: This is the part of Toby's story where you start to feel like, OK, this guy is a bad character. I would never do what he did. But the people Toby worked with, all bad seeds?

SPIEGEL: Well, you could argue that Toby was their boss and it's hard to say no to your boss. We actually put that to Toby.

GROVES: The thing is, it wasn't just people at - you know, at my company. We had to have assistance from other companies to pull this off.

JOFFE-WALT: In order to pull off this fraud, to make it look like a real person closed on a real house, Toby needed a title company to certify his fake documents, so after his staff was onboard, Toby says he made some visits.

GROVES: And it was the same thing. It was - here's what happened. Here's the only way I know to fix it and, if you'll help me, great, and if you won't, I understand. And nobody said, maybe we better think about this or - you know, within a few minutes, I had approval that they were - yes, I'll help you.

JOFFE-WALT: So now, we have people outside of Toby's company saying, sure, I'll help you do something completely illegal and wrong.

SPIEGEL: Again, we did contact several of the title companies. No one would talk, but it's clear from the legal case that title companies were involved. One title company president ended up in jail because of his dealings with Toby. Another title company agreed to a legal resolution. But here's the point: when we hear about cases of massive fraud, we tend to hear about the individuals, the Ken Lays, the Bernie Madoffs, the Toby Groves.

JOFFE-WALT: But for most big fraud scandals, you need large groups of people - auditors, regulators, staff - assisting in some way in the fraud. So to truly understand fraud, you have to understand two things. What's going on with the individuals we always hear so much about; the Tobys. But, also, you have to understand the helpers, the people who are willing to say that immoral thing that you're doing right now - sure, I'll help you. Have that to you by Monday.

SIEGEL: Coming up, NPR's Chana Joffe-Walt and Alix Spiegel talk to economists and psychologists who are proposing a different way of thinking about why people go so wrong.

(SOUNDBITE OF MUSIC)

CORNISH: You're listening to ALL THINGS CONSIDERED from NPR News.

(SOUNDBITE OF MUSIC)

SIEGEL: From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

CORNISH: And I'm Audie Cornish. We return now to the story of Toby Groves, a man who pulled off a $7 million mortgage fraud. Again, here's NPR's Alix Spiegel and Chana Joffe-Walt to help explain why a man with good intentions could act so unethically and why so many people were willing to help him.

JOFFE-WALT: The story of Toby Groves didn't make headline news, but if it had - if you were sitting on your couch and the woman on TV told you about some guy who had defrauded banks of millions of dollars, you'd probably think something along the lines of...

LAMAR PIERCE: What kind of bastard would do this?

JOFFE-WALT: This is Lamar Pierce, an economist at Washington University in St. Louis, and Pierce says, when confronted with stories of people like Toby, the vast majority of us just assume we would never behave that way.

PIERCE: Eighty to 90 percent of people, I think, would say, I'm not capable of doing that and it may be higher.

SPIEGEL: And how many of them are wrong?

PIERCE: A large proportion, if not most people - you're wrong.

SPIEGEL: Pierce is part of a group of researchers arguing that your assumption that you would not do wrong is based on a flawed premise. The misperception that when people like Toby face an ethical decision they clearly understand the choice that they're making. Frequently, these researchers say, our minds simply can't fully process the choices that we are confronted with.

Now, psychologists have documented lots and lots of ways that our minds have trouble seeing or processing what is directly in front of us. Ann Tenbrunsel is a researcher at the University of Notre Dame and she gave us one very small example of this. It has to do with something simple - the way a decision is framed.

ANN TENBRUNSEL: The way that the decision is presented to me very much changes the way in which I view that decision and then eventually the decision it is that I reach.

SPIEGEL: Essentially, Tenbrunsel is arguing that certain frames make us blind to the fact that we are confronting an ethical problem at all. And, to prove this, she recently did this experiment where she got together two groups of people. One, she told...

TENBRUNSEL: Think about a business decision, think about what aspects are involved.

SPIEGEL: The others, she told to think about an ethical decision.

JOFFE-WALT: Then Tenbrunsel had her subjects do an unrelated task to distract them and presented them with an opportunity to cheat.

SPIEGEL: And those cognitively primed to think about business behaved radically differently from those who were not, no matter who they were or what their moral upbringing had been.

TENBRUNSEL: If you're thinking about a business decision, you are significantly more likely to lie than if you were thinking from an ethical frame.

SPIEGEL: According to Tenbrunsel, a business frame cognitively activates one set of goals - to be competent, to be successful. And, once you're in that frame, you're really focused on meeting those goals, and other goals, like ethics, can completely fade from view.

Tenbrunsel listened to Toby's story and she argues that one way to understand Toby's initial choice to lie on his loan application is to consider the cognitive frame that he was using.

TENBRUNSEL: His sole focus was on making the best business decision.

SPIEGEL: Now, obviously, we're never going to know what was actually going through Toby's mind and the point of raising this possibility is not to excuse Toby's bad behavior, but simply to demonstrate in a small way this very uncomfortable argument that these psychologists are making, that most people don't necessarily intend to do bad. It's that they have these huge cognitive blind spots which make it difficult for them to see what they're doing as unethical, even when it is profoundly unethical. A lot of fraud is unintentional.

JOFFE-WALT: Which might help explain the first part of Toby's story, how a man who swore to his beloved father to be ethical broke that promise. But why would his staff and title companies help him? That is something Toby himself seemed shocked by.

GROVES: It spread so easily. So many people did things and it's - I don't believe it's because I'm some genius criminal mastermind. I really don't understand how it could be that easy.

JOFFE-WALT: Typically, when we hear about large frauds, we assume that financial incentives drove the behavior because it's very clear, whenever there are financial incentives to cheat, you will see some cheating.

But this group of psychologists are interested in another possible explanation. Human beings commit fraud because human beings like each other. We like to help each other, especially people we identify with.

SPIEGEL: Lamar Pierce from Washington University points to the case of emissions testers to explain this. Emissions testers are supposed to fail cars that are too polluting to stay on the road, but in many cases, emissions testers simply lie.

PIERCE: Somewhere between, you know, 20 and 50 percent of cars that should fail are passed, are illicitly passed.

JOFFE-WALT: How come? Pierce and a psychologist from Harvard, Francesca Gino, collected hundreds of thousands of records and they were actually able to track the patterns of individual inspectors. Here's what they found.

If you pull up in a BMW and your car is polluting the air, you are likely to fail, but Francesca Gino says pull up in a Honda Civic and you have a much better chance of passing. Why?

FRANCESCA GINO: We know from a lot of research that, when we feel empathy towards others, we want to help them out.

JOFFE-WALT: Emissions testers who generally make a modest salary see a Civic and identify. They feel empathetic. Essentially, Gino and Pierce are arguing that these testers commit fraud not because they are greedy, but because they are nice.

PIERCE: And most people don't - and this is really fundamentally the problem - most people don't see the harm in this.

JOFFE-WALT: Pierce argues that emissions testers can't actually process the costs of this decision in the moment. We're just not cognitively designed to do that. The cost is so abstract, they're literally being asked to weigh the global environment against the benefits of passing someone who is right there, who needs help.

PIERCE: I've never talked to a mortgage broker who thought, you know, when I help somebody get into a loan by falsifying their income, I deeply consider whether or not I would destabilize the world economy. You're helping someone who's real and that I care about.

JOFFE-WALT: Gino and Pierce argue Toby's staff were faced with the same kind of decision - future abstract consequences or help out the very real person in front of them. And so, without focusing on the ethics, they helped out a person who was not focusing on the ethics either, and together they perpetrated a $7 million fraud.

SPIEGEL: In 2006, that fraud was actually discovered. FBI agents showed up at Toby's office and he says he quickly confessed. Two years later, he was in jail, grateful that his father wasn't alive to see him, wondering how he had gone so wrong.

GROVES: Was I just a bad character? Was it - I mean, did I know myself? You know, the last thing I ever wanted to do in my life would be to break that promise to my dad, so those were things that haunted me every second of every day.

SPIEGEL: Now, if these psychologists and economists are right, if we are all capable of behaving profoundly unethically without realizing it, then there are some concrete changes we could make to our workplaces, to our regulations, changes that would take into account how our minds actually work.

JOFFE-WALT: For example, we know auditors develop relationships with clients after years and years of working together. We also know those relationships can corrupt their audits without the auditors necessarily even realizing it. So you could force businesses to switch auditors every couple of years.

SPIEGEL: And there are other proposals or, you know, we could just keep saying what we have been saying, that right is right and wrong is wrong and people should know the difference. I'm Alix Spiegel.

JOFFE-WALT: And I'm Chana Joffe-Walt, NPR News. Transcript provided by NPR, Copyright National Public Radio.