Springer 2008

Journal of Business Ethics (2009) 86:397–416 DOI 10.1007/s10551-008-9854-5

The Impact of Ethics Education on Reporting Behavior

ABSTRACT. We examine the impact of an ethics education program on reporting behavior using two groups of students: fourth year Masters of Accounting students who just completed a newly instituted ethics education program, and fifth year students in the same program who did not receive the ethics program. In an experiment providing both the opportunity and motivation to misreport for more money, we design two social condition treatments – anonymity and public disclosure – to examine whether or to what extent ethical values are internalized by students. We find that when participants are anonymous, misreporting rates are nearly the same regardless of ethics program participation. However, when their reporting behavior is made public to the cohort, participants who completed the ethics program misreported at significantly lower rates than those who did not receive the ethics program. The results suggest that ethics education does not necessarily result in internalized ethical values, but it can impact ethical behavior. KEY WORDS: ethics education, anonymity, public disclosure, integration, ethical values

Introduction Calls for increased ethics education in accounting have been made for decades (Bedford et al., 1986; Langenderfer and Rockness, 1989; National Commission on Fraudulent Financial Reporting, 1987, pp. 16, 82–83), especially following the widely publicized accounting scandals of the early twentyfirst century (Desplaces et al., 2007; Swanson and Frederick, 2001–2002). The National Association of State Boards of Accountancy proposed six credit hours of mandatory ethics education in its 2005 UAA Education Exposure Draft (NASBA, 2005). Yet, research provides mixed evidence on the success of ethics education (Adkins and Radtke, 2004).

Brian W. Mayhew Pamela R. Murphy

Unlike most studies, we examine the impact of ethics education on actual behavior rather than hypothetical decisions or ethical development metrics. We examine the effect of an accounting ethics education program on reporting behavior using a quasi-experimental design with two student groups: one that recently completed an ethics program and the other that did not. The experiment allows participants to misreport (lie) for more money under two social conditions: anonymity and public disclosure. This design allows us to evaluate the overall impact of ethics education on ethical behavior, and its interaction with social factors. We argue that honest reporting under anonymous conditions suggests that students have internalized ethical values toward honest reporting. In contrast, higher misreporting levels under conditions of anonymity versus public disclosure suggest a lesser degree of internalization. Taken together, we argue that an interaction between ethics education and social condition suggests that, even though ethics education may not result in fully internalized values, the combination of the two can impact ethical behavior. We conduct experiments using two distinct groups of students: (1) fourth year Masters of Accounting (MACC) students who just completed a newly instituted ethics program at a large U.S. midwestern university, and (2) fifth year MACC students who did not receive the ethics program. We consider our design to be quasi-experimental because we use two distinct student groups instead of random assignment. We conducted all the experimental sessions simultaneously, one week after the conclusion of the ethics program. We randomly assigned participants to one of two social conditions: anonymity and public disclosure. We motivate our social condition choices based on internalization research, using the notion that a


Brian W. Mayhew and Pamela R. Murphy

more fully internalized value will reveal itself even when the individual is anonymous, whereas a less internalized value will reveal itself only in the presence of outside pressure. In our context, the value in question is honest reporting. We argue that individuals who report honestly even when anonymous are more likely to have internalized ethical values toward honest reporting. Individuals who report honestly only when their behavior is made known to others are less likely to have internalized ethical values toward honest reporting. We find a significant interaction between the ethics program and social condition. Those who were anonymous misreported at nearly the same rate, regardless of ethics program participation. When we publicly disclosed reporting choices, the ethics program participants’ misreporting levels dropped significantly while the non-ethics program participants’ misreporting levels increased slightly. These results suggest two things: (1) the ethics program did not result in fully internalized ethical values and (2) the ethics program combined with public disclosure as a means of social reinforcement results in more ethical behavior. This article contributes to two streams of literature. It contributes to the ethics education literature and ongoing debate over whether ethics can be taught (Kerr and Murphy Smith, 1995; Martin, 2007; Park, 1998). We find that an ethics education program along with social reinforcement can impact ethical behavior. Our research also contributes to the literature on internalization by introducing an alternative measure of internalization. Like ethics research, much research on internalization uses selfreports (for examples, see Franko et al., 2005; Schlenker et al., 1990; Williams et al., 2006).1 Though these types of measures are appropriate for some values, we argue that self-reports of ethical values are problematic due to the social desirability bias and moral hypocrisy theory.2 We believe our measure offers an alternative for internalization studies as well as new insights into the ethics field. This article also contributes to the accounting profession and pedagogy. Research has shown that accountants have an average level of moral reasoning skills (Warming-Rasmussen and Windsor, 2003) and their moral reasoning skills have not progressed to the same level as other college graduates (Armstrong, 1987; Ponemon, 1992). Emerson et al. (2007) find

that professional accountants’ ethical attitudes are not significantly different than those of students, and in some cases, are a bit weaker. We provide evidence that behavior can nonetheless be impacted by providing ethics education in conjunction with social reinforcement. While we believe additional research is warranted, the basic insights derived from this article should apply equally well to professional as well as academic settings. The article proceeds as follows. In the next section, we discuss relevant literature in ethics education as well as the impact of social conditions on behavior. We then describe our experiment, including the ethics program. The Results section provides an analysis of the data and considers alternative explanations for the findings. The Conclusion discusses limitations and opportunities for future research.

Review of relevant literature Ethics education The ethical decision making process can be decomposed into four discrete steps (see Figure 1). First, an individual must have ethical awareness (step 1); the person must be able to recognize an ethical issue.

1. Recognize Ethical Issue

2. Make Ethical Judgment

3. Establish Ethical Intent

Characteristics of the Issue that Define Moral Intensity: 1. Magnitude of consequences 2. Social consensus about act 3. Likelihood of consequences 4. Temporal immediacy 5. Proximity to victim 6. Number of people impacted

4. Engage in Ethical Behavior

Figure 1. The ethical decision-making process. Taken from Jones (1991, p. 379) and Cohen and Bennie (2006, p. 5).

The Impact of Ethics Education on Reporting Behavior Second, the individual must be able to make an ethical judgment – what should be done (step 2). Third, the individual must be able to establish ethical intent (step 3). As opposed to deciding what should be done, this step involves deciding what will be done. Finally, the individual engages in an ethical action or behavior (step 4). The characteristics of the ethical issue itself impact each step. Six specific characteristics together define the issue’s level of moral intensity (Jones, 1991). Research has generally shown that the higher an issue’s moral intensity, the more likely individuals follow the ethical decision making framework, at least through step 3 (Cohen and Bennie, 2006; Jones et al., 2003). Most prior ethics education and related accounting research examine steps 1–3, often by measuring individuals’ moral reasoning ability using the Defining Issues Test (DIT), and by asking participants questions related to various ethical dilemma vignettes. However, few accounting studies examine step 4, actual behavior (Jones et al., 2003). Though an understanding of moral reasoning ability and ethical judgment and intent are important, evidence from participants’ self-reports is not as strong as evidence from participants’ actual behavior. Behavioral measures provide a better measure of ethics education impact for three reasons: (1) behavior is the end-point in the model, (2) there is mixed evidence as to the relation between higher moral reasoning ability and moral behavior,3 and (3) behavior measures are less subject to the social desirability bias. The social desirability bias is the tendency to overestimate (underestimate) the likelihood of performing a desirable (undesirable) action (Chung and Monroe, 2003). Many ethics studies ask participants what they would do in a given scenario (for examples, see Cohen and Pant, 1998; Chung and Monroe, 2003; Desplaces et al., 2007). It is easier for people to say they would perform a desirable action than to actually perform that action. We avoid the social desirability bias by examining participants’ actions. Some ethics education programs have reported measurable success. Gautschi III and Jones (1998) found substantial improvement in students’ abilities to recognize ethical issues after taking a business ethics course. Wu (2003) found that Taiwanese students’ ethical values, ability to recognize ethical issues, and ethical decision-making skills were improved following a business ethics course, though ethical behavior was still not optimal. Desplaces et al. (2007)


found that discussions of ethics in business courses are significantly associated with moral competence among students. Shaub (1994) and Eynon et al. (1997) found that accounting professionals who completed an ethics course in college had a higher level of moral reasoning abilities, as measured by the DIT. While some ethics education programs provide positive results, others do not. Weber (1990) finds that students’ ethical awareness and reasoning skills improve after taking a business ethics course, but the improvement appears to be short-lived. Despite years of research, Adkins and Radtke (2004) argue that there is little consensus over the effectiveness of business ethics education. Despite mixed results, a review of the ethics education literature reveals themes or best practices that are more likely to be successful. Perhaps the strongest theme is the use of interactive discussion and group work (Geary and Sims, 1994; McPhail, 2001), or role-playing (Loeb, 1988; Park, 1998). Many authors suggest that discussion topics include not only those of direct relevance to the profession (Loeb, 1988; McPhail, 2001; Trevino, 1992), but also topics relevant to the students (Geary and Sims, 1994) and issues that are likely to be experienced on a daily basis in the corporate world (Maclagan, 2003). Guest lecturers are often used (Loeb, 1988; Park, 1998). Several suggest developing a code of ethics, preferably led by the students themselves, as part of the program (McCabe et al., 2002; Park, 1998; Trevino, 1992). Finally, a de-briefing at the end of the program assists in cementing what students learn throughout the course (Geary and Sims, 1994). The ethics education program we examine, described in the Methods section, used most of these best practices. Based on the ethical decision-making model, a successful ethics education program produces individuals who can: (1) identify an ethical dilemma, (2) make ethical judgments, (3) show ethical intent, and (4) take ethical actions, particularly when the issue has relatively high moral intensity. Those who do not complete an ethics program may not be able to perform any of the above steps. No matter where participants fail to follow the ethical decision process, their behavior reveals the failure. In our setting, the ethical issue is intentionally simple: whether to report honestly or misreport for more money.


Brian W. Mayhew and Pamela R. Murphy

We expect students who complete the ethics program to be more likely to report honestly than those who did not complete the ethics program.

Social condition and its interaction with ethics education We choose anonymity and public disclosure as our manipulations, referring to them as ‘social conditions’, for two reasons. First, the manipulations capture the basic social psychology notion of the perceived presence of others (Myers, 2002). When anonymous, a participant need not consider others in deciding how to behave. When behavior is publicly disclosed, a participant is more likely to perceive the presence of others and consider their reaction to one’s behavior. Second, our social condition treatments allow us to examine whether ethical values have been fully internalized. Batson et al. (2006) and Deci et al. (1994) describe two types of internalization of ethical values. The first – integration – occurs when one takes the precepts into one’s core sense of self. This is the strongest form of internalization. Individuals with integrated ethical values are able to regulate their own behavior and do not need outside reinforcement. They act in ways that provide utility or importance for their own personal goals (Deci et al., 1994, p. 121). The second – introjection – occurs when an individual takes the precepts as a regulatory function rather than as part of one’s core self. Individuals whose values are introjected act in ways they feel they have to, not necessarily want to. Given these definitions within our context, the question becomes whether ethics education causes individuals to introject or integrate ethical values toward honest reporting. It is difficult to answer this question ex ante, but results can shed light on the efficacy of ethics education, alone and in conjunction with social reinforcement, on the internalization of ethical values. We assert that a finding of low misreporting levels among ethics participants, no matter the social condition, suggests integrated values; whereas increased misreporting levels among ethics participants when anonymous versus publicly disclosed behavior suggests introjected values. Literature from different fields supports the notion that individuals act differently when anonymous versus when their actions are publicly disclosed. For

example, individuals conform or express agreement with the majority of a group less frequently (Tyson and Kaplowitz, 1977) when anonymous. Hoffman et al. (1993) find that self-serving behavior increases in anonymous conditions, but social factors such as concern for status play a significant role when anonymity is removed. Tittle (1977) found that sanction fears such as the probability of losing respect among those one knows personally, loss of status, and loss of community respect were primary determinants of conformity. Scott (1971) asserts that sanction fear – the reinforcement of behavior produced by the behavior of others – is of critical importance for learning acceptable behavior. McCabe et al. (2002) found that perceived peer behavior is one of the most influential factors associated with student cheating. In summary, individuals who know their actions will be seen by others are more careful to act in socially acceptable ways. Public disclosure is also a form of accountability. Accountability – the social pressure to justify one’s actions or decisions to others – is a fundamental and robust form of social control for auditors (Koonce et al., 1995). Gibbins and Newton (1994) state that the psychological mechanism behind responses to accountability pressure can be summarized as having three parts: (1) the person feels such pressure, (2) the objective of the response is to gain approval or escape censure from the source of that pressure, and (3) the strategy is to achieve that objective in a way that minimizes cognitive effort. In our scenario, public disclosure provides the pressure to act in a way they perceive to be socially acceptable. Several researchers suggest that accountability and ethics are both forms of social control that should be examined together (Beu and Buckley, 2001, p. 63; Cohen and Bennie, 2006, p. 5).

Research method We examine our research questions using a two-by-two (inclusion in ethics program or not, and social conditions of anonymity or public disclosure) between-subject research design.4 Students participate in an experiment in which the opportunity and financial motivation to misreport exist. The ethical issue in our experimental design is whether to misreport for more money. We argue

The Impact of Ethics Education on Reporting Behavior that this issue has low moral intensity. Applying the six characteristics of moral intensity from Figure 1 to our setting, we see there is only one ‘‘victim’’: the researcher who will pay misreporting participants more than they earned. This is an indirect financial harm, and we do not expect students to recognize the fact because we remain silent about the issue. Even those students who recognize that the researcher pays more money to misreporters will likely see the magnitude as small. Though our decision choice of a low moral intensity issue might preclude us from finding results, we argue this choice provides a better test of the ethics education effect. Ethical behavior in our setting is likely to be amplified in settings having high moral intensity. As an analogy, an employee who decides not to take a pen from one’s employer is even less likely to steal something more valuable.

Participants Participants in this experiment were all fourth and fifth year MACC students at a large mid-western United States university, with an average age of 22. Forty-six were male and 61 were female. The 107 participants consisted of 55 students in their fourth year, all of whom had completed the ethics program one week prior to the experimental sessions, and 52 students in their fifth year, none of whom had been exposed to the ethics program. Well-designed laboratory experiments often rely on random assignment. By randomly assigning subjects to different treatments, researchers minimize the risk that subject-specific characteristics cause the observed results. We do not employ random assignment to the ethics program treatment, so our design is quasi-experimental in nature. We carefully considered the possibility that the two groups might differ systematically, causing or confounding our results. This was the first ethics program offered at this school. The fifth year students had virtually no knowledge of the program and no experience with it, while the fourth year students directly participated. We conducted all experimental sessions in one day within hours of each other, minimizing the opportunity for participants to talk to each other, and we randomly assigned participants to the social condition treatments. The only systematic differences between


the two groups include an average age difference of one year, an additional year of higher education, and an accounting internship. We believe the fact that students came from the same institution and educational background reduces the risk of alternative explanations for our findings. We conclude the benefit of our quasi-experimental design was worth the cost of non-randomization, especially since this was a unique opportunity to examine the effectiveness of an ethics education program. Experimental details We construct a reporting environment in which participants: (1) take a quiz that culminates in a payment, (2) grade their own quizzes, and (3) report their payment due from the experimenter with no truth constraint. Specifically, participants take a 12-minute, 40 question multiple-choice quiz adapted from Trivial Pursuit 20th Anniversary edition. We choose Trivial Pursuit questions to avoid or reduce any negative feelings participants may have if they do not perform well on the quiz, since the questions are trivial. The questions are reformatted into multiple choice questions to eliminate arguments over correct/incorrect answers. Participants are told they will be paid based on the following, starting at zero: • Add 40 cents for each correct answer. • Subtract 10 cents for each incorrect answer. • Subtract 5 cents for each unanswered question. We encourage competition by offering an additional $2.00 to the person(s) with the highest payment on each quiz within each cohort. Participants take the first quiz before they are told they will grade and report their own score. They are given blue pens for quiz taking. After completing the first quiz, we give participants detailed written instructions for grading their quiz and reporting their payment. The instructions explain the following procedures. After participants report their score on the front of a brown envelope (containing their quiz answer sheet), and place their brown envelope with a corresponding white envelope in a box, the experimenter will go through each envelope in the box and circle either ‘‘pay,’’ ‘‘re-grade’’ or ‘‘re-grade with penalty,’’ using the following process:


Brian W. Mayhew and Pamela R. Murphy

1. If the participant reports a payment of $14.00 or more, the researcher circles ‘‘Re-grade’’ on the outside of the brown envelope. 2. If the participant reports a payment less than $14.00, the researcher rolls two dice. (a) If the sum of the dice is 5, 6, 7, 8, or 9 (roughly a 67% chance), the researcher circles ‘‘Pay’’ on the brown envelope. (b) If the sum on the dice is a 4, 10, or 11 (roughly a 22% chance), the researcher circles ‘‘Re-grade’’ on the brown envelope. (c) If the sum on the dice is a 2, 3, or 12 (roughly an 11% chance), the researcher circles ‘‘Re-grade with penalty’’ on the brown envelope. The banker opens envelopes selected for re-grade and re-grades the quiz. The banker pays the actual amount earned on the re-graded quiz less a $0.25 charge for the re-grading. The banker re-grades the ‘‘re-grade with penalty’’ envelopes, pays the actual amount earned on the quiz minus twice the difference between the reported and actual amount, less an additional $0.25 for re-grading. We include this audit in our design for two reasons: (1) to reinforce to participants that misreporting is wrong and may be penalized and (2) to simulate the construct in the real world wherein individuals are sometimes audited and caught for financial misreporting. Once we ensure that participants understand the process, we collect the blue pens and provide red pens and answer keys to the participants to grade and report their earnings. When all participants complete their reports, the researcher rolls the dice for each participant’s report – in front of the participants – and circles the appropriate pay or re-grade, and delivers the envelopes to the banker in another room. The banker performs the re-grades. When a negative payment results from re-grades, the participant receives no money. The banker places each payment in each participant’s corresponding white envelope, adds $2.00 to the participant with the highest payment in the group, seals the envelopes, and returns them to the researcher who hands them back to each participant. We retain the brown envelopes containing the quiz answer sheets for later calculation of actual earnings and potential misreporting.

Importantly, the expected value of misreporting is always positive. The expected value of misreporting is: 0.67 (D) - 0.11 (2D), where D = the difference in dollars between the reported and actual earnings. This yields an expected value of 0.45D; thereby any misreporting (D > 0) increases a participant’s expected wealth.5 We did not include the expected value equation in the instructions, though participants had all the information necessary to calculate it. We repeat the same process with a second Trivial Pursuit quiz of the same length with different questions. We run a second quiz to account for any learning effects. For example, participants may not believe the researcher or instructions, or they may not be sure of what strategy to follow during the first quiz. We report the results from both quizzes in the descriptive statistics, but focus our main analyses on the second quiz. Ethics education program The ethics program (EP) was initiated following the students’ admittance in the spring of their junior year (2003) to the integrated MACC program.6 Approximately half of undergraduate accounting majors and 80% of those who applied were accepted into the MACC program. Newly accepted students were required to participate in the ethics program that summer and following fall. The ethics program did not offer credit nor were any grades reported. While the program required students to participate, there was no hurdle or test to pass to demonstrate ethical achievement. All students admitted to the MACC program chose to participate, and as promised, no student’s status was impacted as a result of their participation. The program consisted of two parts. Part one took place over the summer while part two was an interactive half day session in the fall. Part one included summer reading and written report assignments related to the ethical decision-making of business professionals. Students read one from a short list of business and accounting oriented books dealing with the impact of ethical decisions. For example, many of the students chose Final Accounting (Toffler, 2003) that chronicled events surrounding the collapse of Andersen and Enron in 2002. The students then prepared three to five page articles summarizing the ethical issues raised by the book and the consequences of the ethical decisions that

The Impact of Ethics Education on Reporting Behavior were made. Faculty facilitators returned the articles with comments intended to reinforce the importance of thinking carefully about ethical situations. We believe the tie-in to real events with significant consequences forced the students to consider the impact of ethical decisions on people beyond the decision maker. Readings from a relatively short list of books facilitated discussion during the September interactive sessions as students were able to recognize and discuss similar themes and consequences from all the readings. In part two, students participated in a half day interactive seminar consisting of both small and large peer group discussions. The session convened in a large lecture hall where the seminar facilitators, two well-known faculty members, overviewed the program agenda. The facilitators divided students into work groups and assigned a list of discussion questions. The first small group discussions focused on the summer’s readings mostly related to the corporate frauds in the early 2000s. The large group then


reconvened and discussed the same questions with appointed leaders from each small group sharing ideas with the large group. The facilitators repeated the process of small group followed by large group discussion two more times, covering the current state of ethical behavior with respect to university course work and standards for developing, monitoring and enforcing a code of ethics within the university and the accounting profession. The students formed a committee to work on ethical standards that eventually culminated in a code of student conduct. The facilitators did not discuss ‘‘right or wrong’’ answers, but allowed the students to express their views and let their peers challenge those views. Due to the program’s emphasis on financial reporting fraud and academic dishonesty, we argue that it helped define socially acceptable reporting behavior among participants. Table I presents a mapping of the activities suggested by ethics education literature to the activities included in the ethics program. We stress two

TABLE I Mapping of activities in ethics education literature to activities in ethics education program Suggested activities from ethics education research Group work and group learning (Geary and Sims, 1994; Loeb, 1988; McPhail, 2001; Park, 1998; Trevino, 1992) Discussion of hypothetical ‘‘real world’’ dilemmas or cases specific to the profession (McPhail, 2001; Loeb 1988; Trevino 1992) Topics should be relevant to the students, achieving a direct connection between students’ personal choices and real issues (Geary and Sims, 1994); topics should be everyday issues, likely to be experienced on a daily basis, rather than just big issues (Maclagan, 2003) Development of a social contract between students and their community (i.e., faculty and staff) (Trevino, 1992), or an ‘‘honor code’’ that is interactively developed and enforced (McCabe et al., 2002); a student-sponsored code of ethics (Park, 1998) Role playing, or taking into account the perspective of others; experiential learning (Geary and Sims, 1994; Loeb, 1988; Park, 1998) Guest lecturers (Loeb, 1988; Park, 1998) De-briefing discussion at the end of the course (Geary and Sims, 1994)

Activities included in the ethics program Both small group and large group discussions on student and professional ethics Students read books about recent accounting scandals (Enron and WorldCom) and discussed them in groups Ethics covered on two directly relevant topics: 1. Student ethical code of conduct while in school 2. Professional ethics specific to accounting profession discussed with accounting students As part of the ethics program, students created their own code of conduct

No role playing, but group interactions both small and large facilitated integrating perspectives of others Guest lectures were not formally integrated into the program Limited commentary sought at end of ½ day session, along with written evaluation


Brian W. Mayhew and Pamela R. Murphy

additional aspects of the program: the facilitators’ attitudes and the role of the overall accounting department. First, the facilitators approached the seminar with the belief that they could influence the students’ ethical decision making abilities. They brought energy and conviction to the process. We cannot measure the impact this had on the students, but it is hard to imagine that less energetic, more cynical facilitators would have had the same impact. At the same time, the facilitators focused on giving a voice to the students, and not simply espousing their own views. The facilitators emphasized student ownership via the formation of a student-based committee charged with designing and implementing a student code of conduct for the MACC program. We suspect that student ownership may have contributed to the formation of common expectations of ethical behavior. Second, the accounting department supported the program. A number of faculty members attended part of the seminar, though only the two seminar facilitators spoke. While some faculty members were skeptical about the likelihood of success, no one publicly disparaged the program, and all acknowledged the potential for success. We believe faculty support and facilitator enthusiasm enhanced the program’s success. In a sense, this represented a so-called ‘‘tone-at-the-top’’ that indicated to students a shared concern about ethical decision making. We suspect that any organization attempting to implement a successful ethics program needs similar support. The main cost of the ethics program was time. Faculty organized the program. They reviewed and returned the summer writing projects, with comments. Two faculty members spent time planning and facilitating the half day session. In addition, the student ethics committee continued to report progress on the code of conduct to the faculty head of the MACC program. There were no other significant costs to implement the program. The program continues to be used and has been expanded to include coverage of ethics in nearly every accounting class, as well as an annual ethics event in May that typically involves a high profile speaker and student discussion sessions. These additional activities are funded by a grant from a major accounting firm and an alumni donor.

Social condition treatments Our social condition treatments follow the same notion used by Eiden et al. (2006), who examined behavior of children to assess whether they internalized certain rules of conduct. The authors observed behavior when the child was under the supervision of a parent and when the parent and child could not see one another. Children who behaved according to certain rules of conduct even when a parent could not see them were rated as having internalized that behavior. For the anonymous treatment, our goal is to make the participants’ actions – and payments – unknown to the researcher and each other. Participants wear nametags bearing only an identifying number. When the brown envelopes are completed and collected from each participant, the researcher delivers them to the banker’s room. An anonymous banker performs the re-grades, prepares the payments, and places each participant’s payment in a white envelope with only the participant’s number on it. The banker does not know the identity of the participants, the participants do not know the identity of the banker, and the researcher in the room with the participants does not know how much money each participant is paid (see Appendix). This treatment allows participants to consider only their internal values and utility function with respect to the reporting situation. In the public disclosure treatment, participants’ identities and actions are known to other participants, the researcher and the banker. Participants wear nametags with their names on them. The same process is followed except that each participant signs a certification that what they report is accurate.7 Participants are instructed that when the payments are returned to them, the researcher will announce the following information to the group: (1) their name, (2) their reported payment, (3) whether the quiz was re-graded, (4) the results of the re-grade, and (5) the final payment amount. We term this manipulation ‘public disclosure,’ though there can be no true public disclosure in a laboratory experiment. In essence, we manipulate peer disclosure, since results are announced to participants who are in the same year of the same program at the same university. Peer groups are especially influential on individual behavior (Myers 2002).

The Impact of Ethics Education on Reporting Behavior Reflecting back on the six characteristics of the ethical issue in Figure 1, we believe this treatment raises moral intensity. First, we make the misreporting act more immediate to participants (issue #4). Though the victim’s consequences do not change, the participants are aware that their actions are made known before they leave the experiment. Second and more importantly, we force participants to reveal their perception of the group’s consensus about misreporting (issue #2). Though we do not know the students’ consensus regarding misreporting in our setting, we believe their actions will reflect an implicit social consensus.


question. Of those, three responded with a statistics class, three said the EP, two said a previous class in which a cheating incident occurred, one said risk management, one said finance, and one said the GMAT. We conclude that, on average, students did not necessarily correlate the ethics program they participated in with the experiment we conducted. Though it is possible, even preferable, that participants considered the ethics program in making their reporting decision, the important point is that participants did not equate the EP with experimenter expectations.

Results Results Manipulation checks In de-briefing surveys, we questioned participants regarding their understanding of our manipulation between anonymity and public disclosure. We found significant differences between the two groups (p = 0.000), indicating a successful manipulation. We also considered whether participants might correlate our experiment with the EP. We tested two possibilities through manipulation checks. First, we asked participants whether they were concerned that their behavior in the experiment would have an impact on their standing with the faculty or in the MACC program. There were no significant differences among treatments on these questions (p = 0.73 and p = 0.91). Second, we considered a possible demand effect from those having taken the EP; participants behaving ‘‘ethically’’ because we expected them to do so. To get at this possibility, we asked a series of questions as follows: (1) What strategy did you follow for taking the quizzes? (2) What strategy did you follow for reporting your payment? (3) Did any classes/seminars at [this university] have an impact on your strategy? If yes, which one(s) and how did it/they impact your strategy? Eleven out of the 55 participants from the EP treatment had a positive response to the third

Descriptive statistics are shown in Table II. Panel A reports the difference between the reported and actual scores. Zero reflects completely reliable and accurate reporting. Panel B reports the number of participants reporting accurately versus misreporting. The participants had to calculate their actual earnings based on the previously described formula for right, wrong and unanswered questions. There appeared to be some honest calculation errors made by participants in summing their earnings. In tabulating honest reporting, we adjusted the data for what we considered to be honest grading or adding mistakes. We coded any difference between the reported and actual score of less than 50 cents as accurate, in an attempt to capture only gross inaccuracies in reporting and intentional misreporting.8 Note that Table II reports the results from both quiz 1 and 2. In every case, the amount of misreporting increased from quiz 1 to quiz 2. In unreported multivariate analysis, there is a significant main effect for quiz. We included a second quiz to allow participants to learn that the instructions provided a complete description of the activities; they could misreport the results and if they avoided the audit mechanism earn more money. We focus the remainder of our analysis on just the second quiz, although all of our inferences are the same if we use only the data from the first quiz, or if we include the data from both quizzes. We graph the average differences and percentage of misreporters in Figure 2 for the second quiz. The graphs display similar misreporting patterns whether based on the magnitude of misreporting or the

Brian W. Mayhew and Pamela R. Murphy


TABLE II Descriptive statistics Panel A: Magnitude of misreporting Ethics program No EP Quiz 1

EP Quiz 2

Quiz 1

Quiz 2

M = $1.67 M = $2.56 M = $2.04 M = $3.09 s = 2.46 s = 2.98 s = 3.41 s = 3.88 n = 26 n = 26 n = 27 n = 27 Public disclosure M = $3.02 M = $4.68 M = $0.29 M = $0.66 s = 4.26 s = 4.52 s = 1.51 s = 2.46 n = 26 n = 26 n = 28 n = 28 M = mean, s = standard deviation, n = number of participants in the cell. The magnitude of misreporting in Panel A is the difference between the reported and actual payment. Zero can be interpreted as honest and accurate reporting. Social condition


Panel B: Number of participants misreportinga Ethics program No EP

Social condition


Public disclosure


Quiz 1

Quiz 2

Quiz 1

Quiz 2

# acc = 16 # mis = 10 n = 26 # acc = 16 # mis = 10 n = 26

# acc = 14 # mis = 12 n = 26 # acc = 9 # mis = 17 n = 26

# acc = 17 # mis = 10 n = 27 # acc = 27 # mis = 1 n = 28

# acc = 13 # mis = 14 n = 27 # acc = 26 # mis = 2 n = 28

# acc = Number of participants reporting honestly/accurately. # mis = Number misreporting. n = Number of participants in the cell. a Nineteen cases had a difference between reported and actual payments of £ 50 cents. These were all considered to be accurate, in an attempt to eliminate honest mistakes and capture gross inaccuracies and intentional misreporting.

percentage of participants misreporting. There appears to be a clear interaction effect of EP and public disclosure. Both magnitude and percentage of misreporting are lowest in the treatment with both public disclosure and EP. In order to determine the significance of the differences across treatments, we estimate the following ANOVA model using GLM estimation in SAS. The GLM approach enables us to estimate the ANOVA with unequal sample sizes across treatments. The model is:

Difference ¼ Social Condition þ Ethics Program þ (Social Condition * Ethics Program) where: Difference = the difference between reported and actual earnings; Social Condition = social condition treatment (anonymous versus public disclosure); Ethics Program = ethics program treatment. Table III, Panel A shows the results. There is a significant interaction of EP and public disclosure (p = 0.001). The ANOVA reports a main effect of EP (p = 0.012), but it appears to be an artifact of the

The Impact of Ethics Education on Reporting Behavior significant interaction. The graphs in Figure 2 suggest that there is not a main effect of ethics program. The EP did not lower misreporting in the anonymous treatments. The slightly higher misreporting in the EP versus non-EP anonymous treatments is not statistically significant (p = 0.58). We perform additional tests to determine the robustness of our findings. In Table III, Panel B, we add two control variables that could account for the difference across cells. Prior research provides some evidence that women are less likely to behave unethically than men (for example, McCabe and Trevino (1997) find that male university students report more academic dishonesty than females, Peterson et al. (2001) found that younger female

Panel A: Magnitude of Misreporting 6.00 Anonymous


Misreporting $

5.00 4.00 3.00 2.00 1.00 0.00 NoEP


Panel B: Percentage of Misreporting 100% Anonymous



% Misreport

80% 70% 60% 50% 40% 30% 20% 10% 0% NoEP


business professionals held higher levels of ethical beliefs, and Ritter (2006) found that female students showed significantly improved levels of moral awareness and decision-making processes after an ethics program than males). We add an indicator variable, gender, equaling 1 for female and 0 for male participants. We also considered whether or not the performance on the quiz impacted the participants’ decisions to misreport. A participant who performed well on the quiz has less to gain by misreporting, and given our audit and penalty procedure would incur less risk by reporting honestly. We add the variable, actual earnings, to measure the impact of the participants’ actual performance on the quiz to the magnitude of misreporting.9 Both gender and actual earnings are statistically significant. Women misreport less on average than men across treatments, and those who perform the best on the quiz misreport less. However, the interaction documented in Panel A remains highly significant after controlling for these alternative explanations. We considered alternative specifications and analyses.10 Our analysis of the second quiz ignores what happened on the first quiz. We consider the impact of misreporting choices on quiz 1 on misreporting on quiz 2. We find a positive association between misreporting on quiz 1 and quiz 2. We also consider whether getting caught misreporting on quiz 1 impacts decisions on quiz 2. The data suggests no correlation between getting caught on the first quiz and the misreporting decision for the second quiz. We also analyze all the data from both quizzes at the same time with controls for repeated measures. While there is a clear increase in misreporting in the second quiz, none of our main inferences change when using the combined data.


Figure 2. Graphs of misreporting. Magnitude of misreporting = Misreporting $ = the amount a participant reported as his/her earnings minus the amount the participant actually earned from the quiz. Percentage of Misreporting = % Misreport = the percentage by which the participant misreported relative to the total possible. No EP = participants who did not take the ethics education program. EP = participants who took the ethics education program. Anonymous = participants in the anonymous treatment. Public = participants in the public disclosure treatment.

Discussion The interaction between social condition and ethics education in our research suggests that the ethics education program established expectations for ethical behavior. Participants in our experiment face a setting in which they have the opportunity to misreport their outcomes for personal gain. For the non-ethics program participants, we do not know


Brian W. Mayhew and Pamela R. Murphy TABLE III ANOVA using GLM on the magnitude of misreporting

Panel A: Unconditional test of differences Difference = Social condition + Ethics program + (Social condition * Ethics program) Source Social condition Ethics program Social condition 9 EP Error





0.631 81.116 138.758 1287.186

1 1 1 103

0.631 81.116 138.758 12.500

0.05 6.49 11.10

Significance p = 0.823 p = 0.012 p = 0.001

Panel B: Test of differences with controls Difference = Social condition + Ethics program + (Social condition * Ethics program) + Gender + Actual earnings Source Social condition Ethics program Social condition 9 EP Gender Actual earnings Error





2.62 82.16 100.35 71.51 105.14 1167.76

1 1 1 1 1 101

2.62 82.16 100.35 71.51 105.14 11.562

0.013 7.11 8.68 6.18 9.09

Significance p p p p p

= = = = =

0.724 0.009 0.004 0.015 0.003

SS reflect type III sums-of-squares which represent the sums of squares conditional on other variables included in the model. The p-values reflect two-sided tests of significance. Difference equals the difference between the amount reported by a participant and the participant’s actual quiz performance. Social condition represents anonymous reporting versus public reporting. Ethics program compares participation to non-participation in ethics program. Gender compares male and female participants with female coded 1 and male 0. Actual Earnings represents the amount the participant earned based on his/her actual performance on the quiz.

what ethical framework students bring to the experiment. However, the ethics program, which discussed financial misreporting and academic dishonesty, appears to have influenced students’ perceived behavioral expectations of each other. This notion is consistent with other work that identifies the importance of peer expectations (McCabe and Trevino (1997) find that peer behavior and peer disapproval are strong influencers on student cheating). Perhaps a social norm of honest reporting emerged within the EP student group. Participants who violate that social norm may fear suffering loss of social status among their peers.

We also note that, across the board, women misreported significantly less than men in our experiment. Though prior research provides mixed evidence of gender differences in ethical decision making, our finding is consistent with several accounting studies. Shaub (1994) finds that women auditors and auditing students have significantly higher DIT scores than men. Eynon et al (1997) report similar findings within small CPA firms. Cohen and Pant (1998) and Cohen et al. (2001) find that women viewed questionable actions as less ethical than men, and they indicated a lower intention to perform such actions than men. Our

The Impact of Ethics Education on Reporting Behavior study shows actual behavior consistent with these findings.

Conclusion, limitations, and future research We examine the impact of ethics education and social condition on reporting behavior. Our focus on behavior provides better evidence than selfreports due to the social desirability bias. We find that, when anonymous, individuals misreport at similar rates, whether or not they took part in an ethics education program. However, when behavior is publicly disclosed, results go the opposite direction. For those who completed the ethics program, misreporting dropped significantly when their reports were disclosed among the cohort. However, for those who did not take part in the ethics program, misreporting actually increased slightly under public disclosure. In our setting, it appears that ethics education resulted in introjected rather than integrated ethical values. Our results suggest that ethics education can impact ethical behavior. A combination of ethics education and some form of social pressure – in this case, public disclosure – results in significantly improved ethical behavior. Each of these, alone, may not be enough. The key to impacting ethical behavior appears to be establishing group expectations of behavior. Our results have implications for universities, the accounting profession, and for management control systems. We suggest the following steps. First, set the tone at the top. Instructors and university officials should enthusiastically and publicly embrace the importance of ethical decision making in the school’s curriculum. Second, get students involved. Ensure that students discuss ethical decision making amongst themselves, and give them the opportunity to participate in or lead an effort to formulate ethics policies or codes of student conduct. Finally, promote transparency whereby behavior is observable or potentially observable to peers. Similar socialization processes are likely to be effective within the accounting profession. Even though Cohen et al. (2001) and Jones et al. (2003) find higher levels of ethical intentions among practitioners than students, we still believe in the


importance of socialization for maintaining these higher levels. First, ethics seminars similar to the one described in the article provide consistent, enthusiastic, and public attention to ethical decision making. We think candid small and large group discussion about ethical decision making as it applies to the organization facilitates the development of consistent social expectations. Second, ethical decisions should be publicly announced to the group. Our study suggests such an approach may be particularly useful in disciplining ethical internal and external reporting. Our findings also provide an interesting link to management control systems. Ahrens and Chapman (2004) discuss an enabling (versus coercive) approach to management control systems based on four underlying principles: repair, internal transparency, global transparency, and flexibility. Internal transparency concerns the visibility of internal processes to employees, while global transparency refers to visibility of the overall context in which employees perform their jobs. Our notion of public disclosure fits into these notions of transparency. Perhaps management control systems can be designed with the intention that employee behaviors might be made known to other employees, calling it ‘behavioral transparency’. In a similar vein, Rosanas and Velilla (2005) discuss the importance of moral values as part of management control systems. They stress that, ‘‘…the control process must appeal to moral values, as it is crucially important that people learn about the actions that are desirable to the organization itself as well as to its customers’’ (p. 95). We believe our suggestions for implementing ethics training along with an emphasis on transparency will apply equally well in different cultures. The United States is one of the most individualist cultures in the world (Cohen et al., 1993). Contrary to individualist cultures, collectivistic cultures place a high value on conformity to group norms. If similar ethics training and publicity methods were used in more collectivistic cultures, we argue the effect would be similar if not stronger.

Limitations The most important limitation to this study is its quasi-experimental nature, due to our use of specific


Brian W. Mayhew and Pamela R. Murphy

groups of participants who either did or did not complete the ethics education program. These two groups of students were one year apart in the same program at the same university. We do not believe there are any systematic differences between the two groups that could account for such significant findings. We cannot completely rule out the possibility that the ethics program created a demand effect in the experiment. It is possible that students who completed the ethics program thought the experimenters expected them to behave ethically in the experiment. We took the following actions to control for a demand effect. No faculty member associated with the ethics program was associated with the experiment. No faculty member conducted an experimental session; Ph.D. students conducted all experimental sessions. Finally, our manipulation checks indicate that only three of 55 ethics program participants said the EP impacted their strategy in the experiment. Though we conclude the EP did not create an experimenter demand effect, we believe the EP created an atmosphere that encouraged ethical behavior. We believe the difference is subtle yet important. Our study takes a single measure of ethical decision making. We did not collect measures of ethical development such as the DIT, so we cannot identify which step in the ethical decision process may have been the failing point. This limits our ability to tie in our findings to prior research that shows mixed impact of ethics programs on such measures. However, we note that the behavior we find in our study appears consistent with Kohlberg’s third stage of moral reasoning in which individuals attempt to conform to group norms. Several articles identify this stage as applicable to students and accounting practitioners (Jones et al., 2003). The relative lack of evidence supporting integrated ethical values may be the result of the ethics education program itself. Integrated values are best derived under conditions of autonomy rather than when controlled (Deci et al., 1994; Ryan and Connell, 1989). It is possible that the ethics program was too forceful in approach. The faculty tried to maintain their role as facilitators rather than lecturers, and welcomed open discussion and opinions from students. Nevertheless, we cannot rule out the possibility that students perceived the ethics program

as a forced proceeding, leading to higher rates of introjected rather than integrated ethical values. It is also possible that ethics programs cannot impact integrated ethical values at all.

Future research There are many areas within ethics research that still need to be addressed. First, more research should examine behavior. Though behavior is most easily studied in the laboratory, creative researchers could design quasi-experiments in the field using professional subjects. In designing research on ethical behavior, one could include measures of the other three steps in the ethical decision making process, to examine the correlation between steps. With respect to our successful public disclosure treatment, there are many research avenues. First, we did not specifically identify the mechanism by which public disclosure impacted behavior. We posit that the ethics program established group expectations, or social norms, for ethical behavior. This link should be examined more closely. In addition, many other social conditions could be studied. Various forms of accountability have been discussed in the audit literature that might be applicable to ethical decision making. The moral intensity of the issue could also be examined more closely. We argue that our social condition increased moral intensity. Similar experiments could manipulate each of the six characteristics of moral intensity to identify which characteristics may be more closely linked to behavior. Clearly, more work is needed on gender differences. Interestingly, gender differences have been robust in accounting studies. Is this an anomaly or do gender differences interact with the choice of accounting as a profession? Along with other researchers (Cohen et al., 2001), we suggest longitudinal research to examine not only the causes of ethical decision making, but also its persistence. Our experiment had an especially short time horizon: one week. Given contradictory evidence of ethical reasoning and judgment of accountants over time, longitudinal research could shed light on when or where accountants’ ethical decision making changes.

The Impact of Ethics Education on Reporting Behavior Finally, we need to identify specific aspects of ethics training that are most effective. Ideally, we should integrate the planning and implementation of an ethics education program with research. For example, experiments similar to ours could be planned and conducted in conjunction with a new ethics education program within universities, while also closely documenting the specific elements of the program itself. Field studies could follow similar methods. By partnering with training organizations to implement ethics training within organizations and simultaneously plan research or surveys before and after the training, we could shed light on specific aspects of training programs that are most effective.

Notes 1

For example, Ryan et al. (1993) ask participants to rate their level of agreement with statements about their religiosity, phrased to decompose the reasons for certain activities (e.g., ‘‘I pray because I enjoy it’’ versus ‘‘I turn to God because I’d feel guilty if I didn’t’’, p. 591). 2 Moral hypocrisy theory posits that individuals want to be seen as moral without necessarily acting that way. In our context, this theory suggests that anonymous individuals would be more likely to misreport than those whose behavior is publicly disclosed (see Batson et al., 2006). 3 In her review of empirical research on the relation between moral reasoning and moral behavior, Trevino (1992) concludes that a moderate relation exists. 4 Each treatment consists of three groups of between 7–10 participants at a time. Our design relies on having enough participants at one time to constitute a social group in the disclosure treatments and to enable us to reasonably promise anonymity in the anonymity treatments. 5 Note that the audit decision is independent of whether or not the player misreports, as long as the reported amount is less than $14, so the 0.25 cost of audit is not relevant for purposes of the expected value of misreporting. For reported amounts exceeding $14, the expected value of misreporting is zero because there is 100% chance of regrade. 6 The integrated MACC program offers the students the opportunity to complete their undergraduate degree


in their fourth year and then return for a fifth year in which they earn the master’s degree. The program includes an integrated, paid internship in the spring of the fourth year for which students earn credit toward their undergraduate degree. Many students accept full time employment from their internship firm after they complete the MACC degree. 7 Extensive pilot testing included three treatments: (1) anonymity, (2) signature/certification, and (3) signature/ certification with public disclosure. Results indicated no significant behavioral differences between signature/ certification and anonymity; thus we dropped the second treatment from the experiment. 8 Note that with a 40 cent gain for a correct answer and a 10 cent loss for a wrong answer, a single mistake in grading could lead to a 50 cent swing. In our review of their quizzes, it appears that participants committed a number of small errors both to their favor and detriment. These were primarily addition errors in totaling their earnings. Based on this observation we decided to classify small errors (£ 50 cents) as unintentional. 9 We realize that the relationship is somewhat mechanical in that difference equals reported minus actual performance, but we wanted to make sure that the actual performance across sessions did not inadvertently drive our results. 10 We also look at the decision to misreport using logistic regression. As stated earlier, we consider misstatements less than or equal to $0.50 as accurate. The logistic regression confirms the ANOVA findings of a significant interaction between the EP and public disclosure. Unlike the ANOVA model, the logistic model does not find a main effect for the ethics program nor do actual earnings impact the misreport decision. We reran the analysis classifying all misstatements regardless of magnitude as misreports. This alternative approach did not change our inferences.

Acknowledgments We thank Jon Davis, Leslie Eldenburg, Bill Felix, Kathy Hurtt, Ella Mae Matsumura, Larry Rittenberg, Steve Salterio, Jeff Schatzberg, Terry Warfield, Arnie Wright and workshop participants at University of Arizona, Boston College and the University of Wisconsin - Madison for their helpful comments on an earlier version of this article. We thank the Department of Accounting at the University of Wisconsin – Madison and its many supporters for funding the experiments.


Brian W. Mayhew and Pamela R. Murphy

Appendix Instructions, Part I Provided to participants at the start of the anonymous treatment

Instructions for participants Thank you for participating in this experiment! Please wear your numbered nametag. You will take two separate quizzes each timed at 12 minutes. Each quiz has 40 multiple-choice questions taken from Trivial Pursuit 20th Anniversary edition. You will be paid based on your scores.

• If you cross out an answer and circle another one, the circled answer is taken. • If you cross out an answer, and don’t circle another one, it is considered to be a non-answer. • If you cross out more than one answer and don’t circle another one, it is also considered to be a non-answer. If anyone is caught looking at someone else’s quiz, they will not be allowed to continue and will not be paid for that quiz.

Instructions, Part II Provided to the participants in the anonymous treatment after they completed the first quiz:

For each quiz, your payment will be calculated as follows:

Grading instructions for participants

Starting with zero:

Quiz grading:

• For every question answered correctly, add 40 cents. • For every question answered incorrectly, subtract 10 cents. • For every question not answered, subtract 5 cents. In addition to the payment described above, the participant with the highest payment on each quiz receives an additional $2.00. Ties for the highest payment will be split evenly.

Quiz rules Please place all your belongings on the floor. You will be given a pen with which to write. Circle the letter of the correct response (a through d or e) on the answer sheet. Mark your answers clearly! Since this quiz makes a distinction between an incorrect answer and a non-answer, your markings are important. Use the following rules: • Marking more than one answer to a question is disallowed. If you carelessly mark more than one answer, it is deemed to be incorrect.

• You will grade your own quiz, keeping track of each of the following: • the number of questions answered correctly (add 40 cents for each) • the number of questions answered incorrectly (subtract 10 cents for each) • the number of questions not answered (subtract 5 cents for each). • You will then report your earnings on the front of your brown envelope. Fold your answer sheet, put it inside the brown envelope, and seal it. Attach the corresponding white envelope to the brown envelope and place them in the box. • Once all the envelopes are in the box, the researcher will follow these steps for each envelope: 1. If a payment of $14.00 or more is reported, the researcher will circle ‘‘Re-grade’’ on the outside of the brown envelope 2. If a payment of less than $14.00 is reported, the researcher will roll two dice. (a) If the sum of the dice is 5, 6, 7, 8, or 9 (roughly a 66% chance), the researcher will circle ‘‘Pay’’ on the brown envelope.

The Impact of Ethics Education on Reporting Behavior (b) If the sum on the dice is a 4, 10, or 11 (roughly a 22% chance), the researcher will circle ‘‘Re-grade’’ on the brown envelope. (c) If the sum on the dice is a 2, 3, or 12 (roughly an 11% chance), the researcher will circle ‘‘Re-grade with penalty’’ on the brown envelope. • The researcher will then deliver the box containing all the brown envelope packets to the anonymous banker in the adjoining room. The banker is unknown to you and you are unknown to him/her. The banker will follow the instructions below: Banker’s instructions: • For envelopes circled ‘‘Pay’’, the banker will pay the amount reported. • For envelopes circled ‘‘Re-grade’’, the banker will open the envelope and double-check the grading and calculation for accuracy. The payment will be based on the participant’s actual rather than reported score, less a 0.25 re-grade fee. • For envelopes circled ‘‘Re-grade with penalty’’, the banker will open the envelope and double-check the grading and calculation for accuracy. The payment will be based on the participant’s actual rather than reported score, less a 0.25 re-grade fee, and less a penalty amounting to twice the difference between the reported and actual payment. • After completing this process for every participant’s report, the banker will identify the person with the highest payment (either


reported, or, if double-checked, the actual) and will add $2.00 to that participant’s payment (ties split the $2.00 evenly). Any negative score receives no payment. • The banker will place the calculated payments in the corresponding white envelopes and return them to the researcher. Re-grades and calculations by the banker are final. Payments • The researcher will return each white envelope to the corresponding participant (i.e., envelope 1 to Participant 1). Note that the banker will not observe your true identity and the researcher will not observe your payment amount. • The contents of the brown envelopes will not be examined until after the experiment has ended, and all participants have been paid and have left the room; unless the rules above indicate a re-grade.

Payment examples If the researcher circles ‘‘Pay’’, the following are some payment examples: Reported


-$2.00 0 $8.50

0 0 $8.50


Brian W. Mayhew and Pamela R. Murphy If the researcher circles, ‘‘Re-grade’’, the following are some examples:

Reported $7.10






10 correct (*0.4) 12 incorrect (*-0.1) 18 not answered (*-0.05) = $1.90 25 correct (*0.4) 15 incorrect (*-0.1) 0 not answered (*-0.05) = $8.50 30 correct (*0.4) 7 incorrect (*-0.1) 3 not answered (*-0.05) = $11.15 35 correct (*0.4) 3 incorrect (*-0.1) 2 not answered (*-0.05) = $13.60

$1.90 - 0.25 = $1.65

$8.50 - 0.25 = $8.25

$11.15 - 0.25 = $10.90

$13.60 - 0.25 = $13.35

If the researcher circles ‘‘Re-grade with penalty’’, the following are some examples: Reported $7.10




Actual 10 correct (*0.4) 12 incorrect (*-0.1) 18 not answered (*-0.05) = $1.90 25 correct (*0.4) 15 incorrect (*-0.1) 0 not answered (*-0.05) = $8.50 30 correct (*0.4) 7 incorrect (*-0.1) 3 not answered (*-0.05) = $11.15 35 correct (*0.4) 3 incorrect (*-0.1) 2 not answered (*-0.05) = $13.60

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Brian W. Mayhew Department of Accounting and Information Systems, University of Wisconsin – Madison, Madison, WI 53706, U.S.A. Pamela R. Murphy Queen’s School of Business, Queen’s University, Kingston, ON, Canada K7L 3N6 E-mail: [email protected]

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