How people ‘mentally launder’ unethical income

Jul 28, 2021

Video Transcript

Narrator: Numerous experiments have demonstrated that people are more generous with money they’ve earned unethically. For instance, a salesperson who earns a big commission by misleading a client may mentally cordon off that money and be more willing to spend it on others. But research by Chicago Booth’s Alex Imas and his coauthors finds that there’s a way to avoid this self-imposed penalty: psychologically launder the money by obfuscating its source. 

Alex Imas: What we kind of started with is this idea of mental accounting, placing psychological constraints on spending. So for example, money that you earn through salary or something like that, something that’s expected, basically gets kind of associated mentally with things like savings, these psychological accounts, and these place constraints on how this money is actually used. So for example, money that is associated with a savings account is less likely to be used for entertainment than, say, if you got the exact same amount of money through a lottery or an unexpected bonus. 

Narrator: The researchers ran a study where participants either lied or told the truth for $20. 

Alex Imas: So, you knew that you lied for 20 bucks and we handed you the cash, or you knew you told the truth for 20 bucks. 

Narrator: After they received the $20, they were asked if they would like to donate some of it to charity. And not surprisingly, those who lied were far more likely to donate some of the money to charity than the people who told the truth. But for some participants, the researchers added another element to the experiment. 

Alex Imas: What we introduced is this, what we call a laundering lottery. Essentially, this amount of money, this $20, was entered into a lottery for everybody, where this lottery had a super-high chance of just returning the exact same amount of money back to you with a tiny probability to increase it, with a tiny probability it took it away, but most people just got the 20 bucks back. But this $20 was from a different source. 

Narrator: Changing the source dramatically affected how people treated the money. Those who had initially earned the money by lying no longer felt the same inclination to donate. 

Alex Imas: This money, just by going through this arbitrary lottery, was now spent as if it was basically earned ethically. So the liars spent $20 as if they earned this money from telling the truth. 

Narrator: The researchers wanted to explore how people might use this effect to escape the spending constraints associated with unethical income. They ran another experiment in which participants could earn $15 for lying and then an additional $5 for doing something ethical. In one condition, they combined both the ethical and unethical money in a single envelope. In the other, they kept the money from each source separate. 

Alex Imas: What we found out is that when we pooled money together, this basically gave people the flexibility to treat each dollar as if it was potentially earned ethically. And they just basically treated the entire pool as if it was ethically earned. There was no difference in the pooled condition, where people earned most of it unethically, than the condition where they just earned $20 completely ethically. 

Narrator: The study’s findings have implications for, among other things, how individuals view their investment income. 

Alex Imas: If I’m trading a gun manufacturer or something like that, well, you know I’m also trading, you know, a grocery store or Apple, and my money kind of gets pooled all together. So I don’t really feel a lot of guilt from the fact that I’m making money from a gun manufacturer.