The blog "10th Person Pleads Guilty in Galleon Group Case" on DealBook in the New York Time catch my interest because it reminds me of the Ariely's artical that we have just finished on Friday, so I search for the link to the original article which is "UPDATE 2-Ex-Atheros exec pleads guilty in Galleon case" in the Reuters.
Hariri, a former top excecutive of Santa Clara, California, chipmaker , is accused for doing fraud and conspiracy. While he helds the position, he tells his company's financial confidential information to the third persons in exchange for that of the other company. He will receive two an a half year penalty. The news claims that it is the biggest hedge fund insiding trader in US.
What is Hariri's insentive to do such fraud? If he do proper cost benefit analysis, he would know doing such thing make more harm than good. People cheat when they have a chance to do. Hariri as well take a chance of being the highest position to access to the confidential information for his own interest which made huge damage to the company. He may think that the cost is lower than the benefit that he will get from that doing. Because the benefit is easily to calucate in term of money. For example, he will get high profit gain from buying low cost stock and sell it at higher price. However, considering of the cost side, he might underestimate the price of making such crime. Because some costs are difficult to value in monetary trems, such as the reputation which is very important thing in doing business. If he is put in jail, he will lost oppurtunity to earn money. In case he receive $ 70,000 a month, he will lost $ 2.1 million in two years and a half in jail. Morover, he will lost the repuation for his entire life which can be calculated in money value. For example, his reputation value $ 1 million a year and he still alive for the next 30 years. then the value of his reputation is tollay $ 30 million . Therefore, the total cost may be higher than the amount of money that he gets from cheating. In my opinion, a way to reduce the crimes is to make people realize that the cost of doing such crime is higher than benefit that they will get.
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References
UPDATE 2-Ex-Atheros exec pleads guilty in Galleon case.(2010, March 3). The Reuters. Retrived March 7, 2010 from http://www.reuters.com/article/idUSN0319675820100303
I like the way Mod response relates the news report to our reading of Ariely. It seems to me to illustrate very well the important point about determinants of personal honesty that Ariely was making.
ReplyDeleteAn interesting piece of news I would otherwise have missed, and a very useful analysis by her in Mod's response.