The importance of individual honesty and trustworthiness in economic interactions is well known. These attributes facilitate cooperative relationships, enable contracts, strengthen legal and regulatory institutions, and, as a result, promote economic growth (Guiso, Sapienza and Zingales 2004; Zak and Knack 2001). Also well known are vast differences in these attributes across cultures and countries. Figure 1 illustrates these differences, showing proportions of world population and world economic activity (respectively) that derive from countries with high, medium, and low levels of corruption, as measured by Transparency International's 2005 corruption perception index (CPI). Without reading too much into these coarse numbers (which, of course, raise complex questions of cause and effect), we note a stylized fact: The distribution of corruption is largely bimodal, with the vast majority of both population and economic activity in either the low CPI (advanced developed) or high CPI (Third World and transition) countries. (1)
In this paper, we explore a possible contributing explanation for this phenomenon that is rooted in individual preferences. Specifically, we conjecture that honesty is contagious in the following sense: If a majority of one's peers are perceived to be honest, an individual is likely to suffer a larger aversion penalty/disutility when behaving dishonestly. If so, honesty breeds honesty and dishonesty breeds dishonesty. Such responses can push countries and cultures toward either predominantly honest or predominantly dishonest behavior, once tipped in one direction or the other. They can thus help explain (or reinforce other explanations for) bimodal outcomes akin to those in Figure 1. (2) However, they do not tell us why one country or culture goes in one direction--why one culture is "more honest" and another "less honest." Moreover, they suggest that behavior is malleable in that, if perceptions of predominating behavior change (from dishonest to honest, for example), individual choices conform. As a result, the bimodal-type outcomes predicted by contagion are potentially fragile; if perceptions of behavior change, then behavior changes with them.
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We study the contagion conjecture in the context of a simple deception experiment, wherein we stimulate different subject perceptions of the propensity for honesty in the overall group of experimental subjects. We then examine the resulting impact on an individual's choice between truthful and untruthful behavior. Our experiments mimic the original deception game designed by Gneezy (2005), who studied the effects of different payoffs on individuals' aversion to untruthful behavior. Unlike Gneezy (2005), we consider a single set of payoffs in each experiment and focus on the possibility of contagion. (3) Because a central motive for our inquiry is to study whether perceived norms of honesty or dishonesty among peers spur more truthful or less truthful conduct in societies that are alternately considered corrupt or not corrupt, we conduct our experiments in both a low CPI country (the United States) and a high CPI country (India). Broadly speaking, we find evidence for contagion in both countries.
To our knowledge, the only study that (indirectly) addresses the question of contagion in honesty is Fisman and Miguel's (2007) famous paper on the tendency for diplomats to garner parking tickets in New York; they find that the immunity-protected foreigners take their home country propensities for lawlessness with them. While these results might be interpreted as evidence against contagion (because diplomats seem to ignore U.S. values in their behavior), we believe that such inferences are misplaced for two reasons. First, there is no ceteris paribus in this comparison; diplomats may well temper their lawless behavior, relative to what they would do if protected by immunity in their home countries. …