Dealing With Employees

Swiss research indicates that people will go out of their way, and even pay money, to punish others when they feel they have been taken advantage of, according to New Scientist. The research has implications for business, suggesting that unscrupulous operators may face a surprising level of hostility.

For example, the collapse of Enron has captured people around the world and united them in their sense of anger.

People from all backgrounds have voiced their disapproval of Enron's top management selling their shares in time to make an enormous amount of money, while 'ordinary' Enron employees were left to watch their retirement savings go up in smoke. The public demands justice - even those people without personal involvement in the collapse of Enron.

Social scientists have been seeking to explain the fact that people will cooperate with strangers, even when they may never meet them and there is no obvious pay-off for being cooperative.

The research finds that people will go out of their way to deliver "altruistic punishment" to people who take advantage of a group while making no contribution, according to Ernst Fehr, economist at the University of Zurich.

Fehr designed a series of games to assess human behavior. Six groups of four students were given a share of real money to invest in a group project. If everyone in the group invested, then everyone would share in a guaranteed profit. But individual members could hang back, not invest and get a free ride on a lesser profit.

After a series of games, the researchers found that people tended to hang back and not invest. Then they introduced a punishment. Group members could penalize the freeloaders, though they had to pay to do so. The punishment was 'altruistic' as group members would never play with the particular freeloader again, and they would never benefit from 'teaching them a lesson'.

Investment climbed to four times the previous level as the threat of punishment encouraged cooperation.

Researchers said that anger was the reason the players handed out punishment, even though it cost them money to do so.

"At the end of the experiment, people told us they were very angry about the free-riders," said Fehr. "Our hypothesis is that negative emotions are the driving force behind the punishment."

While the experiment involved games, researchers believe it offers clues to wider patterns of behavior.

"It's a great experiment," said Herb Gintis, human behavior expert at the University of Massachusetts.

Gintis suggested that social policies would fail where they do not take account of emotions such as moral indignation. He suggested that people rejected US welfare policies in the 1980s because they felt that freeloaders were not being dealt with.

The research is likely to have implications for business, as it confirms something that many of us know intuitively: people will go to considerable lengths to see that unfair dealing is punished.

It highlights the importance of fair dealing within a business community. If word gets out that a business is behaving unfairly or unethically, it may face a surprising level of hostile and punitive action from competitors and clients.

And it seems that this reaction may be one way of keeping the investment community healthy.

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