I recently spoke with a client who wanted to know what could go wrong with bitcoin. We talked about bitcoin and the monetary system (not a risk now, but who knows in the future) as well as black market applications (greenbacks work just as well or better here). The question stuck with me, though. What could go wrong? I remembered attending a session at an IMCA (now the Investments & Wealth Institute) conference with Dan Ariely and something clicked. Ariely’s research suggests that the further we get from money, the higher the likelihood that we will cheat.
Check out his TED talk here. He performed an experiment where subjects were given a limited amount of time to complete a number of math problems and would get paid based on the number of problems they completed. Subjects who handed in their papers got an average of 4 problems correct.
Lots of Little Cheaters
What happens if we don’t have turn in proof of our work, though? Jump to 4:47 in the TED talk. When the subjects in Ariely’s experiments were told to shred their papers and then tell the experimenter their scores, the average jumped up to 7. Ariely found that it wasn’t one or two bad apples cheating a lot. It was a lot of little cheaters.
What about the incentive to cheat? Ariely changed the incentive for completed problems from ten cents to several dollars and found that instances of cheating did not increase.
What about chances of getting caught? Telling subjects to shred their entire paper or only half their paper made no difference in cheating. Ariely told subjects to just take the proper amount of reward from a bowl of money and the level of cheating did not increase.
How to Encourage Cheating
At 9:15 in the TED talk, Ariely discovered a way to double the instance of cheating. Pay subjects in tokens rather than dollars. Even though the subjects could exchange the tokens for dollars a few feet away, the instance of cheating doubled.
There don’t seem to be many opportunities for us to behave badly using bitcoin yet, thankfully, but perhaps this is the real risk of bitcoin.
I was previously a crypto-skeptic – now I think this stuff is the real deal. You can read about my change of heart here: I Changed My Mind on Bitcoin. It just makes sense to keep an open mind on both the positives as well as the negatives, especially while this area is still so new and misunderstood by many (all of us?).