Over the holidays The Man From FCPA was a voracious reader. One of the most interesting books read was Michael Lewis’ The Undoing Project, A Friendship that Changed Our Minds. It was the story of two Israeli academicians who authored a series of papers on humans’ decision making process. Lewis, a well-known author of such works as Liar’s Poker and The Big Short, first heard of the two psychologists after publishing his book Moneyball. Indeed, it was another paper in response to Moneyball which directly led to The Undoing Project.
The main thesis for Moneyball was that baseball was inefficient because judgers and raters of baseball talent misjudge that talent due to their mind’s biases. However, this thesis was developed by the two Israeli psychologists, Kahneman and Tversky, almost 30 years ago. They were so well known in the academic community that the one still living, Kahneman, won a Noble Prize in Economics. The book was a great read and should be studied by every compliance professional for its insights into how the human mind works, or in some cases fails to work, when forming judgments and making decisions. In short, people do not always make rational decisions.
The implications for anti-corruption compliance programs under the FCPA or U.K. Bribery Act. Often one hears legal types advocating simple rules and regulations as a compliance program. They opine a compliance professional only has to understand the law and then communicate that understanding to employees in a corporation to create an effective compliance program. In short, the rational mind will always make the rational and rules-based decision.
Lewis in his book explains the research and publications of Kahneman and Tversky destroy and debunk this myth. There are wide variety of other factors that go into an employee’s decision-making process, least of which could be summarized as “What’s in it for me?” The work of Kahneman and Tversky also explains not only why you must have a compliance program, but also why a company must actually do compliance for the rules and regulations to gain and hold effectiveness.