Auditing with Rewards for Honesty and Punishments for Cheating

Abstract

Policies to deter misbehavior often use audits, which probabilistically detect misbehavior, and punishments. While punishments may be undesirable due to practical or ethical concerns, policies of auditing with rewards for detected good behavior are seldom used or studied. In an online experiment, I tested the effects of rewards for honest behavior, as well as combinations of punishments and rewards, on cheating. I found that small probabilities of large rewards were effective when combined with punishments, but small rewards were ineffective or backfired. These findings provide guidance for implementing rewards and contribute to knowledge of how auditing schemes affect behavior.