We thank an anonymous reviewer for helping us to flesh out this section.
In both experimental treatments, subjects were told that the scenario they just evaluated was based on a real-world event. During the survey, subjects were also asked to state whether they had any knowledge of what real-world event that was. Even though the word bailout was used in the description of the scenario, only 4.25 % of the subjects correctly identified AIG as the real-world event. The majority were only able to generally connect the scenario to the 2008 financial crisis and the government interventions in the banking and/or financial system. Thus, the ethical preference reversal observed in the experiment cannot be attributed to prior knowledge by the subjects about the AIG bailout.
The AIG intervention explored here provides valuable lessons as to how unethical conduct results from cognitive restructuring. Bandura (2002) contends that moral agency has dual aspects: inhibitive—the power to refrain from behaving unethically, and proactive—the power to behave ethically. The mechanisms that prevent either of these include the cognitive restructuring of unethical conduct into a benign or worthy one by: moral justification, sanitizing language and exonerative social comparison, disavowal of personal agency in the harm one causes by diffusion or displacement of responsibility, disregarding or minimizing the injurious effects of one’s actions, and attribution of blame to, and dehumanization of, those who are victimized. Safeguards must be put into place that uphold ethical behavior and renounce unethical behavior.
In the AIG intervention, sanitizing language and euphemistic labeling were widely used. For example, in order to limit taxpayers’ ire, Secretary of the Treasury Hank Paulson (2010, pp. 233, 237, 240) asked all concerned to characterize the Fed’s actions toward AIG as rescues or interventions, but not bailouts. In addition, exonerating comparisons are often used to elicit approval of morally questionable actions. As Fed Chairman Ben Bernanke testified before Congress, “I share your concern. I share your anger. It’s a terrible situation….But we’re not doing this to bail out AIG or their shareholders, certainly. We’re doing this to protect our financial system and to avoid a much more severe crisis in our global economy.” Finally, disregarding or minimizing the injurious effects of one’s actions and the attribution of blame to those who are victimized also occurred. “There are a lot of things that have happened in the last eighteen months, but what has happened at AIG is the most outrageous …. No one cares about the shareholders of AIG. No one feels the slightest obligation to people who led us into these difficulties” (Obama administration economic advisor Larry Summers in Suskind (2011, p. 216).
Our results on direct versus indirect and joint versus separate moral evaluations of the AIG bailout also fall within the domain of the moral emergencies that are popular dilemmas in ethics classrooms (Appiah 2008), as exemplified by ‘trolley’ or ‘footbridge’ problems. In these exotic moral dilemmas, ethical judgment is influenced by perceived moral differences between harmful omission versus harmful action, even though the ultimate result is the same (Lapsley and Hill 2008). Appiah (2008, pp. 96–97) identifies moral emergencies as having the following four features: they involve (i) limited (i.e., instantaneous) decision time that disallows the opportunity to gather more information; (ii) a clear and simple set of options; (iii) high stakes that narrow the ranges of options to consider; and (iv) optimum placement in that the decision maker bears responsibility because no one else is in better position or more equipped to act. By pointing out these features, Appiah casts doubt as to whether much is learned from such highly unlikely and idiosyncratic trolley or footbridge problems, because they require the assumption that what is learned from imaginary scenarios mirror our responses to real ones.
By contrast, the AIG intervention is not a theoretical construct. It was instead a real-world phenomenon and the actions of the participants involved have subsequently been evaluated by a federal judge. The AIG bailout satisfies Appiah’s four features of a moral emergency. First, heightened sensitivities to adverse market reactions immediately following the ‘Lehman weekend’ meant that government officials needed to act almost instantaneously to address AIG’s situation, because it was felt that without an intervention AIG may not last out the week (Paulson 2010, p. 217). Second, the option considered was clearly identified by a similarly structured but failed attempt at a private resolution of AIG’s collateral crisis during the same weekend by Goldman Sachs and JPMorgan Chase that the government then adopted and augmented with an additional $10 billion in funding (Barofsky 2012; Bernanke 2015). Third, the stakes were extremely high for both AIG, its counterparties, and perhaps the world economy, given AIG’s role in greasing the wheels of world commerce via its non-AIGFP businesses involved in retirement savings and pension funds, transoceanic shipping insurance, airline insurance and aircraft leasing, employee healthcare/benefits, etc. Finally, by their own assertion, the intervention in AIG by Treasury and Fed officials satisfies the condition of optimal placement, because private attempts at rescuing AIG had failed. No other entities could possibly act in rescuing AIG.
Within the context of teaching business ethics, Elm and Radin (2012) argue that when ethical decision making exhibits contradictions—such as the preference reversals identified in this study—there may be no distinction between ethical and other types of decision-making processes. Elm and Radin (p. 325) further contend that this means that the field of ethical decision making as it exists among the social sciences may be impoverished by not being connected to research on decision making in general. We add that if this is the case, then it suggests that ethical decision making should be regularized within the social sciences and its extension to business. If ethical decision making is not all that different, then it should not be held apart and the ethical content of a decision should be considered as regularly as the accounting, economic, strategic, etc., dimensions of a business decision. Ethics is no more separatable from business decision making than are the aforementioned functional areas of business. Our study supports Elm and Radin’s thesis via the identification and consideration of three decision-making contradictions within an ethical context: preference reversals, framing effects, and dual processing. We briefly discuss each in turn.
First, ethical preference reversals raise the issue of the extent to which ethical judgment takes place with respect to subjects’ preexisting moral constructs, or if instead moral criteria are constructed within the context of eliciting ethical judgment. That is, preference reversals suggest that subjects’ moral reasoning may be unstable, depending upon intuitions that vary with the mode of evaluation. Moreover, moral judgments can only be made in separate or joint evaluation mode. If ethical judgments are not stable across these modes, then either decision makers apply different ethical principles in the separate and joint treatments, or they are unable to apply the same principle uniformly over the treatments. Ethical preference reversals, therefore, raise the uncomfortable reality that what is considered ethical may depend upon how a particular decision is presented. In other words, those who have the power to design how an ethical dilemma is approached may be able, in a very real way, to dictate what is viewed as ethical and what is not (Table 4).
Indeed, Dedeke (2015, p. 438) suggests that the framing of a moral issue by the decision maker deserves perhaps even more attention than moral awareness does, as the first stage of moral decision making, because moral decision making is influenced by how issues are framed. Dedeke, therefore, recommends that ethics training include examples of how different framing of issues lead to different outcomes. The sensitivity of direct versus indirect moral judgments to whether they are framed jointly or separately is such an example. As our study shows, framing can introduce an uncomfortable degree of relativism into the question of what is ethical or unethical. It also implies that meta-processes can be consciously manipulated in order to make a decision appear more ethical or more moral. Hence, while framing is a traditional subject in judgment and decision theory (e.g., Baron 2008), our results suggest that cases such as the AIG bailout are needed within business ethics courses so that the effects of framing are understood within an ethical context. Only then, as Dedeke suggests, can close attention be paid to the contribution of framing when unethical decisions occur. Business ethics education that includes the effects of framing can, therefore, lead employees to challenge framing practices.
Finally, this leads us to the application of dual processing to moral decision making. Following the terminology of Stanovich and West (2000), dual processing is characterized by System 1 and System 2 methods of reasoning. System 1 processing is embodied by associative, experiential, implicit, and tacit heuristics. By contrast, System 2 processing is analytical, conscious, deliberative, and ‘rational.’ In particular, a decision maker may use System 2 processing to override System 1 decisions via judgment upon reflection (Lapsley and Hill 2008). In our study, the limited information presented in the separate framework lends itself to System 1 processing, while the joint framework permits System 2 processing. Our results, therefore, illustrate the ability of System 2 processing to monitor System 1 judgments, as well as the limitations of moral heuristics in the absence of considering counterfactuals, whether or not they are explicitly provided. Provis (2015) calls this “hypothetical thinking.” System 2 processing facilitates connecting the dots, but it does so at a tradeoff of requiring much more cognitive effort than System 1 processing does. Including separate versus joint and direct versus indirect examples within business ethics education allows hypothetical reasoning to become more automatic, thereby reducing the associated cognitive effort.