1

California Law Review Online

Vol. 8 April 2017

Copyright © 2017 by California Law Review, Inc.

The Ethics of Intracorporate Behavioral Ethics

Todd Haugh*

INTRODUCTION

Behavioral ethics, the study of how and why people make ethical and

unethical decisions, has come into its own. Following a meteoric rise over the

last decade, the discipline has grown to occupy a distinct space within business

ethics. What sets it apart is a focus not on the normative question of how

individuals should act when facing ethical business quandaries—the province of

moral philosophers and traditional business ethicists—but on the empirical

question of how individuals actually do act in moral contexts and why that is.

Researchers have found that a host of situational and social factors influence

ethical decision-making; most of us are ethical, but only boundedly so. That

insight, and the follow-on practical implications for corporate compliance, offers

companies new and more effective approaches to lessen legal and ethical

breaches by their employees. Corporate leaders are beginning to see behavioral

ethics as the way to achieve more effective compliance at less cost.

Amid the promise of using behavioral ethics strategies to lessen corporate

wrongdoing, however, lies a nagging unease. If ethical decision-making can be

influenced by situational factors, then altering the conditions under which

individuals make those decisions can change their behavior. And because much

DOI: https://dx.doi.org/10.15779/Z38TD9N731

Copyright © 2017 California Law Review, Inc. California Law Review, Inc. (CLR) is a

California nonprofit corporation. CLR and the authors are solely responsible for the content of their

publications. * Assistant Professor of Business Law and Ethics, Indiana University, Kelley School of

Business; Jesse Fine Fellow, The Poynter Center for the Study of Ethics and American Institutions;

2011–12 Supreme Court Fellow, Supreme Court of the United States.

2 CALIFORNIA LAW REVIEW [Vol. 8:1

of our decision-making happens subconsciously, our behavior can be altered

without us knowing it. Governments have already begun employing “choice

architecture” in this manner, influencing our decisions by “nudging” us toward

welfare-maximizing options.1 Despite clear benefits, both individual and

societal, critics have questioned the ethics of these nudges, particularly their

impact on personal welfare, autonomy, and dignity.2 But the critiques have been

largely overcome based on assertions that choice architecture is inevitable,

consistent with democratic norms, and, if administered transparently and subject

to public scrutiny, fully legitimate.3 Indeed, the prevalence of choice architecture

being used as a public policy tool has all but ended the debate.4

Yet the debate is not so settled when focusing on intracorporate uses of

choice architecture, specifically nudges administered by companies to make

employees more ethical. While the intended use of these nudges may be

laudable—to increase employee ethicality—they are also susceptible to being

used as a tool of unwarranted behavioral manipulation, assuming they even work

in the first place. However, if intracorporate nudges do improve legal and

regulatory compliance, they offer a new and compelling tool in the fight against

corporate wrongdoing, one that may justify certain infringements on employee

autonomy. These issues, largely ignored in business and legal scholarship,

require a fresh analysis of the ethical implications of the evolving role of

behavioral ethics within the corporation.5

This Essay begins by explaining the rise of behavioral ethics, its definition,

and its central findings. The Essay then explores how companies are using

behavioral ethics insights, which draw from behavioral economics research, to

1. See RICHARD H. THALER & CASS R. SUNSTEIN, NUDGE: IMPROVING DECISIONS ABOUT

HEALTH, WEALTH, AND HAPPINESS 6 (2008). Nudges are small design elements that structure the

context in which choice is made to steer decision-making toward a welfare-maximizing direction. Id. at

3.

2. See, e.g., Luc Bovens, The Ethics of Nudge, in PREFERENCE CHANGE 207 (Till Grune-

Yanoff & Sven Ove Hansson eds., 2009) (discussing the moral permissibility of nudges).

3. See, e.g., Cass Sunstein, The Ethics of Nudging, 32 YALE J. REG. 413 (2015); CASS R.

SUNSTEIN, THE ETHICS OF INFLUENCE (2016).

4. See Sarah Stillman, Can Behavioral Science Help in Flint, NEW YORKER, Jan. 23, 2017,

http://www.newyorker.com/magazine/2017/01/23/can-behavioral-science-help-in-flint

[https://perma.cc/GB48-JQ82] (describing how the Obama administration’s Social and Behavioral

Sciences Team used behavioral insights to design informational flyers aimed at reducing the harmful

effects caused by the city’s lead contaminated water); THE BEHAVIOURAL INSIGHTS TEAM UPDATE

REPORT 2013-2015, at 16,

http://www.behaviouralinsights.co.uk/wpcontent/uploads/2015/07/BIT_Update-Report-Final-2013-

2015.pdf [https://perma.cc/QT6Q-S9TG] (describing U.K. government’s Behavioural Insights Team

that sends letters to British doctors who are overprescribing antibiotics, nudging them to prescribe less,

which reduces antibiotic resistance among children). But see, David V. Johnson, Twilight of the Nudges,

NEW REPUBLIC, Oct. 27, 2016, https://newrepublic.com/article/138175/twilight-nudges

[https://perma.cc/E6EB-KGSP] (arguing that although the concept of public policy nudging has been

embraced by government, “just saying that nudges are here to say does not make it so”).

5. This Essay does not address the use of nudges and other behavioral marketing strategies by

companies to influence consumer behavior. While the ethical boundaries of those practices are worth

exploring, the focus here is on the ethical use of choice architecture in corporate compliance.

2017] THE ETHICS OF INTRACORPORATE BEHAVIORAL ETHICS 3

influence employee behavior. From there, the Essay turns to the ethical

implications of this evolution, addressing the central question of whether

companies using intracorporate behavioral ethics nudges on their employees are

themselves acting ethically. Applying both an empirical and normative lens, the

Essay suggests that while behavioral ethics strategies offer important

opportunities for corporate compliance, they must be implemented with caution.

That is because nudging employees to be more ethical is conceptually distinct

from governmental nudges used to promote public welfare. As a result,

companies that simply import behavioral economics-styled choice architecture

into the workplace may find that it is not only ineffective, but also violates deeply

held normative notions of personal autonomy, which ultimately may undermine

the goals of corporate compliance. Put another way, intracorporate behavioral

ethics nudging may be problematic because of what it doesn’t and shouldn’t do,

requiring a reevaluation of its potential as a compliance tool.

A. The Rise of Behavioral Ethics

Behavioral ethics is a field not entirely well known in traditional legal or

business circles. Therefore, a brief discussion of its history is in order—a history

that is both very long and very short. The concept of behavioral ethics is far from

new. In fact, philosophers going back to Aristotle grounded their exploration of

ethics in individual behavior.6 Aristotle believed that we become ethical by

undertaking ethical actions; that is, we build ethical character through

habituation.7 Since the dawn of Western philosophy, then, there has been a strong

relationship between ethics and behavior, which in turn has influenced legal

doctrine and business practice.8

As a distinct field of study, however, behavioral ethics has been around less

than a generation. Robert Folger is credited with introducing the term roughly

fifteen years ago and providing much of the field’s early intellectual vigor.9 But

others had simultaneously taken up the mantle, focusing specifically on business

behavioral ethics, which merged behavioral science and moral philosophy, and

6. Marshall Schminke & Manuela Priesemuth, Behavioral Business Ethics: Taking Context

Seriously, in BEHAVIORAL BUSINESS ETHICS 47, 72 (David De Cremer & Ann E. Tenbrunsel eds.,

2012).

7. S. Michael Halloran, Aristotle’s Concept of Ethos, or If Not His Somebody Else’s, 1

RHETORIC REV. 58, 61 (1982).

8. See e.g., CARL JOACHIM FRIEDRICH, THE PHILOSOPHY OF LAW IN HISTORICAL

PERSPECTIVE 15 (1963) (discussing Platonic philosophy of law as closely linked to ethics); Thomas

Donaldson & Thomas W. Dunfee, Toward a Unified Conception of Business Ethics: Integrative Social

Contracts Theory, 19 ACAD. MGMT. REV. 252 (1994) (linking normative philosophical arguments and

empirical business practices to create the integrative social contracts theory of business ethics).

9. Schminke & Preisemuth, supra note 6, at 72; Robert Folger, Deonance: Behavioral Ethics

and Moral Obligation, in BEHAVIORAL BUSINESS ETHICS 123, 124 n.2 (David De Cremer & Ann E.

Tenbrunsel eds., 2012).

4 CALIFORNIA LAW REVIEW [Vol. 8:1

then applied it to business and management.10 The field, particularly its business-

focused strain, has grown to a point where its findings are now used regularly in

business ethics scholarship and teaching, and are becoming more explicitly

prevalent in legal scholarship.11

But what is behavioral ethics, exactly? Like any emerging field, a concrete

definition is difficult to pin down. One of the early and more widely cited

definitions is the study of “individual behavior that is subject to or judged

according to generally accepted moral norms of behavior.”12 A more focused

definition, evidencing the field’s transition toward business, is a “scientific

approach for studying perceptions of how we ought to treat one another in

business-related matters and how such perceptions influence behavior.”13

This second definition gets more to the heart of the matter, but to really

understand what behavioral ethics is, a more practical definition is needed. One

group of scholars offers the following: “The study of behavioral ethics . . . aims

to understand how even well-intentioned people can sometimes behave

unethically.”14 This focus on understanding the how and why is what provides

the field its substantive and definitional niche. As such, behavioral ethics can

best be described as the study of the “systematic and predictable ways in which

individuals make ethical decisions and judge the ethical decisions of others.”15

Critically, these ways are often “at odds with . . . our intuitive expectations and

the goals of the broader society.”16

This definition makes clear that behavioral ethics research takes an

empirical rather than normative approach. It also hints at the central findings of

the many empirical studies conducted under the behavioral ethics umbrella—

that “cognitive heuristics, psychological tendencies, social and organizational

pressures, and even seemingly irrelevant situational factors can make it more

likely that good people will do bad things.”17 In simpler terms, while most people

10. See, e.g., David M. Messick & Ann E. Tenbrunsel, Behavioral Research into Business

Ethics, in CODES OF CONDUCT 1, 10 (David M. Messick & Ann E. Tenbrunsel eds., 1996); Linda Klebe

Trevino, Ethical Decision Making in Organizations: A Person-Situation Interactionist Model, 11 ACAD.

MGMT. REV. 601, 601–02 (1986).

11. See Robert Prentice, Behavioral Ethics: Can It Help Lawyers (and Others) to Be Their Best

Selves?, 29 NOTRE DAME J.L. ETHICS & PUB. POL’Y 35 (2015); Jennifer K. Robbennolt & Jean R.

Sternlight, Behavioral Legal Ethics, 45 ARIZ. ST. L.J. 1107 (2013); Todd Haugh, Overcriminalization’s

New Harm Paradigm, 68 VAND. L. REV. 1191 (2015); Elizabeth Tippett, Charlotte S. Alexander & Zev

J. Eigen, When Timekeepers Software Undermines Compliance, 19 YALE J.L. & TECH 1 (2017).

12. Linda K. Trevino, Gary R. Weaver & Scott J. Reynolds, Behavioral Ethics in

Organizations: A Review, 32 J. MGMT. 951, 952 (2006).

13. Folger, supra note 9, at 125.

14. Jason Dana, George Lowenstein & Roberto Weber, Ethical Immunity: How People Violate

Their Own Moral Standards Without Feeling They Are Doing So, in BEHAVIORAL BUSINESS ETHICS

202 (David De Cremer & Ann E. Tenbrunsel eds., 2012).

15. Max H. Bazerman & Francesca Gino, Behavioral Ethics: Toward a Deeper Understanding

of Moral Judgment and Dishonesty, 8 ANN. REV. LAW SOC. SCI. 85, 90 (2012).

16. Id.

17. Robert Prentice, Behavioral Ethics: Can It Help Lawyers (and Others) to Be Their Best

Selves?, 29 NOTRE DAME J.L. ETHICS & PUB. POL’Y 36 (2015).

2017] THE ETHICS OF INTRACORPORATE BEHAVIORAL ETHICS 5

are intent on doing right, behavioral ethics research tells us that we are not as

ethical as we think we are.18

Another way to look at this is that ethical decision-making is limited in a

significant way. Most people will make moral decisions in line with their ethical

beliefs, but only to a point. Because of cognitive obstacles, which can be

exacerbated by external factors, we engage in unethical acts without even

realizing it, acts that we would condemn upon further reflection.19 That means

we are ethical, but only boundedly.

It is important to pause here for a moment because the term “bounded”

naturally evokes behavioral economics. Behavioral economics, which has

penetrated deep into legal scholarship and doctrine,20 combines the study of

psychology and economics to investigate what happens in markets when agents

display human limitations and complications.21 Linking behavioral ethics and

behavioral economics is appropriate given that the two fields draw from the same

intellectual (and empirically supported) roots, namely from research

demonstrating that human decision-making is not strictly rational.22 But

behavioral ethics is not merely an offshoot of behavioral economics. Behavioral

economics is occupied with identifying the behavioral reasons that prevent

people from realizing their rational self-interests. Behavioral ethics has a

different aim. Its focus is identifying the factors that prevent people from

understanding that their actions are self-interested, and therefore may lead to

unethical behavior. Indeed, the “automaticity of self-interest” is one of

behavioral ethics’ basic tenets.23 This distinction becomes critical when

18. See Minette Drumwright, Robert Prentice & Cara Biasucci, Behavioral Ethics and Teaching

Ethical Decision Making, 13 DEC. SCI. J. INNOV. EDUC. 431, 433–36 (2015) (offering a primer on

behavioral ethics).

19. Prentice, supra note 17, at 39 (quoting Tigran W. Eldred, Prescriptions for Ethical

Blindness: Improving Advocacy for Indigent Defendants in Criminal Cases, 65 RUTGERS L. REV. 333,

359 (2013)).

20. See e.g., Christine Jolls, Cass R. Sunstein & Richard Thaler, A Behavioral Approach to Law

and Economics, 50 STAN. L. REV. 1471 (1998); Richard A. Posner, Rational Choice, Behavioral

Economics, and the Law, 50 STAN. L. REV. 1551 (1998).

21. Sendhil Mullainathan & Richard H. Thaler, Behavioral Economics, National Bureau of

Economic Research, Working Paper No. 7948, at 2, http://www.aiinfinance.com/Mullainathan.pdf

[https://perma.cc/BQU7-CK3P]. “Economics traditionally conceptualizes a world populated by

calculating, unemotional maximizers that have been dubbed Homo Economicus. . . . This unbehavioral

economic agent has been defended on numerous grounds: some claimed the model was “right”; most

others simply argued that the standard model was easier to formalize and practically more relevant.

Behavioral economics blossomed with the realization that neither point of view was correct. Empirical

and experimental evidence mounted against the stark predictions of unbounded rationality.” Id. at 3.

22. See, generally, Amos Tversky & Daniel Kahneman, Judgment Under Uncertainty:

Heuristics and Biases, 185 SCIENCE 1124 (1974); DANIEL KAHNEMAN, THINKING, FAST AND SLOW 8

(2011).

23. Yuval Feldman, Behavioral Ethics Meets Behavioral Law and Economics, in THE OXFORD

HANDBOOK OF BEHAVIORAL ECONOMICS AND THE LAW 7 (Eyal Zamir and Doron Teichman eds.,

2014). See, also, Nicholas Epley & Eugene M. Caruso, Egocentric Ethics, 17 SOC. JUST. RES. 171, 179

(2004) (“While there is no question that people engage in moral reasoning, and that moral reasoning has

the potential to alter moral judgment, these results suggest that moral reasoning in everyday life is

6 CALIFORNIA LAW REVIEW [Vol. 8:1

evaluating the behavioral strategies being used to promote ethicality within

corporations.

B. Intracorporate Behavioral Ethics—Nudging to Increase Employee

Ethicality

The core of behavioral ethics, and its application to corporate compliance,

stems from research exploring the differing modes of human thinking. In their

groundbreaking work, Daniel Kahneman and Amos Trevrsky found that

individuals posses both intuitive and reasoning cognitive processes.24 The

intuitive, or System 1, process is “fast, automatic, effortless, associative, and

often emotionally charged.”25 Because it operates by associative memory, it is

“governed by habit and therefore difficult to control or modify.”26 In contrast,

the reasoning, or System 2, process operates much slower. It is “serial, effortful,

and deliberately controlled,” subject to logic and rules.27 Not surprisingly,

System 2 thinking requires significantly more cognitive load than System 1.

That is not to say that System 2 is better than its counterpart; both modes

of thinking have a role to play. Because System 1 thinking is effortless and

efficient, it is suitable for making the vast majority of our daily decisions—

imagine if we had to make a deliberate choice for each one of our routine daily

activities. But for more important decisions, System 2 thinking is required to

ensure a thoughtful, and likely more accurate, outcome. The problem is that

because of the greater cognitive load required to employ System 2, it is often

supplanted by the less effortful System 1. While we ideally want System 2 to

operate as a watchful monitor, kicking in when important mental tasks arise, the

reality is that System 1 is dominant—“most human decision making is

done . . . by the unconscious system.”28 This results in decisions, even important

ones, that are subject to biases and heuristics based on past experience and

limited information.29

Not surprisingly, research has found that shifting modes of thought from

one system to another can have profound effects on decision-making. This

unlikely to be the critical cause of moral judgments, but instead suggest that moral judgments may be

guided by the automatic evaluations[.]”).

24. Daniel Kahneman, Maps of Bounded Rationality: Psychology for Behavioral Economics,

93 AM. ECON. REV. 1449, 1451 (2003).

25. Id. at 1451.

26. Id.

27. Id. A good way to think about the two systems is to picture a big dog running toward you.

System 1 is likely “squawking” (maybe screaming) at you to run because the dog might hurt you. System

2 reminds you that most dogs are pets, and pets are generally friendly, so you should stay put. See

THALER & SUNSTEIN, supra note 1, at 21.

28. Kahneman, supra note 24, at 1467.

29. Heuristics are “computationally simple” decision-making models that allow people to

quickly identify feasible solutions. Konstantinos V. Katsikopoulos, Psychological Heuristics for Making

Inferences: Definition, Performance, and the Emerging Theory and Practice, 8 DECISION ANALYSIS

10, 11 (2011).

2017] THE ETHICS OF INTRACORPORATE BEHAVIORAL ETHICS 7

understanding serves as the foundation of choice architecture, the deliberate

structuring of the context in which people make decisions.30 The primary tool of

choice architects, those responsible for that structuring, is the “nudge.” Nudging,

a term coined by behavioral economist Richard Thaler and legal scholar Cass

Sunstein, is an intervention that steers decision-making in a particular

direction.31 As proponents of nudges are quick to point out, however, not all

interventions count as nudges. A true nudge “must fully preserve freedom of

choice,” which would exclude interventions that impose significant costs on the

chooser.32 “To nudge, then, is to design the context in which individuals make

decisions so as to influence their behavior without eliminating any options and

without employing direct economic penalties or payments to do so.”33

Understanding nudges, and how they use systems of thinking to steer

decision-making, is best done through example. These are easy to come by

because nudges have been widely adopted by government; both the U.S. and

U.K. have their own “nudge units” charged with enhancing public policy through

behavioral insights.34 Among other things, nudges have been used to increase

401(k) retirement savings, optimize stimulus spending, improve tax compliance,

and lower youth alcohol consumption.35

Let’s look in more detail at the 401(k) example. It turns out that enrolling

in a 401(k) plan is an obstacle for many Americans, who on the whole don’t save

enough for retirement.36 Eligible employees fail to enroll or delay enrolling for

a host of reasons, even though doing so offers significant tax benefits and

matching employer funds. Be it from inertia, frivolousness, or lack of education

or knowledge, roughly 30 percent of eligible employees don’t enroll and

therefore are under-saving for their retirement.37 As Thaler and Sunstein put it,

“[t]hese folks could clearly use a nudge.”38

Studies conducted by behavioral economists found that simply changing

the default enrollment provisions of 401(k) plans from “opt-in,” in which

employees have to fill out forms and make investment choices to begin saving,

to “opt-out,” in which employees are automatically enrolled but can elect to stop

30. Karen Yeung, Nudge as Fudge, 75 MODERN L. REV. 122, 129 (2012).

31. THALER & SUNSTEIN, supra note 1, at 3.

32. Sunstein, supra note 3, at 417. This would include legal prohibitions and many rules of

corporate compliance. Thaler and Sunstein believe that nudges are a tool of libertarian paternalism, a

“new movement” whereby choice architects may legitimately try to influence peoples’ behavior in order

to make their lives better through non-traditional mechanisms. THALER & SUNSTEIN, supra note 1, at 5.

33. John Hasnas, Some Noodging About Nudging, REGULATION, Summer 2016,

https://object.cato.org/sites/cato.org/files/serials/files/regulation/2016/6/regulation-v39n2-2.pdf

[https://perma.cc/3TSN-JM4H].

34. See note 4, supra.

35. Pelle Guldborg & Andreas Maaloe Jespersen, Nudge and the Manipulation of Choice: A

Framework for the Responsible Use of the Nudge Approach to Behaviour Change in Public Policy, 4

EUR. J. RISK REG. 3, 4 (2013).

36. THALER & SUNSTEIN, supra note 1, at 103, 106–07.

37. Id. at 107.

38. Id.

8 CALIFORNIA LAW REVIEW [Vol. 8:1

saving, caused enrollment rates to increase to 98 percent.39 Structuring choice in

this manner nudged employees to make the optimal decision. In 2009, the Obama

administration used these findings to create a package of regulations that

encourages employers to adopt automatic enrollment plans. The result was

increased saving rates, increasing individual and societal welfare.40

This example highlights two important aspects of nudges. One is how a

nudge can alter or harness a mode of thinking to increase welfare. For the vast

majority of non-enrolling employees, their System 1 thinking was active when

confronted with the decision to enroll—they reacted to the prospect of opting in,

which required significant thought about future retirement needs and complex

investments, by ignoring the decision or delaying it. Unfortunately, 401(k)

enrollment is a task that requires a System 2 mind to complete. Switching to the

opt-out enrollment regime altered the choice architecture so that the dominant

System 1 thinking actually helped employees save; in fact, a System 2 override

was now required to not save for retirement.

Secondly, nudges operate against the backdrop of the chooser’s

preferences. As presented above, employees falling prey to System 1 thinking,

who were then nudged into enrolling in a 401(k) plan, are now acting consistent

with their long-term preferences. That is because saving reflects their “deeper

preference” for a comfortable retirement over their “shallow desire” to spend the

money otherwise or waste it through inaction.41 The nudge works because it

helps individuals achieve the long-term goals they have already formulated.

Nudging under these conditions appears to offer a win-win—a small intervention

helps overcome a cognitive block inhibiting a sincere preference, which when

realized increases individual and social welfare.

So how does this all apply to intracorporate behavioral ethics, specifically

nudges aimed at fostering ethicality within a corporation? First of all, it should

be no surprise by now what cognitive process is predominant in ethical decision-

making. Although we would hope that resolving decisions of “ethical import”

consistently harnesses System 2’s deliberative logic, most ethical decisions are

39. Id. at 109.

40. See Edmond Andrews, Obama Outlines Retirement Initiatives, N.Y. TIMES (Sept. 6, 2009),

http://www.nytimes.com/2009/09/06/us/politics/06address.html [https://perma.cc/BSP8-VNAV];

THALER & SUNSTEIN, supra note 1, at 115–17.

41. Yeung, supra note 30, at 134. Some may disagree that failing to save for retirement exhibits

a failure to follow the chooser’s deeper preferences. That may be true for some employees who do not

plan to retire in a traditional manner, are certain they will not need retirement savings, or truly value

spending money today over saving for the future (or based on current financial pressures really need the

money now). While these employees certainly exist, I submit it is a small minority that looking back

from retirement age would objectively prefer to have saved less. For those rare individuals, the nudge

can be overcome with little effort. For the rest of us subject to a less-than-fully considered analysis of

our future needs, System 1 thinking explains why we act inconsistent with our deeper long-term

preferences. See THALER & SUNSTEIN, supra note 1, at 108 (providing example of a U.K. defined-

benefit plan in which no employee contribution is required to receive benefits, but only half of eligible

employees signed up).

2017] THE ETHICS OF INTRACORPORATE BEHAVIORAL ETHICS 9

made “before the cognitive parts of the brain . . . engage.”42 Indeed, research

shows that self-interest, oftentimes the antagonist of ethical decision-making, is

“automatic, viscerally compelling, and often unconscious.”43 System 1 is

creating the automaticity of self-interest that must be reigned in by System 2 if

an individual is to act ethically.44 While most of us are able to achieve this, many

do not, causing great harm to themselves, their companies, and society. Ethical

decision making, then, appears to occupy the same space as some financial

decision making—like potential 401(k) enrollees, those faced with ethical

decisions could seemingly benefit from a nudge.

That’s certainly what corporations believe. Cutting edge corporate

compliance programs are now using behavioral ethics nudges in an attempt to

prevent employee wrongdoing. The most ubiquitous example is that of

companies asking their employees to read and affirm ethics-focused

certifications before they engage in behavior that has historically created

compliance risk, e.g., filling out expense reports, transferring client funds, or

meeting with government officials.45 Studies show that reminding employees of

morality before they act reduces dishonesty, likely because it prompts deeper

reflection regarding the ethics surrounding the task.46 This type of “just-in-time”

compliance nudge was first used in the insurance business, but is now considered

standard practice in many companies.47

International Paper uses a similar behavioral ethics nudge. Instead of

certifications, the company provides all employees with a wallet card containing

ethics-related questions.48 The idea is that when making business decisions,

employees will be reminded of the questions and contemplate their ethical

obligations. The University of Arizona nudges its management students to

refrain from cheating by hanging posters in testing rooms with images of fire

alarms.49 Research shows that even simple visual cues such as this can lessen the

occurrence of wrongdoing.50

42. Drumwright, et al., supra note 18, at 433.

43. Feldman, supra note 23, at 7 (citing Don A. Moore & George Loewenstein, Self-Interest,

Automaticity, and the Psychology of Conflict of Interest, 17 SOC. JUST. RESEARCH 189, 190–91 (2004)).

44. Even more troubling, research demonstrates that even when people think that are reasoning

their way to a rational answer to an ethical question, their System 2 is often rationalizing a decision their

System 1 has already made. See Drumwright, et al., supra note 18, at 434.

45. See Lisa L. Shu, Francesca Gino & Max H. Brazerman, Dishonest Deed, Clear Conscience:

When Cheating Leads to Moral Disengagement and Motivated Forgetting, 37 PERS. SOC. PSYCHOL.

BULL. 330, 344 (2011).

46. See DAN ARIELY, THE HONEST TRUTH ABOUT DISHONESTY 39–53 (2012) (explaining the

impact of asking participants to recall moral standard before engaging in behavior).

47. Francesca Gino, Lisa D. Ordonez & David Welsh, How Unethical Behavior Becomes Habit,

HARV. BUS. REV., Sept. 4, 2014, https://hbr.org/2014/09/how-unethical-behavior-becomes-habit

[https://perma.cc/3HSZ-ZZAL].

48. Id.

49. Id.

50. Posters of eyes watching you also works, as does invoking the Ten Commandments, even

if you’re not religious. See Max Ernest-Jonesa, Daniel Nettleb & Melissa Bateson, Effects of Eye Images

10 CALIFORNIA LAW REVIEW [Vol. 8:1

Companies are also using more sophisticated behavioral compliance

strategies. For example, Bank of America (BofA) piloted a program that

monitored employees for six weeks with wearable sensors, tracking “where

[they] went and who they talked to, [and] how the tone of their voice and the

movements of their body changed.”51 When the monitoring indicated that social

employees were more productive, BofA changed the physical layout of its

offices, nudging employees to informally socialize more. The changes increased

employee satisfaction, which studies show leads to increased organizational

ethicality.52

Another large bank, JPMorgan, is using proprietary software to monitor the

email and telephone communications of its traders to ensure they “adhere to

‘personal trading rules’ and risk limits.”53 While employee monitoring, even

high-tech monitoring, has been part of corporate compliance for years,

JPMorgan’s efforts are noteworthy because the bank’s software algorithms

attempt to predict unethical or illegal trading behavior and stop it before it

occurs. This so-called “predictive monitoring” uses technology that was created

specifically to combat terrorism.54 Although details of the program are limited,

it undoubtedly uses a series of alerts to nudge traders if they are about to violate

a company or legal rule.

While these behavioral compliance advancements are fascinating, the

central question remains: are companies employing these types of behavioral

ethics nudges acting ethically themselves?

C. The Ethics of Intracorporate Behavioral Ethics

The answer to that question requires analysis through both an empirical and

normative lens. Put another way, the ethics of intracorporate behavioral ethics

depends on whether behavioral ethics nudges actually work, and if they do,

on Everyday Cooperative Behavior: A Field Experiment, 32 EVOL. HUM. BEHAV. 172, 176 (2010);

ARIELY, supra note 46, at 45.

51. Timothy L. Fort, Anjanette H. Raymond, and Scott J. Schackelford, The Angel on Your

Shoulder: Prompting Employees to Do the Right Thing Through the Use of Wearables, 14 NW. J. TECH.

INTELL. PROP. 139, 146 (2016) (internal citations omitted).

52. See Hian Chye Koh & El’fred H. Y. Boo, The Link Between Organizational Ethics and Job

Satisfaction: A Study of Managers in Singapore, 29 J. BUS. ETHICS 309, 320 (2001) (linking job

satisfaction and organizational ethics).

53. Portia Crowe, JP Morgan Is Working on a New Employee Surveillance Program, BUS.

INSIDER, Apr. 8, 2015, http://www.businessinsider.com/jpmorgans-employee-surveillance-program-

2015-4 [https://perma.cc/Y3WP-WDXU].

54. Hugh Son, JPMorgan Algorithm Knows You’re a Rogue Employee Before You Do,

BLOOMBERG, Apr. 5, 2015, http://www.bloomberg.com/news/articles/2015-04-08/jpmorgan-

algorithm-knows-you-re-a-rogue-employee-before-you-do [https://perma.cc/BBT2-ZKK6]. Credit

Suisse is developing a similar program with Palantir Technologies, a Silicon Valley tech company

focused on data analysis for police and intelligence services. Jeffrey Vogeli, Credit Suisse, CIA-Funded

Firm to Target Rogue Bankers, BLOOMBERG, Mar. 23, 2016,

https://www.bloomberg.com/news/articles/2016-03-22/credit-suisse-cia-funded-palantir-build-joint-

compliance-firm [https://perma.cc/GJ5A-MKKC].

2017] THE ETHICS OF INTRACORPORATE BEHAVIORAL ETHICS 11

whether they should be used to influence employee behavior. If the answer to

either question is no, it may be difficult to justify the use of these nudges as a

legitimate tool of corporate compliance.

1. Evaluating intracorporate behavioral ethics nudges from an empirical

standpoint

As an initial matter, it’s difficult to know how effective behavioral ethics

nudges are in practice. Most of the research on nudges has been conducted not

in field experiments, but in university labs and classrooms where student subjects

are easily acquired.55 I’m unaware of any significant data demonstrating that

intracorporate nudges have achieved the goal of increasing employee ethicality.

Yet, this is not a fatal critique. In all fairness, the use of behavioral ethics nudges

is on the cutting edge of corporate compliance; given enough time and

inventiveness in research design, behavioral scientists should be able to

determine whether nudging employees to be more ethical is truly effective.56

A more fundamental limitation is the following: there is a conceptual

difference between public policy-aimed nudges used by government and

behavioral ethics-aimed nudges used within companies. As explained above,

governmental nudges are aimed at increasing individual and societal welfare by

structuring choice to help people achieve their true preferences. When a 401(k)

plan’s default enrollment provision is structured as an opt-out, the choice

architecture allows our natural tendencies (the dominance of System 1’s low

cognitive load thinking) to help us save more, which is our “true preference” and

what we would have chosen if we had employed System 2’s high cognitive load

thinking, the appropriate mode of thinking for the task.57 That is the reason this

particular nudge works so well—it helps us do what we deep down want to do

anyway, and would have done, but for a cognitive obstacle. This approach is

consistent with behavioral economics research focused on identifying and

eliminating impediments to fulfilling our rational self-interests.58

But behavioral ethics nudges aimed at increasing ethicality are different.

They can’t help us do what we want to deep down, because deep down we want

to act in our own self-interest, which more often than not is antithetical to ethical

action. This is consistent with the core findings of behavioral ethics research,

55. See e.g., Francesco Gino & Sreedhari D. Desai, Memory Lane and Morality: How

Childhood Memories Promote Prosocial Behavior, 102 J. PERSON. & SOC. PSYC. 743 (2012)

(experiments conducted on undergraduates to test relation between memory and morality). A related

concern is that these studies often examine “ethical shifts produced by atypical cues,” therefore limiting

their “face validity.” Feldman, supra note 23, at 17.

56. And, of course, public policy nudges have been shown to encourage all kinds of beneficial

choices. See Scott Killingsworth, Behavioral Ethics: From Nudges to Norms 3 (Jan. 9, 2017),

http://ethicalsystems.org/content/behavioral-ethics-nudges-norms [https://perma.cc/PA5D-ZZST]

(identifying effective public policy nudges but questioning their role as a new compliance tool).

57. See Yeung, supra note 30, at 134; THALER & SUNSTEIN, supra note 1, at 107–08.

58. Feldman, supra note 23, at 22. Again, such a nudge can easily be overcome if the chooser’s

preferences are different than believed to be by the choice architect. See note 44, supra.

12 CALIFORNIA LAW REVIEW [Vol. 8:1

which is not that we all want to act ethically, but fail to do so because of a

cognitive obstacle. The core finding of behavioral ethics is that we come up with

many ways to delude ourselves—consciously and subconsciously—into

thinking we are acting ethically, but in reality we are acting unethically, driven

by self-interest.59 Thus, our true preference is to keep our self-perception as an

ethical person intact while we act self-interestedly to the contrary.

While this finding sometimes troubles those that hear it for the first time, it

is supported by significant research across disciplines. For example, since the

1950s criminologists have identified “neutralizations” as one of the primary

causes of unethical and illegal acts, particularly in business settings.60

Neutralizations, or what are commonly referred to as rationalizations, are the

processes by which we internally verbalize our future wrongdoing so as to

minimize the moral guilt associated with it.61 By rationalizing our actions, we

keep our self-perception as “good people” intact while simultaneously doing bad

things. Cognitive scientists agree. The recent book “The Enigma of Reason”

explains that while humankind’s biggest advantage over other species is our

ability to cooperate, “freeloading is always the best course of action” from an

individual perspective.62 Thus, the authors argue, reason developed to help us do

so effectively, solving a problem created by living in our “hypersocial” world.63

The findings of these divergent disciplines support those made specific to ethical

decision-making: that when “when appraising a situation, we prefer outcomes

that benefit ourselves, and only later correct to take into account fairness toward

others.”64

What this means is that the choice architecture used to nudge 401(k)

enrollees will likely be ineffective when used to influence corporate ethicality.

In fact, it may not work at all. And to go a bit further, governmental nudges

imported into the corporation can’t work, or at least not in any sustainable way,

because nudging employees toward their true preferences would foster self-

interested behavior that actually promotes unethical acts. As Yuval Feldman has

59. Feldman, supra note 23, at 7, 17.

60. See Donald R. Cressey, The Respectable Criminal, 3 CRIMINOLOGICA 13,

14–15 (1965) (outlining neutralization theory supported by study of embezzlers).

61. The prototypical verbalization, which is essentially a conversation with oneself, is an

embezzler conceptualizing her behavior as “borrowing” money that will be paid back. Id. See also, Todd

Haugh, The Criminalization of Compliance, 92 NOTRE DAME L. REV. 1215, 1255-59 (2017) (discussing

how rationalizations foster white collar crime and their role in undermining corporate compliance);

Vikas Anand, Blake E. Ashforth & Mahendra Joshi, Business as Usual: The Acceptance and

Perpetuation of Corruption in Organizations, 18 ACAD. MGMT. EXEC. 39, 40–44 (2005) (same).

62. Elizabeth Kolbert, That’s What You Think: Why Reason and Evidence Won’t Change Our

Minds, NEW YORKER, at 66 (Feb. 27, 2017) (citing HUGO MERCIER & DAN SPERBER, THE ENIGMA OF

REASON: A NEW THEORY OF HUMAN UNDERSTANDING (2017)).

63. MERCIER & SPERBER, supra note 62, at 330.

64. Feldman, supra note 23, at 8. See also, Nicholas Epley & Eugene M. Caruso, Egocentric

Ethics, 17 SOC. JUST. RES. 171, 179 (2004); Kees van den Bos, et al., On Preferences and Doing the

Right Thing: Satisfaction with Advantageous Inequity when Cognitive Processing Is Limited, 42 J.

EXPER. SOC. PSYCHOL. 273, 285 (2006).

2017] THE ETHICS OF INTRACORPORATE BEHAVIORAL ETHICS 13

put it, “we are likely to encounter significant resistance to nudge-like

approaches” when “the objective is to drive [people] away from their self-

interest.”65

This can be further understood by considering the complexity of a decision

to act unethically. While ethical choices are often viewed as simple, especially

after-the-fact, the inputs affecting those choices are many and impact diverse

aspects of personal and professional life. The recent Wells Fargo scandal

provides a good example. Although details are still emerging, it appears that

many of the 5,200 employees fired amid allegations that they improperly cross-

sold financial products and created fake customer accounts were pressured to do

so by internal and external factors.66 A number of former employees have come

forward reporting that despite extensive training on the company’s code of

conduct and banking regulations, and even explicit messages from headquarters

to “not create fake bank accounts,” an aggressive sales culture “honed over

decades” overrode any explicit compliance measures.67 One former personal

banker explained that creating fake accounts “was like jaywalking”—everyone

did it because “[t]hey needed a paycheck.”68

Under these conditions, could a behavioral ethics nudge have worked to

eliminate wrongdoing? At first glance, this situation appears perfect for a “just-

in-time” certification-type nudge, in which employees are prompted to consider

moral standards before opening additional employee accounts. Yet a deeper look

tells us that even if an employee had received the nudge perfectly, she would

interpret it against the backdrop of her true preferences—here, to act unethically

to preserve her job while telling herself that it’s necessary, everyone else is doing

it, or no one will really be harmed. These are classic rationalizations employed

by white-collar offenders, and they act as powerful counters to any behavioral

ethics nudges that reach the employee.69

Undoubtedly, more empirical research is necessary to determine whether

intracorporate behavioral ethics nudges will help achieve their compliance goals.

As it stands, that seems unlikely given that companies, and those advising them,

appear to be equating governmental nudges with behavioral ethics nudges,

without understanding their conceptual differences. If this failure leads to

intracorporate nudges that don’t work or are severely limited in their

effectiveness, it would be difficult to justify their use in corporate compliance.

65. Id. at 17.

66. See Michael Corkery & Stacy Cowley, Wells Fargo Warned Workers Against Sham

Accounts, but ‘They Needed a Paycheck’, N.Y. TIMES (Sept. 16, 2016),

http://www.nytimes.com/2016/09/17/business/dealbook/wells-fargo-warned-workers-against-fake-

accounts-but-they-needed-a-paycheck.html [https://perma.cc/NNU9-2G9T].

67. Id.

68. Id.

69. See Haugh, supra note 61.

14 CALIFORNIA LAW REVIEW [Vol. 8:1

2. Evaluating intracorporate behavioral ethics nudges from a normative

standpoint

Even assuming intracorporate behavioral ethics nudges can overcome the

conceptual and empirical challenges raised above, that doesn’t answer the

question of whether they should be used within the corporation.

To begin, much has been said regarding the ethics of governmental nudges.

Scholars such as Karen Yeung,70 Luc Bovens,71 and others72 have categorized

and critiqued nudges, inviting responses by Thaler and Sunstein.73 While a

review of that back-and-forth is too much to undertake here, some highpoints of

the debate are instructive.

The first is that nudges have the potential to negatively impact individual

autonomy to a degree that renders them unethical. Even proponents of choice

architecture acknowledge this; any discussion of nudges quickly turns to

concerns over their potential to coerce in a way that impermissibly reduces

individual autonomy.74 Autonomy is “generally understood to refer to the

capacity to be one’s own person, to live one’s own life according to reasons and

motives that one takes to be one’s own and not the product of manipulative or

distorting external forces.”75 Building on this definition, an autonomous decision

is one made by a “fully informed agent, arrived at through a process of rational

self-deliberation, so that the agent’s chosen outcome can be justified and

explained by reference to reasons that the agent has identified and endorsed.”76

An act by government or business that significantly curtails the autonomous

decision-making of an individual is therefore susceptible to attack on ethical

grounds.

Accordingly, nudges might be seen as sitting along an ethical continuum

based on how deeply they impinge upon autonomous decision-making. The most

problematic nudges from an ethical standpoint would be those “intended to work

deliberately . . . to by-pass the individual’s rational decision-making processes

in order to channel behaviour in the direction preferred by the choice architect.”77

These “irrationality-exploiting” nudges are so concerning because

[they] entail not letting . . . actions be guided by principles that [an

70. See Yeung, supra note 30.

71. See Luc Bovens, The Ethics of Nudge, in PREFERENCE CHANGE: APPROACHES FROM

PHILOSOPHY, ECONOMICS AND PSYCHOLOGY (Till Grune-Yanoff & S.O. Hansson, eds., 2008).

72. See Robert Baldwin, From Regulation to Behavioral Change: Giving Nudge the Third

Degree, 77 MODERN L. REV. 831 (2014); Guldborg & Jespersen, supra note 35; Hasnas, supra note 33.

73. Sunstein, supra note 3; Richard H. Thaler, The Power of Nudges, for Good and Bad, N.Y.

TIMES, Oct. 31, 2015, http://www.nytimes.com/2015/11/01/upshot/the-power-of-nudges-for-good-and-

bad.html?_r=0 [https://perma.cc/UHH6-M7RQ]. Thaler and Sunstein preemptively addressed some of

these concerns in their book, primarily in defense of libertarian paternalism. See THALER & SUNSTEIN,

supra note 1, at 236–51.

74. THALER & SUNSTEIN, supra note 1, at 11, 237.

75. Yeung, supra note 30, at 135.

76. Id.

77. Id. at 135–36.

2017] THE ETHICS OF INTRACORPORATE BEHAVIORAL ETHICS 15

individual] can underwrite, so these actions are not autonomous. They

can be said to be irrational in so far as what is driving [the individual’s]

action does not constitute a reason for [their] action (i.e. not a feature of

the action that [they] endorse as a feature that makes the action

desirable).78

According to critics, nudges of this kind are behavioral manipulation. By taking

advantage of people’s tendency to act unreflectively, they are inconsistent with

demonstrating respect for autonomy.

A nudge’s place on the ethical continuum is also affected by its level of

transparency. This flows from the conception of autonomous decision-making.

It would be difficult to argue that a non-transparent nudge allowed a “fully

informed agent” to arrive at his decision “through a process of rational self-

deliberation.”79 All nudges have some weaknesses here. Generally, when

government acts to influence the public’s behavior, usually through lawmaking

and regulation, it is “open, discussed, and implemented after representative

procedures have been followed.”80 Nudging, even governmental nudging, is

inherently more secretive, however. The process used to effect a nudge often

flows from a government agent’s decision, one that is not subject to advanced

disclosure or debate. While this does not necessarily mean that all agency-

created nudges are unethical—after all, most of how government directs the

public occurs through some form of administrative action—it does increase their

potential to negatively impact autonomy.

Not to mention that nudges are most effective when the intervention is the

least transparent to the person being nudged. In fact, alerting people to nudges

may undermine their effectiveness entirely. For example, when you explain to

drivers that the white lines painted on sections of Lake Shore Drive in Chicago

are a visual trick intended to nudge slower driving, they may consciously ignore

the trick the next time and speed as they did before the nudge was implemented.81

As Luc Bovens succinctly puts it, nudges “work best in the dark.”82 That is true

as an empirical proposition, and it also weakens the normative claim that nudges

are not volitive of personal autonomy.83

So where do intracorporate nudges land on the ethical continuum, when

taking into account transparency and the exploitation of irrationality?

Unfortunately, that question can’t be answered in the aggregate; to be fair, the

78. Id. at 136 (citing Bovens, supra note 71, at 210).

79. Id. at 135.

80. Baldwin, supra note 72, at 845.

81. See THALER & SUNSTEIN, supra note 1, at 37-39, 239-41; Evan Selinger and Kyle Whyte,

Is There a Right Way to Nudge? The Practice and Ethics of Choice Architecture, 5 SOC’Y COMPASS

923, 925 (2011).

82. Bovens, supra note 71, at 217.

83. Yet, there may also be “autonomy-respecting” nudges that, although inherently less

transparent than other regulatory tools, are aimed at correcting cognitive defects and biases to promote

more informed decision-making. Yeung, supra note 30, at 137. These “deliberation tools” seem least

problematic from an ethical viewpoint. Id.

16 CALIFORNIA LAW REVIEW [Vol. 8:1

analysis must be undertaken nudge by nudge. Why this is raises an additional

aspect of the debate that is critical to the question of ethicality. Each nudge must

be evaluated separately because its intended purpose helps us meaningfully

assess the relationship between means and ends. This assessment matters for

determining ethicality because “the means which we employ is frequently

contingent upon its relationship to the ends we seek to secure.”84 So, where a

particular behavioral ethics nudge falls on the continuum must include an

assessment balancing its negative impact on autonomous decision-making with

the benefits the nudge provides to the individual and larger society.85

In the intracorporate behavioral ethics context, this includes the reduction

of unethical and potentially illegal conduct, a significant individual and societal

harm. Estimates are that between $300 and $600 billion is lost each year to white

collar crime.86 And, as the public was so vividly reminded during the financial

crisis, monetary losses translate into real human suffering.87 Therefore, any

reduction in corporate wrongdoing through the use of nudging would likely be

significant, given the scope of the problem.

Taking this into account, let’s consider a few of the behavioral ethics

nudges mentioned in this Essay. The ethics-focused certifications that are now

all but standard within companies would seem to be on the “mostly ethical” side

of the continuum. They work by reminding employees of their ethical duties, or

morality more generally, before employees take actions that have historically

invited compliance risk. That would be both a transparent nudge and one that

does not prey on the irrational decision-making of an employee; in fact, the

whole point is for the employee to read a statement (very transparent) that

triggers deeper System 2 thought about moral obligations (very rational). While

it’s true that the nudge is driving the employee away from her true preferences—

as all behavioral ethics nudges do88—the benefits here could be significant. If

the certifications are able to minimize employee lying, and that translates to

reductions of specific compliance risks (which have been identified based on

84. Id. at 138 (emphasis omitted).

85. See Bovens, supra note 71, at 217; Yeung, supra note 30, at 139.

86. J. Scott Dutcher, From The Boardroom To The Cellblock: The Justifications for Harsher

Punishment of White-Collar And Corporate Crime, 37 ARIZ. ST. L.J. 1295, 1298–99 (2005); Emily

Stewart, White-Collar Crime Costs Between $300 to $600 Billion a Year, Valuewalk (July 9, 2015, 3:37

PM), http://www.valuewalk.com/2015/07/white-collar-crime-stats/ [https://perma.cc/5794-NZPL].

Some suggest it is closer to $900 billion. See New Study Confirms the Prevalence and Cost of White

Collar Crime, WSRP (May 31, 2016), http://www.wsrp.com/new-study-confirmsprevalence-cost-

white-collar-crime/ [https://perma.cc/Z2JJ-A5TN].

87. See Eduardo Porter, Recession’s True Cost Is Still Being Tallied, N.Y. TIMES, Jan. 21, 2014,

https://www.nytimes.com/2014/01/22/business/economy/the-cost-of-the-financial-crisis-is-still-being-

tallied.html?_r=0 [https://perma.cc/K5MY-D6MQ].

88. See Part C.1., supra.

2017] THE ETHICS OF INTRACORPORATE BEHAVIORAL ETHICS 17

historical data compiled by the company), that serves as a true benefit and one

potentially worthy of a minor impact on employee autonomy.89

A poster of a fire alarm in the employee lunchroom falls toward the

“unethical” side of the continuum. While that may seem odd given how

innocuous a poster is, the nudge being employed is problematic. Yes, the poster

itself is highly transparent as a visual cue, but how it harnesses reactive thinking

is not. The nudge works by triggering our System 1 process; we see a fire alarm

and our brain processes it as danger, which causes hyper-vigilance.90 Thus, the

image does not cause employees to deliberatively consider their ethical

obligations, but instead exploits the non-deliberative “irrational” system. While

it could be argued that the ends of decreasing wrongdoing justify the autonomy-

impinging means, that appears weak considering the poster’s placement in the

lunchroom, where not a lot of serious wrongdoing is likely to occur, and its

unspecified benefits. In fact, in order for this type of nudge to intervene to stop

wrongdoing, the posters would have to be almost everywhere, which would

complicate their effectiveness.91

Finally, JPMorgan’s predictive monitoring algorithm likely falls

somewhere in between. On the one hand, a program that monitors every aspect

of an employee’s actions with the purpose of identifying wrongdoing before it

happens would seem to violate individual autonomy deeply. Yet, the actual

nudge—here, likely an electronic warning or reminder of some kind—is

transparent and intended to give the employee pause before acting. Like the

ethics certification, the nudge works by alerting the employee that System 2

thinking needs to be engaged to complete the task. That is not irrationality-

exploiting, but rather a “deliberation tool” that might prevent a trader in the midst

of a quickly moving transaction from reflexively committing wrongdoing.92 In

addition, means-ends analysis suggests that the negative impacts on autonomy

may be justified given the potential harm—here, a possible corporate crime that

may have deleterious effects on the individual, the company, and society. For

example, a single trader recently lost his bank over $6 billion by failing to follow

internal rules, inviting criminal and civil investigations and liability for himself

89. It is critical that this type of nudge has been demonstrated to work in the field. See Gino, et

al., supra note 47 (discussing use in the insurance industry); Ariely, supra note 46, at 45–51 (discussion

of use in insurance industry and with the IRS).

90. See Gino, et al., supra note 47.

91. This may be thought of generally as the problem of mis-nudging, i.e., when a nudge operates

differently than the choice architect intended. See Evan Selinger & Kyle Whyte, Is There a Right Way

to Nudge? The Practice of Ethics and Choice Architecture, 5 SOC. COMPASS 923, 931 (2011)

(suggesting that to properly nudge, choice architects would need to do “localized sociological and

psychological studies”); Luc Bovens, Nudges and Cultural Variance: A Note on Selinger and Whyte,

23 KNOW. TECH & POL’Y 483, 484 (2010) (explaining how behavioral bias, often a function of

idiosyncratic cultural differences, can complicate nudge design and effectiveness).

92. Yeung, supra note 30, at 137.

18 CALIFORNIA LAW REVIEW [Vol. 8:1

and his employer.93 An algorithmic nudge that is able to preemptively intervene

could change the landscape of corporate compliance for many firms in the

financial sector.94

While there is not sufficient space in this Essay to work through all the

normative permutations of behavioral ethics nudging, considering their

placement on an ethical continuum highlights their potential to impact individual

autonomy, balanced against the potential beneficial ends to be achieved.95 This

analysis is one that compliance professionals and business leaders should

undertake if they intend to ethically use behavioral ethics nudges within their

companies.

CONCLUSION

Behavioral science has captured our collective interests. Governments are

using the findings of behavioral economics research, namely that choice

architecture can be used to nudge people toward welfare-maximizing decisions,

to enhance public policy. That same promise would seem to hold for

intracorporate nudges, specifically those aimed at increasing employee

ethicality. Yet there is a conceptual disconnect between the governmental nudges

we’ve become accustomed to and the realities of how we make ethical decisions.

The central findings of behavioral ethics, a new but rising field, tells us that

ethical decision-making operates in a way that is incompatible with many

nudges. What this means is that intracorporate behavioral ethics nudging may

not only be ineffective, but may also violate deeply held normative notions of

personal autonomy. While the above analysis suggests some intracorporate

nudges being used today may pass ethical muster, all should be evaluated anew

before being used as a regular tool of corporate compliance.

93. See Marion Dakers, JP Morgan’s ‘London Whale’ Trader Breaks His Silence, TELEGRAPH,

(Feb. 23, 2016), http://www.telegraph.co.uk/business/2016/02/23/jp-morgans-london-whale-trader-

breaks-his-silence/ [https://perma.cc/5Y7B-JPP4] (reporting on large trades made in JP Morgan’s

London office that eventually lost the bank $6.2 billion and led to penalties from four different

regulators).

94. See Killingsworth, supra note 56, at 4.

95. One aspect of balancing autonomy costs is the agency relationship between the corporation

and its employee, usually typified as one in which the agent aligns his preferences with the principle

under an at-will employment arrangement. While this may lessen autonomy costs on employees, it is

not dispositive, as there are legal and moral limits to the principle’s actions. See Dennis P. Quinn &

Thomas M. Jones, An Agent Morality View of Business Policy, 20 ACAD. MGMT. REV. 22 (1995);

Charles J. Muhl, The Employment-at-Will Doctrine: Three Major Exceptions, MONTHLY LAB. REV.

January 2001, https://www.bls.gov/opub/mlr/2001/01/art1full.pdf [https://perma.cc/E45E-VYDZ]. A

full discussion of autonomy costs is addressed in the author’s forthcoming work. See Todd Haugh,

Nudging Corporate Compliance, 52 AM. BUS. L. REV. (forthcoming).