Niro Sivanathan

Moral hazard involves a context where decision-makers engage in behaviors that prioritize self-interest while allowing the associated risk to be primarily borne by others. Such decision making can lead to catastrophic consequences, as seen in the 2008 global financial crisis after hedge fund managers indiscriminately invested their clients’ money in subprime mortgages. This research examines which decision-makers are most likely to engage in moral hazard decision making and the psychological mechanism driving this behavior. Drawing on the dual model of social influence, we posit that individuals associated with dominance, but not prestige, will engage in greater moral hazard behaviors. We further contend that these behaviors are driven by dominant decision-makers’ enhanced focus on end goals (outcomes) rather than the means (process) that they use to pursue such goals. We find support for our hypotheses across 13 studies (NObservations = 26,880; of which eight were preregistered and six studies are reported in the Supplemental Materials), using both correlational and experimental designs. Additionally, we vary the moral hazard context (e.g., a financial setting, a health and safety issue, etc.) and capture both behavioral intentions and actual behaviors, while also ruling out several alternative explanations. These findings demonstrate that dominant decision-makers engage in moral hazard behaviors because of their tendency to prioritize outcomes over processes.

Leaders play a pivotal role in establishing ethical norms and behaviors within organizations. Across seven studies (three in the Supplementary Information), we explore how subordinates infer their leader’s moral character outside the domain of ethical conduct and document this process’s downstream consequences. Specifically, we focus on the dual-strategies theory, which posits that leaders exert influence and obtain deference via two broad orientations of behaviors and cognitions: dominance and prestige. In a field setting of employees and their managers, we find that leader dominance orientation positively relates to subordinate self-reported unethical behavior, whereas leader prestige is negatively related to the same. In a second sample of working adults, we use a time-lagged study design to show that leader dominance (prestige) positively (negatively) relates to subordinate-reported unethical behavior at work partly because of a belief that the leaders engage in more (less) unethical behaviors, which contributes to a belief that norm-violating behaviors are more (less) acceptable within teams under dominance- (prestige-) oriented leaders. Finally, across four experimental studies, we observe that participants assigned to a dominance-oriented (versus prestige-oriented) leader perceived their leader as having lower moral character and expressed a greater likelihood of engaging in unethical behavior. We also document actual unethical behavior for monetary gain. This effect was mediated by the belief that unethical behavior was normative within the team. Our results highlight the importance of moral (mis)perception by demonstrating the consequences of a leader’s hierarchical orientation on subordinate ethical perceptions and behaviors at work.

Using university residence staff as our leaders of interest, we explored the association of emotional intelligence and moral reasoning to leadership style and effectiveness. A total of 58 residence staff completed questionnaires assessing their emotional intelligence and moral reasoning. Subordinates (n=232) rated the residence staff’s leadership behaviours and effectiveness. Residence staff’s supervisors (n=12) also provided similar effectiveness ratings. Analysis showed that leaders who reported higher levels of emotional intelligence were perceived by their followers as higher in transformational leadership and more effective. Interestingly, having high emotional intelligence was not related to supervisor’s ratings of effectiveness. Supervisors associated greater job effectiveness with higher moral reasoning. Theoretical implications and practical applications of these findings are discussed.

The authors conducted a meta-analysis of 57 empirical studies (59 samples) concerning enacted workplace aggression to answer 3 research questions. First, what are the individual and situational predictors of interpersonal and organizational aggression? Second, within interpersonal aggression, are there different predictors of supervisor- and coworker-targeted aggression? Third, what are the relative contributions of individual (i.e., trait anger, negative affectivity, and biological sex) and situational (i.e., injustice, job dissatisfaction, interpersonal conflict, situational constraints, and poor leadership) factors in explaining interpersonal and organizational aggression? Results show that both individual and situational factors predict aggression and that the pattern of predictors is target specific. Implications for future research are discussed.

Few interpersonal relationships endure without one party violating the other's expectations. Thus, the ability to build trust and to restore cooperation after a breach can be critical for the preservation of positive relationships. Using an iterated prisoner's dilemma, this article presents two experiments that investigated the effects of the timing of a trust breach—at the start of an interaction, after 5 trials, after 10 trials, or not at all. The findings indicate that getting off on the wrong foot has devastating long-term consequences. Although later breaches seemed to limit cooperation for only a short time, they still planted a seed of distrust that surfaced in the end.

Drawing on the motivated cognition literature, we examine how self-affirmation processes influence self-justification needs and escalation decisions. Study 1 found that individuals with a larger pool of affirmational resources (high self-esteem) reduced their escalation compared to those with fewer affirmational resources (low self-esteem). Study 2 extended these findings by demonstrating that individuals also de-escalated their commitments when they were provided an opportunity to affirm on an important value. Finally, Study 3 found that affirming on traits that were of low relevance (e.g., creativity) to an initial decision reduced escalation, but affirming on decision-relevant traits (e.g., decision-making ability) ironically increased escalation. Across three studies, using three instantiations of self-affirmations and two measures of escalation, the results highlight the potential benefits and costs of using self-affirmation as a vehicle to de-escalate commitment.

Changes in power almost invariably lead to changes in behavior. This research investigates the effects of power increases and power decreases for individuals who are in strong or weak positions. We hypothesized that individuals will have strong reactions to gains in power (their demands will increase markedly) but they will act almost as though they do not recognize losses in power (their demands will not drop much) when they lose power. Four experiments track individuals’ actions when they move from ultimatum to dictatorship games, from dictatorship to ultimatum games, or when they have the same power position repeatedly. The data consistently show that people over-react to an increase in power, but that they react appropriately to a loss in power. The discussion explores the behavioral disconnect between increases and decreases in power.

Individuals often honor sunk costs by increasing their commitment to failing courses of action. Since this escalation of commitment is fueled by self-justification processes, a widely offered prescription for preventing escalation is to have separate individuals make the initial and subsequent resource allocation decisions. In contrast to this proposed remedy, four experiments explored whether a psychological connection between two decision-makers leads the second decision-maker to invest further in the failing program orchestrated by the initial decision-maker. Across three different contexts (financial investments, personnel decisions, and auctions), we found that multiple forms of psychological connectedness (perspective-taking, shared attributes, and interdependent mindsets) led decision-makers to vicariously justify others’ initial decisions and escalate their own commitment to these decisions – even in the face of direct financial costs to themselves, and even among economics students trained in the irrationality of honoring sunk costs. The ability of subtle psychological connections to undermine the conventional prescription for de-escalation has important implications for organizations, public policy, and theories of escalation.