Former director and senior partner at McKinsey & Co. Rajat Gupta arrives at federal court for his insider trading trial June 4, 2012 in New York City.
Former director and senior partner at McKinsey & Co. Rajat Gupta arrives at federal court for his insider trading trial June 4, 2012 in New York City. - 
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Jeff Horwich: The world economy could use a little more confidence today. Arguably, it could also use little more honesty.

Dan Ariely is a psychologist and behavioral economist at Duke. And he's got a new book called "The Honest Truth About Dishonesty." We asked him in to talk about a couple items from the news this week. Dan, thanks for being here.

Dan Ariely: My pleasure.

Horwich: Let's talk about insider trading: We have Rajat Gupta, who's facing a long prison term, potentially, for securities fraud. What does your research tell us about why people -- who are probably making plenty of money already -- would fall into this trap?

Ariely: First of all, it turns out that nobody's thinking long-term. You know, we think to ourselves: Oh, if there was only a big prison sentence at the end of some bad behavior, people would think about it and therefore not behave this way. The answer is no, this is not the case. The second thing is, it turns out lots of people do that. And when traders see other people around them participate in insider trading, all of a sudden this doesn't look as bad to them.

Horwich: So there's an awful lot of rationalization that goes on, I gather?

Ariely: Rationalization is the key. And with insider trading, you can say to yourself: everybody's doing it. You could say: this was actually public information; if I looked hard enough, I would find it. And we find that the more the ability to rationalize exists, the more people are dishonest.

Horwich: One place where a little more honest could go a long way is Greece. It's common knowledge through all of this now that the Greeks on the whole are pretty big tax cheats...

Ariely: Here is what I think is the story with Greece: I think it's a story of a social agreement about what is OK. For many behaviors, we see what are other people doing? And if it's something that everybody else is doing, then we don't feel bad about it. And I think in the Greek case, everybody's doing it -- not just other citizens, but the government has been cooking the books. So, because of that, people look at their own taxes and they say: why should I be the only sucker? And therefore they don't do it.

Horwich: If you were advising the Greek version of the IRS, what would you prescribe to fix the problem?

Ariely: So I think what they need is amnesty. They need to tell people: OK, from now on we're getting a new start, and I think a referendum on this regard is so important. And in the experiments we find that when we give people a chance, there is much reduction in dishonesty. I think the Greek people need to adopt something like that and that's the only way to move forward.

Horwich: Thanks for the insight on it. Professor Dan Ariely --  the book is "The Honest Truth About Dishonesty" -- thanks very much.

Ariely: My pleasure.


Follow Jeff Horwich at @jeffhorwich