Mathew Martoma after a sentencing hearing in New York; September 8, 2014. Credit Photograph by Peter Foley / Bloomberg via Getty

Mathew Martoma’s time is up. On Thursday, he is expected to begin a nine-year prison sentence for participating in an insider-trading scheme involving leaked trial results for an experimental Alzheimer’s drug. Martoma worked as a trader at S.A.C. Capital Advisors, a hedge fund run by Steven A. Cohen, where employees faced intense pressure to make money for the firm. In an article, from October, about the S.A.C. scandal, Patrick Radden Keefe wrote about the atmosphere at the fund:
As federal agents pursued multiple overlapping investigations into insider trading at hedge funds, it began to appear that the culture at S.A.C. not only tolerated but encouraged the use of inside information. In the recent trial of Michael Steinberg, one of Cohen’s longtime portfolio managers, a witness named Jon Horvath, who had worked as a research analyst at S.A.C., recalled Steinberg telling him, “I can day-trade these stocks and make money by myself. I don’t need your help to do that. What I need you to do is go out and get me edgy, proprietary information.” Horvath took this to mean illegal, nonpublic information—and he felt that he’d be fired if he didn’t get it.
In 2008, Martoma made approximately two hundred and seventy-five million dollars for S.A.C. through illegal trades conducted on the basis of information about Alzheimer’s drug trials that he gleaned from an insider involved in the trials. That year, Martoma earned a bonus of more than nine million dollars.

Stories of traders behaving badly aren’t uncommon these days. There’s also Bruno Iksil, the former JPMorgan Chase trader, nicknamed the London Whale, who generated billions of dollars in losses from risky bets, and Jérôme Kerviel, the former trader at Société Générale, who is serving a three-year sentence for forgery and breach of trust. Regulators, lawmakers, and journalists following these cases often refer to a culture in the finance industry that permits—and perhaps even subtly encourages—unethical behavior. This culture interested Alain Cohn, Ernst Fehr, and Michel André Maréchal, economists at the University of Zurich, who conducted an experiment to measure whether there is a link between the industry’s culture and its bad behavior. On Wednesday, the researchers published their findings in Nature.
For their experiment, Cohn, Fehr, and Maréchal focussed on the banking sector. They recruited a hundred and twenty-eight employees from a large international bank. These participants were divided into an experimental group and a control group. The people in the experimental group were given an online survey about their professional lives, featuring straight-ahead questions like “At which bank are you presently involved?” and “What is your function at this bank?” The members of the control group filled out a survey with questions that had nothing to do with their profession, like, “How many hours per week do you watch television on average?” Then participants from both groups were asked to toss a coin ten times and report the outcomes. Each participant could earn twenty dollars a toss if the outcome she reported matched the one she had been told in advance was the winning toss—but she would receive the payout only if her total score was at least as good as that of another, randomly chosen player.
The control group reported “successful” coin tosses 51.6 per cent of the time, on average, not far off the expected fifty per cent. But the experimental group—those who had answered questions about their work—reported success in 58.2 per cent of coin tosses, “significantly above chance,” the authors wrote. It appeared to the researchers that the people who had answered questions about working at a bank had reported dishonestly high success rates. “In contrast with the public perception, bank employees are not more dishonest people than others,” Maréchal said. “However, a significant proportion of the bank employees became dishonest when we reminded them of their occupation and role.”
After the coin-toss game, both groups were asked the question “To what extent do you agree with the following statement: Social status is primarily determined by financial success.” Members of the experimental group reported, on average, “a significantly stronger endorsement.” In other words, those who had answered questions about their profession—and, had, by extension, been reminded of banking culture—were more likely to claim what the researchers described as “materialistic values.”
Cohn, Fehr, and Maréchal went even further in their conclusions. If materialistic values are partly to blame for the misbehavior of bank workers, they asked, how might those values be moderated? On a phone call with reporters, they offered a few ideas. For example, bank workers could be required to participate in an ethics training that would clearly lay out which behaviors were right and which were wrong, and then, before undertaking certain activities, they could be required to sign a commitment form certifying that they believed they were behaving in good conscience. (Maréchal suggested later that an “ethically critical” deal involving a potential conflict with a client’s interests is an example of one such action.) They also suggested that banks could change their compensation schemes, so that bonuses would be tied not only to how much business someone brought to the bank but also to “their noticeable socially responsible behavior,” as Maréchal put it.
Economists don’t necessarily make good business strategists, of course, and it’s unclear whether these measures would genuinely alter banking culture. Many, perhaps most, big banks already have codes of conduct and require ethics training, and the cultural norms that breed bad behavior are often conveyed implicitly rather than explicitly. Some people have argued, compellingly, that a culture of greed is even to be expected in the finance industry, whose very purpose is to take large amounts of money and turn them into even larger amounts of money. John Cassidy wrote, last year, “Call me a skeptic, but I am a bit dubious of cultural explanations for financial malfeasance at investment banks, especially explanations that imply it could be prevented by adopting new internal guidelines and forcing the inmates to take remedial classes in humane behavior.”
Indeed, banks’ difficulties in policing themselves and bringing about cultural change suggest why governments should implement and enforce clear regulations barring harmful activities and, more important, impose harsh penalties for violations. Ethical behavior may or may not be in the interest of banks; the scandals of the past decade have certainly shown, though, that it’s in the interest of society at large.