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Is cash loaded on cards easier to steal?

By Claes Bell · Bankrate.com
Thursday, June 14, 2012
Posted: 12 pm ET

Could the decline of cash give people who normally wouldn't steal or cheat a green light to empty out your checking account or prepaid debit card account? New research suggests it might.

Duke University professor and behavioral economist extraordinaire Dan Ariely is out this month with a new book, "The (Honest) Truth About Dishonesty," that examines how different factors influence people's propensity to engage in dishonest behavior.

In a recent interview with National Public Radio's Robert Siegel about the book, he detailed an  experiment, the results of which could have some worrying implications for a society that's rapidly abandoning paper currency.

The experiment started by distributing a written test and telling subjects they'd be paid $1 for each question they got right. The subjects were given five minutes to solve the problems, then were told to count up how many they got right and put their test paper in a shredder at the back of the room. Afterward, they were invited to go and report the results to Ariely and collect their cash.

As you've probably guessed, the shredder didn't really shred the results, and so Ariely could compare how many answers the subjects reported getting right with how many they actually got right.

But one variation on the study produced some surprising results. From the interview:

ARIELY: And what we find is people basically solve four and report six. And, again, we find that lots of people cheat by a little bit; very, very few cheat a lot. But here's the most interesting version for me. In one of the experiments, people did the same thing exactly. They finished shredding the piece of paper, but when they came to report, they didn't say, Mr. Experimenter, I solved X problems, give me X dollars. They say, Mr. Experimenter, I solved X problems, give me X tokens. And we paid people with pieces of plastic in terms of money.

And then they took these pieces of plastic and they walk 12 feet to the side and changed it for dollars. Now, if you think about it, what happened, the only difference is when people staring somebody else in the eyes and lied, they lied for pieces of plastic and not money. And what happened? Our participant doubled their cheating.

SIEGEL: If they're cheating to get something that they can redeem for money, it's easier than saying give me more money than I actually deserve.

ARIELY: Yes. The moment something is one step removed from money, and presumably more steps removed from money would make it even better, people can cheat more and feel good about themselves. It basically relieves people from the moral shackles. And the reason this worries me so much is because if you think about modern society, we are creating lots of cashless economy. We have electronic wallets. We have mortgage-backed securities. We have stock options. And could it be that all of those payment modalities that as they get more and more further from money become easier for us to cheat and be dishonest with them?

While this experiment has implications for everyone who has funds not in cash or gold squirreled under their mattress, the results seem especially relevant for users of prepaid debit cards. They're basically carrying around Ariely's plastic chits with lots of their hard-earned money loaded on it. Should they lose or misplace the cards somehow, someone who wouldn't normally grab cash out of a wallet might be tempted to try them out.

While users of conventional debit cards linked to checking accounts are protected from fraud by law as long as they report the theft, prepaid debit card users may be at the mercy of  whatever their prepaid card issuer's fraud policy is. Should their prepaid card company refuse to replace their stolen balance, they may be out of luck.

From the FDIC:

Liability depends on the type of funds on the card. If the card is a payroll card, then the liability rules are the same as for debit cards. But if the card is a general purpose reloadable card or a gift card, then there are no protections to limit your liability under federal law.

What do you think? Are people more likely to feel OK about stealing money when it's in plastic or electronic form?

Follow me on Twitter: @ClaesBell

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