Bounded Ethicality as a Psychological Barrier to Recognizing Conflicts of Interest

mal notion through an integration of three critical psychological insights of the past century. We begin with Simon's own insight of bounded rationality, continue with subsequent insights offered in the work of Kahneman and Tversky regarding deviations from rationality, and then consider what we know today about the limitations of the conscious mind. In our assessment, these three literatures together provide robust support for the view that conflict of interest is not limited to explicit dishonesty. Rather, unconscious acts of ethically questionable behavior are more prevalent, more insidious, and as such, more in need of attention. The strands of these three insights weave together to form a powerful thread connecting what we know about basic human perception to cognitive, social, and, ultimately, ethical consequences. Thus, we develop the argument that the computational bounds on human cognition stretch further than previously assumed they can influence the quality of ethical judgments, leading us to extend Simon's phrase "bounded rationality" to consider the possibility and consequence of "bounded ethicality." Bounded rationality refers to the limits on the quality of general decision making, and bounded ethicality is a strand that is used to refer to the limits on the quality of decision making with ethical import. In this chapter, we focus on the nature of bounded ethicality, and its psychological implications for recognizing conflicts of interest. We propose that bounded ethicality places a critical constraint on the quality of decision making. We focus on one consequence of bounded ethicality, the limitation in recognizing the ethical challenge inherent in a situation or decision, such as a conflict of interest. Specifically, we argue that individuals view themselves as moral, competent, and deserving, and this view obstructs their ability to see and recognize conflicts of interest when they occur. Thus, ethicality is not bounded in unpredictable or nonsystematic ways but in systematic ways that unconsciously favor this particular vision of the self in our judgments. The self is an important construct in our argument, and we do not challenge the individual's capacity to recognize conflicts of interest in the abstract, or in the situations facing others, but rather in the situations involving the sclf. We argue that conflicts of interests are even more prevalent than the "visible" conflicts traditionally assumed by that term. For example, visible conflicts of interest include the finn that collects both auditing and consulting revenues from the same client. as well as the investment bank that seeks investment banking business from the same companies rated by the firm's equity analyst. In contrast to these visible conflicts of interest, FIVE