Perceived Economic Incentives to Commit Fraud
Committing
Cognitive
Relieving
U(
fraud
) =
U[E(Net Gain)]
–
U[Dissonance] + U [Pressure ]
E(Net financial gain) = E(Gain)
–
E(Penalty)
E(Gain) = p * Economic Gain
E(Penalty) = (1-p) * [(q|1-p) * Q + (r|1-p)* R + (s|1-p) *S]
Where p = the perceived probability of successfully concealing the fraud (Opportunity)
Where 1-p
= the perceived probability of getting caught
(q|1-p) = the probability of being prosecuted
(r|1-p) = the probability of being fired but not prosecuted
(s|1-p) = the probability of being slapped on the wrist
Q, R, and S are consequences where Q > R > S
-Financial consequences include legal costs, damage award, loss of future wages
and decreased wages elsewhere, potential cost of moving

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© W.R. Knechel
The Utility of Committing Fraud
All Incentives:
Committing
Cognitive
Relieving
U(
fraud
) =
U[E(Net Gain)]
–
U[Dissonance] + U [Pressure ]