The effect of individual and group punishment on individual and group-based dishonesty

Abstract Economic dishonesty is widespread and affects organizations and societies. Prior work suggests that group decision-making or commitments to others may increase dishonest behaviour compared with individual choices. Although various interventions aim to curb dishonesty, classical economic approaches stress punishment by increasing the perceived risk of detection. Yet, evidence on the effectiveness of punishment is mixed, and it remains unclear whether it works in collaborative settings. We conducted an online experiment (n = 702) with UK-based Prolific participants who played a five-round tax-evasion game. We manipulated (i) payoff type (dishonesty benefiting the individual versus a three-person group), (ii) punishment risk (no audit versus 30% audit chance), and (iii) punishment target (punishing only the individual versus the entire group when caught). Contrary to our prediction, group-based payoffs did not increase dishonesty in no-punishment conditions; instead, they led to higher compliance. As expected, introducing punishment risk reduced dishonesty and increased compliance by 14.2 percentage points (Cohen’s d = 0.32). Moreover, contrary to utility-based predictions, group punishment was more effective than individual punishment, increasing compliance by an additional 5.6 percentage points (d = 0.13), with similar effects across payoff types. Overall, our findings show that punishment effectively reduces dishonesty across individual and collaborative contexts.