The Honesty Penalty: Hiding Mistakes in Teams

Organisations benefit from the timely disclosure of mistakes, yet workers often conceal their errors. We examine the role of blame avoidance, hypothesising that mistakes associated with a larger loss in potential earnings increase blame and discourage disclosure. This creates a paradox: mistakes are concealed precisely when concealment is most costly to the organisation. We formalise this argument in a model and test it in a vignette study and two incentivised laboratory experiments. The vignette study supports the proposed mechanism, showing that blame increases with the loss in potential earnings. In the laboratory experiments, larger losses do not reduce disclosure, but we do document an important honesty penalty in team settings: the desire to avoid blame induces free-riding by leaving the disclosure of mistakes up to their team members. This pattern emerges both when new teams are formed after each interaction and when teams stay together.