 .

According to the IRS, about 17% of income goes unreported

each year for tax purposes. Does the Issue-Contingent Model of
moral intensity give you any insights into why cheating on
income taxes is so commonplace?

2. A put option can effectively be viewed as a bet that a stock’s

price is going to fall. After the September 11, 2001, attack on the
World Trade Center, the FBI observed unusual trading activity in
put options on certain airline stocks. The investors in these
options made large profits from low-probability, short-term bets
that airline stock prices would decline precipitously. Substantial
evidence suggested that the securities traders made these
investments based on their advance knowledge that this terror
attack using U.S. airplanes would occur. The terrorists were
guilty of a horrible act. Were they also guilty of insider trading?
Please justify your answer.

o Step 1
Answer 1:

The Issue-Contingent Model of moral intensity provides a

framework for understanding why people may choose to
cheat on their income taxes. This model suggests that
individuals weigh several specific components when
making a moral judgement about a particular behavior,
such as tax evasion. These components include the
magnitude of potential harm or benefit, the probability of
success, and the social consensus or disapproval of the
action.

Explanation:

The magnitude of potential harm or benefit from evading

taxes can be quite high, as the amount of taxes owed can
be significant.

o Step 2
 In addition, the probability of success can be fairly high,
particularly for those who are knowledgeable about the
complexities of the tax code. Finally, the social consensus
around tax evasion may be more ambiguous, as many
people may not have strong feelings either way.

Explanation:

This may lead to a sense that tax evasion is relatively

acceptable or even expected by society.

o Step 3
Answer 2:

No, the terrorists were not guilty of insider trading. Insider

trading is a form of stock market fraud in which someone
illegally profits from the buying and selling of stocks,
bonds, or other securities using information that is not
publicly available.

Explanation:

It is illegal because it involves taking advantage of

privileged information that is not available to the public. In
this case, the terrorists did not have access to any such
information, so they could not have been guilty of insider
trading.

o Step 4
The investors in the put options were able to make large
profits from their bets that airline stock prices would
decline because they had advance knowledge of the terror
attack. This knowledge was not available to the public and
was not obtainable through legal means. Therefore, the
investors' actions constituted illegal insider trading.

Explanation:

The terrorists, however, were not guilty of insider trading.

They did not have access to any confidential information
 and they did not profit financially from their actions.
Therefore, they were not guilty of any illegal activity
related to insider trading.

o Answer
Answer 1: Overall, the Issue-Contingent Model of moral
intensity can provide some insights into why cheating on
income taxes is so commonplace. The potential for a high
reward, the relatively high probability of success, and the
absence of strong social stigma can all contribute to
making this decision more attractive for individuals.

Answer 2: In conclusion, the terrorists were not guilty of

insider trading. Although their actions may have been
based on knowledge of the impending attack, there is no
evidence that the terrorists had any access to material,
nonpublic information regarding the airline stocks prior to
making their investments. Therefore, the SEC would be
unable to prove that the terrorists had any intent to
capitalize on insider information and the terrorists cannot
be found guilty of insider trading.