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The Wisdom of Psychopaths
In this engrossing journey into the lives of psychopaths and their infamously crafty behaviors, the renowned psychologist Kevin Dutton reveals that there is a...
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On a Los Angeles street corner in 2000, I was the "inside man" in a classic con game called the pigeon drop. A magician named Dan Harlan orchestrated it for a television series I co-hosted called Exploring the Unknown (type "Shermer, con games" into Google). Our pigeon was a man from whom I asked directions to the local hospital while Dan (the "outside man") moved in and appeared to find a wallet full of cash on the ground. After it was established that the wallet belonged to neither of us and appeared to have about $3,000 in it, Dan announced that we should split the money three ways.
I objected on moral grounds, insisting that we ask around first, which Dan agreed to do only after I put the cash in an envelope and secretly switched it for an envelope with magazine pages stuffed in it. Before he left on his moral crusade, however, Dan insisted that we each give him some collateral ("How do I know you two won't just take off with the money while I'm gone?"). I enthusiastically offered $50 and suggested that the pigeon do the same. He hesitated, so I handed him the sealed envelope full of what he believed was the cash (but was actually magazine pages), which he then tucked safely into his pocket as he willingly handed over to Dan his entire wallet, credit cards and ID. A few minutes after Dan left, I acted agitated and took off in search of him, leaving the pigeon standing on the street corner with a phony envelope and no wallet!
After admitting my anxiety about performing the con (I didn't believe I could pull it off) and confessing a little thrill at having scored the goods, I asked Dan to explain why such scams work. "We are that way as the human animal," he reflected. "We have a conscience, but we also want to go for the kill." Indeed, even after we told our pigeon that he had been set up, he still believed he had the three grand in his pocket!
Greed and the belief that the payoff is real also led high-rolling investors to fuel Wall Street financier Bernard Madoff's record-breaking $50-billion Ponzi scheme in which he kept the money and paid an 8 to 14 percent annual annuity with cash from new investors. As long as more money comes in than goes out, such scams can continue, which this one did until the 2008 market meltdown, when more investors wanted out than wanted in. But there were other factors at work as well, as explained by the University of Colorado at Boulder psychiatry professor Stephen Greenspan in his new book The Annals of Gullibility (Praeger, 2008), which, with supreme irony, he wrote before he lost more than half his retirement investments in Madoff's company! "The basic mechanism explaining the success of Ponzi schemes is the tendency of humans to model their actions, especially when dealing with matters they don't fully understand, on the behavior of other humans," Greenspan notes.
The effect is particularly powerful within an ethnic or religious community, as in 1920, when the eponymous Charles Ponzi promised a 40 percent return on his fellow immigrant Italian investors' money through the buying and selling of postal reply coupons (the profit was supposedly in the exchange rate differences between countries). Similarly, Madoff targeted fellow wealthy Jewish investors and philanthropists, and that insider's trust was reinforced by the reliable payout of moderate dividends (so as not to attract attention) to his selective client list, to the point that Greenspan said he would have felt foolish had he not grabbed the investment opportunity.
The evolutionary arms race between deception and deception detection has left us with a legacy of looking for signals to trust or distrust others. The system works reasonably well in simple social situations with many opportunities for interaction, such as those of our hunter-gatherer ancestors. But in the modern world of distance, anonymity and especially complicated investment tools (such as hedge funds) that not one in a thousand really understands, detecting deceptive signals is no easy feat. So as Dan reminded me, "If it sounds too good to be true, it is."
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5 Comments
Add CommentMichael Shermer has relinquished all claim to call himself a skeptic. He swallows whole the media's story of Madoff as a Ponzi schemer, then launches a sermon against gullibility.
Reply | Report Abuse | Link to thisThere may be much more to the story of Madoff's hedge fund than we have been told. For example:
http://www.globalresearch.ca/index.php?context=va&aid=11488
A real skeptic does his homework.
What greed? The ordinary (and rich) people that invested with Madoff did so because of his reputation for reliability, that much is clear. He didn't offer spectacular returns, but fairly moderate ones. But he was consistent and for those who aren't into playing the market, that's very attractive. Maybe the big banks were, and certainly the financial advisers that rode his coat tails, but that was much later in time.
Reply | Report Abuse | Link to thisglobalresearch.ca, you can't do better then that? Talk about doing your homework, citing every wacko with a blog is not only not possible it's not reasonable to expect from a journalist. Besides, that is an opinion piece and a bit lite on facts.
Reply | Report Abuse | Link to thisIt strikes me that the weak (fatal?) point in the article is the hypothesis that Madoff pled guilty so that his investors could score big in recouping their "losses."
Reply | Report Abuse | Link to thisWe are asked to believe that a) Bernie is a well-meaning but incompetent goof whom everyone simply adored and wanted to invest billions of dollars with and, b) that when the toilet wouldn't flush anymore, his good heart compelled him to plead guilty to crimes that could get him a life sentence - just because of his over-developed sense of fair play.
Ok. That makes sense.
But there is also the very fine sieve that the author claims all deals like this are filtered through. You remember; it COULDN'T be a Ponzi because at least one of these entities would have seen through it. Maybe so, but if his thesis holds water, all their micro-fine analyses didn't spotlight investments that were at best unsound, and there were no annual follow-ups by any of these "professionals" to see how things were going. Who would invest billions in ANYTHING without an (at least) annual review to make certain it is not headed over a cliff? Probably the same guys and gals who would perform a half-assed due diligence in the first place. Is that circular?
The article claims that hedge funds are too complex or risky for ordinary investors. I find them to be a lot less risky than selling short, and I have profited from them in the recent financial meltdown. Far more risk is involved in the buy and hold forever ("hold and hope") strategy that is advocated by certain radio personalities who are schills for the mutual fund industry.
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