Writing in The Wall Street Journal, a psychologist who specializes in gullibility discusses why we are fooled by financial scams and how he was taken in by Bernard Madoff. An excerpt:
The real mystery in the Madoff story is not how naïve individual investors such as myself would think the investment safe, but how the risks and warning signs could have been ignored by so many financially knowledgeable people, including the highly compensated executives who ran the various feeder funds that kept the Madoff ship afloat. The partial answer is that Madoff's investment algorithm (along with other aspects of his organization) was a closely guarded secret that was difficult to penetrate, and it's also likely (as in all cases of gullibility) that strong affective and self-deception processes were at work. In other words, they had too good a thing going to entertain the idea that it might all be about to crumble.
2 comments:
Looks like human nature really came into play and our social nature made some Madoff investors comfortable when they should have been vetting him and his programs. It's got to be an excruciating loss for many - and will be unfolding for months to come.
I have a feeling that many psychology doctoral papers will be written on this scam.
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