(By Daven Morrison)To build on earlier posts regarding the Steve Wessel Case (see previous two posts):
As the cardiologist assesses the heart, the psychiatrist assesses the mind. When the heart or the mind malfunctions, the physician seeks to understand what happened and what can be done to get things back on track. In the workplace, the organizational psychiatrist is generally asked to assess whether or not the right work is getting done. The right work is determined by making the right effort, and the right effort is a result of the right decisions. When projects or entire organizations derail, clearly someone (or some team) made the wrong decisions. And bad decisions come from bad judgment.
When it works it looks like this:
Good Judgment Right Decisions Targeted Efforts Desired Outcomes
When it goes wrong it looks like this:
Poor Judgment Wrong Decisions Disjointed Efforts Poor Outcomes
As Vic Hartman points out, there are many things that can go wrong in a Ponzi scheme leading all involved to fail. The irony is it is all clear from the beginning of the story that it was doomed to fail, yet instead of going away, these financial failures just keep popping up like dandelions.
As Atty Hartman notes, in a Ponzi scheme, there are several factors that lead to the failure:
• The central “Ponzi” character is charismatic, charming and attractive – he literally draws people in like a magnet.
• The promised returns are unrealistic, and the risk is described as minimal or virtually none
• The investors never fully understand how this works and believe in the “magic” of the Ponzi character
How does this work? I believe it ties to two factors which make up an Achilles heel of judgment in all human beings:
• People are inherently lazy in their thinking and do not make an effort to understand problems that ask them “to think;”
• People are not particularly competent in recognizing and managing the emotional data in their lives – and immodest charismatic people take advantage.
In our book, The ABCs of Behavioral Forensics, we outline how the emotional dynamics work between predator and prey. These tactics are there in our lives every day, from email scams to a neighbor’s plan to “beat Vegas,” the hook that the fraud sets in us is the thrill that we are special and that we can get easy money. There is a light in the eye that predators look and listen for to know that the hook is set. The core biologically wired emotion, or “Affect” is excitement. As the scam evolves, the predator manipulates and distracts his victim from the warning affects of fear, distress and the normal naturally defensive affect of anger. Unfortunately, this comes out as rage as was seen in the broad swath of victims in the Madoff catastrophe. Also outlined in our book is the role of the relationship and how charisma plays a role in attracting and sustaining the positive affect of excitement, but also the positive affect of safety: enjoyment. These are worth understanding and can be explored through Chapters 5-7 of our text. But what of “lazy thinking”? This is perhaps most intriguing, as Atty Hartman found.
Others have written about the challenge of thinking, especially in groups, when the group falls in love with an idea. Specifically, group think. The ideas are so exciting that the group literally falls in love with them. This is not necessarily hyperbole to say, as Freud noted, that the only time it is normal to be psychotic (out of touch with reality) is when we are in love. The positive feelings are so strong in both the teenager in love as well as the Ponzi victim that both of them cannot see the world as it really is. As the friend asked his heartbroken buddy: What were you thinking? You must have been nuts!” This is easily asked of both the Ponzi victim and the person grieving a break up.
Daniel Kahneman notes that human beings stop after a point and do not think through hard problems. He outlines how this happens in many ways around problems as common as simple mathematical calculations, to more complex problems like scoping out a project. In scoping out a project, people also see only the most positive outcomes and progress and do not plan for setbacks – despite how common setbacks are to all projects.
What’s missing in the Ponzi scheme – especially those where not only the victims are out of touch, but also (as Hartman notes) the fraudster himself:
• Competence about affects;
• And the ability to question: Is this really so good it can’t be wrong?
Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of ABCs of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D. These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud. Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.