How to Spot Suspect Experts and Avoid Bad Surprises
Davis Freeberg wrote a fascinating article about the apparent authority Netflix conferred on what Freeberg called a "penny stock touter". The are applications of Freeberg's analysis to the due diligence for the purchase of a franchise or business opportunity. Let's take a look in more detail at his post.
In, short Freeberg's argument is that Netflix is allowing its authority or status of an expert to be conferred upon Wallst.net when Netflix allows Wallst.net to put Netflix's press releases on Yahoo right next to Wallst.net's press releases for some other penny stock.
I urge you to read the entire article.
Cialdini wrote about something similar when discussing how information from a recognized authority "can provide us with a valuable shortcut for deciding how to act in a situation." If a recognized authority acting on impartial grounds makes a recommendation based on their knowledge, information, and wisdom, then we don't have to retreat to first principles to figure out the correct solution -we can simply do it.
However, there are at least two problems. We need to find (1) a recognized authority, and (2) whose advice is impartial. Cialdini recalls the old Robert Young ads, for General Foods. Robert Young played, of course, Marcus Welby MD for many years on television. In the print ad, he is seen giving what looks like doctor's advice to a young woman about the merits of switching to Sanka. As Cialdini so charmingly writes, "from the first time I saw it, the most intriguing feature of the Robert Young commercial was its ability to use the influence of the authority principle without providing any real authority. The appearance of authority was enough."
Davis Freeberg identified one way in which Wallst.net is creating the appearance of authority: interspersing press releases of real companies with much more speculative companies. Are there others?
Well, "Financial Media Group" is very similar to "Financial Media Holdings Group", the latter which features former Securities and Exchange Commission Chairman Harvey Pitt as a commentator.
Who is Financial Media Group? In contrast, it is a company in Irvine, California whose CEO is Albert Aimers. In 2002, Albert Aimers was the CEO of Ilive Inc and was successfully sued for $500,000.00 in California . It is unclear from the Superior Court's appeal record as to what the complaint was, and Mr. Aimers was noted in default and default judgment issued.
So how do we protect ourself against the appearance of authority? Again, Cialdini notes that most of the experiments which show obedience to authority, including Stanley Milgram's classic experiment, all reveal that people's prediction about how they would defer to authority are all on the low side. We are, therefore surprised, when we acquiesce so easily. So, we have to remove the element of surprise.
Here are four ways to remove surprise in this case.
- Check with the reputation gatekeepers. "Dominic Jones waded in and stated: "Most investor relations firms and consultants are perfectly honorable. They would never lie or hide their identity and they wouldn't abuse your company's name in news releases.
It can be very difficult to tell the good operators from the bad, so I understand why companies fall into these traps. My best suggestion is to always look to see if the vendor's people are members of an investor relations association such as the National Investor Relations Institute (NIRI).
That means checking NIRI's who's who membership list. I did that for WallSt.net and its owners Financial Media Group and found no listings."
- Find the business location using google maps., based on the information in www.whois.org registry.
- Ask why you are using a portal instead of www.biz.yahoo.com?
- Read Wallst.net's disclaimer which basically says that "we print up financial press releases, but we are not giving you investment advice." Fair enough, so I won't take any advice.
Once you have identified that trappings of authority and asked of the purported expert, "what is in it for them", you are well down the path of due diligence on your franchise or business opportunity.
Technorati Tags: netflix, penny stock, recognized authority, press releases, apparent authority, first principles, cialdini
