Why Being A Sucker Seems So Right.
Yesterday, we talked about the difficulty about detecting whether monies returned from an investment were a return of capital or a return from a real economic activity.
Anyone can provide a "pretend" investment of say 10% a month on a hundred dollars, by simply returning $10 to each month for 10 months, until the money runs out.
We are bad at naive induction: figuring out how long the returns have to be paid before we have evidence of a real economic activity.
But there is another important psychological reason why ponzi schemes, such as Arlan Galbraith pigeon breeding scheme work.
Remember what words Arlan used, to the reporter in the video, to describe Pigeon King International?
"I am convinced that we can save the family farm with pigeons."
With those 11 little words, Arlan weaves incredible magic. And soon magical thinking about pigeon breeding becomes justified.
Over the last nine or ten years, I have interviewed close 400 or 500 individuals who lost money in either a franchise, a business opportunity or some other money making scheme.
Everyone one of them knew at their gut level something was wrong with the scheme, but they all found a way of ignoring their gut instinct.
One characteristic sticks out in the way they reasoned.
Even reasonable and experience people engage in this pattern of reasoning - in which all warning signs, typically gut feelings, but not always, are ignored in favour of nice sounding story but with no empirical backing.
Something like their not being a read end market for Arlan's pigeons.
Let me give you a short example. One client I had, "knew" all the warning signs, and the client's due diligence was impressive.
But the client, not mine at the time, went ahead anyways and lost an amount greater than 6 figures. Something she could absolutely not afford to lose.
Why?
Well, every objection the client discovered about the scheme, she turned into an attack on her own ability to do hard long and boring work!
But the purchase of the business opportunity was not thought of by my client as simply an earnings opportunity - it presented itself as solution to a difficult family or personal problem. Such as saving the family farm, for example.
The desire to solve that difficult family or personal problem made the client more willing to believe what the client needed to believe in -so that the family or personal problem could be solved.
For this reason, rational due diligence was next to impossible - despite massive red flag warning signs. The gut feeling of danger had to be ignored - or there would be no chance to save the family farm, as it were.
Due diligence fails because the farmers do not properly articulate even to themselves:
a) Why they want this opportunity;
b) What evidence there is for the opportunity satisfying a) and;
c) What other alternatives might satisfy a).
The next time your brain wants to override your gut instinct, look at little deeper at the problem you are really trying to solve.
Tomorrow, we will look at the Arlan's use of testimonials and shills who promote Pigeon King.
Related Posts: What is New in Family Farming? and Pigeon King and Testimonials
Read More From BizOp News
March 25, 2008
Cooling the Mark Out
Erving Goffman wrote "On Cooling out the Mark" in 1952.
It was an application of Mauer's elaboration of con criminals method of ensuring that their victim did not raise too much of a fuss with the federal authorities, "cooling the mark out" to other adaptations to failure.
Goffman shows how to understand the more complicated social phenomena of reacting to failure by taking it to be similar in its strategic components to fraud.
All fraud criminals face the following problem: at one point, the sausage of lies explodes. The magic trick behind the phantom dreams reveals "a man behind the curtain."
How does the con criminal plan his escape?
Goffman writes:
"The con is said to be a good racket in the United States only because most Americans are willing, nay eager, to make easy money, and will engage in action that is less than legal in order to do so.The typical play has typical phases. The potential sucker is first spotted and one member of the working team (called the outside man, steerer, or roper) arranges to make social contact with him.
The confidence of the mark is won, and he is given an opportunity to invest his money in a gambling venture which he understands to have been fixed in his favor The venture, of course, is fixed, but not in his favor.
The mark is permitted to win some money and then persuaded to invest more. There is an "accident" or "mistake," and the mark loses his total investment.
The operators then depart in a ceremony that is called the blowoff or sting. They leave the mark but take his money.
The mark is expected to go on his way, a little wiser and a lot poorer.
Sometimes, however, a mark is not quite prepared to accept his loss as a gain in experience and to say and do nothing about his venture.
He may feel moved to complain to the police or to chase after the operators. In the terminology of the trade, the mark may squawk, beef, or come through.
From the operators' point of view, this kind of behavior is bad for business. It gives the members of the mob a bad reputation with such police as have not. yet been fixed and with marks who have not yet been taken.
In order to avoid this adverse publicity, an additional phase is sometimes added at the end of the play.
It is called cooling the mark out.
After the blowoff has occurred, one of the operators stays with the mark and makes an effort to keep the anger of the mark within manageable and sensible proportions. The operator stays behind his team‑mates in the capacity of what might be called a cooler and exercises upon the mark the art of consolation.
An attempt is made to define the situation for the mark in a way that makes it easy for him to accept the inevitable and quietly go home. The mark is given instruction in the philosophy of taking a loss."
Goffman discusses a number of techniques or ways to instruct the mark in the philosophy of taking a loss.
One technique is worth a review, in the context of selling a distributorship or franchise that has gone bad.
Many individuals buying a distributorship or franchise think somewhat naively that if the deal goes south, they can always salvage something by selling the piece of poo.
Goffman describes this as a form of bribery.
"As another cooling procedure, there is the possibility that the operator and the mark may enter into a tacit understanding according to which the mark agrees to act as if he were leaving of his own accord, and the operator agrees to preserve the illusion that this was the case.It is a form of bribery.
In this way the mark may fail in his own eyes but prevent others from discovering the failure.
The mark gives up his role but saves his face.
This, after all, is one of the reasons why persons who are fleeced by con men are often willing to remain silent about their adventure.
The same strategy is at work in the romantic custom of allowing a guilty officer to take his own life in a private way before it is taken from him publicly, and in the less romantic custom of allowing a person to resign for delicate reasons instead of firing him for indelicate ones."
Good observation: try to avoid bribing your future self by having your present self do killer due diligence.
