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
