THE BIZOP NEWS

Cover via Amazon

Megan Mcardle, writing at the Atlantic, has an interesting theory about why people don't realize things are too good to be true, reviewing a book call Billionaire's Vinegar

"The book--which I highly recommend, as it's gripping--involves possibly the most elaborate hoax pulled before Bernie Madoff became a household name, the counterfeiting of bottles of old wine allegedly from Thomas Jefferson's Paris cellars. 

The way Wallace tells it, you can't help but notice the fraud--and wonder how everyone else didn't.  One guy makes all of these amazing finds of hidden oenological gems, but no one wonders how come Christies or Sotheby's never managed to beat him to the punch? 

Why didn't people realize it was too good to be true?

Because success is self-reinforcing. 

If you believed the first eight amazing finds, the fact that Rodenstock had found the ninth actually made it more believable that the find was real.  After all, it was Rodenstock."

Well, there is something to this idea, as I have written before. We are bad at naive induction and can mistake the return of capital for an investment return.

But it is a mistake to look for a single silver bullet. Indeed, the desire to find a single, simple test which explains why we didn't realize it was too good to be true.

There is simply no easy due diligence test against fraud.

Only after the fact, when the fraud is exposed, does it become incredible to believe that so many of us were deluded. But deluded we were, and every fraud that is unravelled shows us new and interesting ways in which we can be complicit in our defrauding.