Weapons of Mass Investment

The news has been abuzz about Bernard Madoff and his multi-billion dollar Ponzi scheme. People want to know how so many smart people could be taken in by Madoff. How could wealthy, seemingly intelligent people trust ol' Bernie and give him their hard-earned money so easily?

Most of us would say greed was the driving factor. While I'm sure greed played a part, but for the most part, it was their own psychological make up (and your's) that made them easy targets.

How to Win Friends and Influence People

As I watched the Madoff debacle unfold, I thought to myself that it wasn't surprising. I even put a note in my "blog" folder to write a post about it. Unfortunately, someone beat me to it and not being a fan of re-inventing the wheel, I direct you to that article - posted on the Huffington Post. The article is titled: How and Why Madoff Was Able to Trick so Many "Smart" People.

The article is well done and is written by Mark Goulston, M.D. - a former FBI/police hostage negotiation trainer, UCLA professor and a thought leader at Los Angeles based Ferrazzi Greenlight. I display his pedigree in order to leverage the persuasion principle of "authority." Dr. Goulston uses the principles of persuasion written about by Dr. Robert Cialdini as the backbone of his article.

If you've read this blog for any time you know that Dr. Cialdini is a professor of social psychology at the University of Arizona and author of "Influence - Science and Practice" - a book that for anyone who wants to influence people should at least read it and at most, memorize it.

To sum up some of his points from the article:

Reciprocation -- Madoff's offer to clients to be part of an exclusive list of wealthy clients and institutions caused clients to be grateful for this special invitation and return the favor by investing

Commitment and Consistency -- The more that people originally invested, the more they continued to invest and the more they invited their friends to invest. This all served to reinforce their believing they had made the best decision to begin with.

Social Proof -- People will do things that they see other people are doing. So when people discovered that others who they thought were smart and wise were investing, that increased their confidence that it was safe for them to do so.

Authority -- Madoff was a former Chairman of the NASDAQ and a philanthropist.

Scarcity -- Madoff's reserving his offering for elite investors and by invitation only made more people want to be part of his exclusive club.

Dr. Goulston aslo comments on the some recent research into fMRI images of the "mirror neuron system." From the article:

"This neurological region may be the underpinning for why Cialdini's "weapons of influence" are so powerful, i.e. applying them causes the other person to feel empathized with and understood. When people feel that way, they lower their guard and lean into the relationship and trust it more. In essence when people really feel that you get where they're coming from, they're much more likely to trust you to take them where you'd like them to go."

All of these points have been made before on this blog. We need to know about these "weapons of influence" when designing effective influence programs for employees, channel partners or consumers.

This article by Dr. Goulston serves as a cautionary tale in that the we have to understand how powerful these weapons are, and that even an inadvertent application of these principles can have a huge effect on people's behavior.

I2I - Incentive Intelligence

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