“What were they thinking?” In hindsight, we tend to question why smart people put their trust and money behind leaders, like FTX crypto founder Sam Bankman-Fried. I anticipate his current trial will reveal that he used the same persuasive psychology strategies to manipulate people as did Bernie Madoff and Elizabeth Holmes. It’s important to recognize and understand how these strategies work to avoid falling victim to them in our decision-making.
I believe the Principle of Social Proof was one of the most powerful strategies used to blind sophisticated investors to the risks. This principle, defined by Dr. Robert Cialdini, refers to our tendency to rely on the behaviors and opinions of others when making decisions or judgments.
Social Proof has the greatest influence when we see other people like us taking certain actions. Our brains take the shortcut of assuming if it’s right for them, it must be right for us. Both Madoff and Holmes also used the Principle of Authority. As you might guess, this principle shows people are more likely to follow those we consider to be experts, celebrities, or authority figures.
When people saw high profile celebrities were investing in Madoff’s fund, they followed. If Steven Spielberg is an investor, his financial team must have researched this, so it should be safe, right?
In the Holmes case, she was able to assemble a very prestigious board for her startup Theranos, so everyone assumed those respected authority figures wouldn’t support something that wasn’t legit. Turns out she just needed to get the first supporter – the late George Shultz, a former US Secretary of State, to join her board. Then, he recruited his esteemed contacts, like Henry Kissinger, who then attracted more luminaries. Prospective board members were influenced by both Social Proof and the Authority of those already on the board. Did you know that no board members were convicted of corporate fraud, as they were considered duped with the rest of her investors?
It’s important to recognize that Social Proof and Authority are powerful tools, that can be used for ethical or unethical influence. When used ethically, as with client testimonials, it can gain consideration by prospects for services that may be of great value for them. The key is to be aware when Social Proof and Authority are influencing your decisions. Awareness is the key to correcting for “blind following” over critical thinking.
Can you think of a situation where Social Proof or Authority influenced your decision in the wrong direction?