I am fascinated by the story of Madoff and the billions of dollars he managed to steal from trusting individuals and organizations. $50 billion is such a large number, that the extent of his manipulations is truly mind-boggling. The list of those affected keeps growing.

Just today, I read a note from ‘The Scientist‘ Associate Editor, Elie Dolgin:

Some of the big losers include New York’s Yeshiva University, home to the Albert Einstein School of Medicine, which lost at least $100 million according to the Jewish Telegraphic Agency, and Technion-Israel Institute of Technology in Haifa, which invested funds raised from donations in Madoff’s securities firm and now estimates its losses at around 25 million shekels ($6.7 million), according to Ha’aretz. Several other charitable organizations that regularly donated to medical research, such as Steven Spielberg’s Wunderkinder Foundation, have also been hit hard, the Jewish Journal reported.

It’s not the get-rich-quick types who fell for Madoff’s scheme. He was able to trick veteran investors and cautious organizations, those who are normally skeptical of deals that seem too good to be true, into giving him their money. How did he do it?

The reality is that what he did wasn’t all that complicated. He used simple psychological tricks to gain the trust of the monkey brain.

Unfortunately, our monkey brain is fallible. All of our modern behaviors sit on the evolutionary base of our ancestors, which is finely tuned to acquire resources, which will bring a sense of security. If you have food you do not need food. If you know where food is you don’t have to search for it. If you know when food is coming you don’t need to worry about getting it. Not needing for things and being secure in your survival feels good. Money is the resource in our modern society that secures our survival.

Bernard Madoff offered people security. His investment plan gave investors a consistent return on their money – some 10-12% annually. That’s more than stable treasury investments, but less than what a risky investor can gain from playing the stock market. However, unlike the stock market, even when the market was rocky, Madoff provided smooth returns of a consistently positive nature.

That kind of security is hard to come by. And, while many intelligent people should have been asking themselves how such returns were possible, they instead let their growing money lull them into complacency. They lied to themselves that everything was fine because of the drug-like effect of that sense of security.

Secondly, Mr. Madoff was a trusted insider. He belonged to all the right clubs. He knew all the right people. His place in the hierarchy of society put him in a position where people would trust him easily. He was like the popular kid in high school who everybody wanted to know. Because of his social standing, people accepted his word at face value.

Again, this is a remnant of our monkey brain. Who wants to piss off the alpha monkey and get beaten, or worse, kicked out of the group?

Madoff played off of this inherent group behavior to get people to want to invest with him. He made his investment scheme an elite club. He invited certain people to invest, and turned others away. This very act made his business a commodity, a resource of immense social value. The monkey brain wants what it cannot have, and that is usually something that is held by another monkey.

Psychologically, the people who were scammed weren’t special in any way aside from having large sums of money to invest. They are human. They should have been more skeptical of the deal set before them, but for most it is hard to argue with the monkey brain.

From the BBC:

The reason we are easy to fool in the end, is because we are so good at fooling ourselves.

Richard Wiseman at TAM 5

Richard Wiseman is a professor of Psychology at the University of Hertfordshire in the UK. He is many things, in fact: a friend, a trickster, and, of course, my evil twin. He also runs the website Quirkology, where he dissects, well, quirks; weird things people do, think, and believe. He wrote a whole book on it called, duh, Quirkology.

Richard Wiseman, in repose.

I was reminded of Richard’s latest when I opened my new issue of Science magazine: there was a picture of him, lit eerily in blue and green lights, lying on the floor. He is inside what he is billing as “the world’s most relaxing room”. It is specifically designed to soothe the savage breast, carefully crafted to maximize relaxation and minimize stress. It’s 160 meters square, is bathed in warm lighting, has delicate smells wafting through it, and is gently infused with calming music. Richard designed it along with colleagues who study the effects of environment on humans.

Quirkology, indeed.

It’s a pretty good idea, actually, especially for those of us who write for three blogs, try to manage an organization, write books, deal with families, and have to clean up after a cat who sometimes decides the whole fracking living room is her litter box.

[glances around]

Uh, sorry there. Maybe I do indeed need this room. But looking at Richard’s photo there, I think I’d probably freak out if I were lying there. I’d have flashbacks to my brother’s black light parties back in the 70s.

But who am I to argue with a professor who studied this very issue? It might be worth a few shillings (or Euros or pence or farthings or whatever the heck they use in the UK these days) to lie there for a while and let a room osmosify my woes away.

As long as my cat stays away from it.

Image credits: Ensceptico (on Flickr) and the University of Hertfordshire.