Posts Tagged ‘Bernie Madoff’

Truth-Default Theory (TDT)

September 28, 2019

This post is based on content in Talking to Strangers: What We Should Know About the People We Don’t Know by Malcom Gladwell. It has been noted in previous posts that we all have an initial default to believe what we read or are told. If we questioned everything our process through life, particularly at the beginning, would be enormously slow. Truth-Default Theory, by psychologist Tim Levine, capitalizes on this tendency to explain why we are vulnerable to lies. According to Levine we are normally in the truth-default mode. To snap out of this mode requires a trigger. “A trigger is not the same as a suspicion, or the first sliver of doubt. We fall out of the truth-default mode only when the case against our initial assumption becomes definitive. We do not behave, in other words, like sober-minded scientists, slowly gathering evidence of the truth or falsity of something before reaching a conclusion. We do the opposite. We start by believing. And we stop believing only when our doubts and misgivings rise to the point where we can no longer explain them away.”

A Harvard Economist, Sendhil Mullainathan, three elite computer scientists and a bail expert conducted an interesting experiment in the courts of New York City. They gathered up the records of 554, 689 defendants brought before arraignment hearings in New York from 2008 to 2013. This involved 554,689 defendants. The same information the prosecutors had given judges in these arraignment case was fed into a computer and analyzed with a program developed by these three elite computer scientists. It is presumed that these judges know how to evaluate this information. The judges decided to release just over 400,000 of the 554,689 defendants. The computer program made its own decisions regarding whom to release. So who made the best decisions? Whose list committed the fewest crimes while out on bail and was most likely to show up for their trial date? The people on the computer’s list were 25% less likely to commit crimes than the 400,000 people released by the judges of New York City. So in this contest of man versus machine, man clearly lost.

The main shortcoming of these judges was that they were human beings. Humans do not do that good a job of integrating numerical information without the aid of machines. And humans are strongly influenced by the behavior and status of the subjects they are evaluating. Gladwell reviews the case of Amanda Cox.

Amanda Cox was an American living in Italy who was falsely accused of murdering Meredith Kercher. In hindsight, it is completely inexplicable how she was convicted. There was never any physical evidence linking either Cox or her boyfriend to the crime. Nor was there ever a plausible explanation for why Cox—an immature, sheltered, middle-class girl from Seattle—would be interested in engaging in a murderous sex game with a troubled drifter she barely knew. Gladwell’s explanation is that Amanda’s behavior and the things she said convinced some people of her guilt, in spite of the hard evidence that she was innocent. So appearances, can get you in trouble, but they also provide the basis for successful lying.

The opposite case is Bernie Madoff. Bernie Madoff was the hedge-fund manager who ran a pyramid scheme that ended up defrauding many wealthy and prestigious clients. In addition to his status as the leader of a large fund, he was a genius at convincing people that all was above board. Gladwell analyzes many other interesting cases.

So what is to be learned from this book? A default mode of belief is practical, but be aware that appearances can be deceiving. So be careful about new interactions. Also be careful regarding established relationships if something questionable develops.

There are good tips on how to deceive. Simply act like you are telling the truth and stick with it.

Although Gladwell does not mention this in his book, we have an example of an extraordinary liar. He is the President of the United States, Donald Trump. And his many, many lies have been documented. He lies just as often as he tells the truth. And when caught in a lie, he doubles down. He never admits that he was wrong. This provides quite a challenge to government officials who he tries to force to back up his lies. Of course, he has no credibility with foreign leaders. How American citizens can still support him is mind boggling. And he is planning to run for re-election!


September 24, 2014

Contradictions constitute another strategy discussed by Klein in Seeing What Others Don’t: The Remarkable Ways We Gain Insight. The ulcer and yellow fever examples of coincidences are also examples of contradictions as insights can involve more than one strategy. Contradictions turned up in 45 out of the 120 cases studied by Klein. Initially Klein was surprised by this result as people who had insight were generally believed to be open-minded creative individuals. But Klein found that critical thinking can also lead to insight.

The first example of insight discussed by Klein involved the contradiction strategy. Two policeman, one older and one younger, were waiting for a traffic light to change. The younger policeman examined a fancy new BMW in front of them. He watched the driver of the BMW take a long drag on his cigarette, take it out of his mouth, and flick the ashes onto the upholstery. The younger policeman’s insight was that it was a new car and that the driver had just ashed his cigarette in the car. The contradiction was that the owner of the car was unlikely to do this, and the car was likely stolen. They stopped the car and found that it was indeed stolen.

Another example was Harry Markopolous, the main who fingered Bernie Madoff, the respected and admired investor who had in fact be running a Ponzi scheme. Early on Markopolous noticed a contradiction between the investments that Madoff was making and the returns he was reporting. There was much skepticism and it took several years of hard work, but Markopolous was able to prove that Madoff was a fraud and had been running a Ponzi scheme.

Klein discusses the story of five individuals who identified the housing bubble, the fraudulent investment vehicles that were being sold, and predicted the financial crisis and crash that occurred in 2007-2008.. The signs were there for all to see, but few people noticed them and fewer people acted upon them. Those few who did profited quite handsomely. These were the individuals who saw a clear contradictin between the objective state of the financial markets and the unbridled optimism (housing values can only go up) that was generally believed.

Another example of critical thinking leading to seeing contradictions that lead to insights was John Snow’s discovery about cholera in the mid-1800s. Cholera microbes cause diarrhea and vomiting that quickly dehydrates its victims, killing them. Cholera strikes in epidemics, with it quickly spreading from one individual to another. Cholera made its first appearance in Britain in 1831. When the epidemic ended more than 20,000 people had been killed. The next epidemic in 1848-1849 killed 50,000 more.

At that time most people believed in them miasma theory. That is, disease was spread by bad air and poor sanitation. This was the same theory used to account for yellow fewer that was discussed in the immediately preceding post. Snow became interested in cholera when he read about a sailor dieing of cholera in a lodging house. A few days later another person checked into the same room and contracted cholera. Snow saw a contradiction with the miasma theory. If inhaling noxious air caused cholera, why didn’t other people in the lodging hall or in the neighborhood get sick? If noxious vapors spread in currents afflicting everyone in their path, why didn’t the other lodgers come down with cholera? Snow also noted that if cholera were transmitted by bad air, they should show lung damage, but the victim’s lungs seemed normal. The damage was in the stomachs of cholera victims. This was a coincidence that implied a connection—that cholera victims caught the disease from something they ate or drank. Snow gathered more data and began to think that cholera was spread through ingesting waste matter of other victims, by drinking contaminated water.

Snow found that cholera seemed to parallel water systems. In one outbreak twelve people died. He found that they all lived in the same slum and drank from the same well. Then there was the famous Broad Street Pump. Cholera cases were clustered around this pump, but none of the local brewery workers can down with cholera. Although these brewery workers breathed the same air, they drank beer, not water. It was later found that this Broad Street Pump had become contaminated through the dirty diapers of an infant. The infants mother had cleaned the diapers in a bucket and tossed the foul water into a cesspool that ran into some cracks in the pipes of the Broad Street pump. After this Broad Street Pump incident , Snow’s theory of dirty water was quickly accepted. Within a year this story traveled to the United States and guided American campaigns to protect citizens from cholera.

Contradictions also lead to important breakthroughs in science. Thomas Kuhn’s classic The Structure of Scientific Revolutions describes how contradictions lead to scientific breakthroughs. According to Kuhn there are long periods of what he terms normal science. These periods consist of small incremental increases in scientific knowledge. But they come to a point where science cannot advance without breakthrough thinking, and this involves the identification of contradictions and the creation of new ideas to overcome these contradictions.

A good example of Kuhn’s ideas can be found in Albert Einstein’s theory of special relativity. The Newtonian view of physics was that space and time were constants. Maxwell’s equations predicted that electromagnetic radiation would propagate through a vacuum at the speed of light. Einstein imagined what would it be like to travel at the speed of light. The light beam should appear frozen, but this appeared to contradict Maxwell’s equations. Einstein resolved this contradiction by stating that the sped of light is a constant and space and time or space/time vary.