Social Proof

5. SOCIAL PROOF

If 40 million people say a foolish thing, it does not become a wise one.

• Somerset Maugham (British novelist, 1874-1965)

"But everybody else is doing it."

Do you rely on others for advice and actions? Most people do. In True Believer, American philosopher Eric Hoffer wrote, "When people are free to do as they please, they usually imitate each other." We are social animals, influenced by what we see other people doing and believing. This is not merely a learned behavior; it is a deep, DNA-level instinct. Alongside species like honeybees, ants, and chimpanzees, humans have an innate drive to seek safety in larger groups and look to others for social direction. This instinct creates the strong sense of cooperation and culture that makes society possible, but it also drives us to do absurd things if our group is doing them too. We believe that others know more than we do.

We want what others want. Since everybody else wants it, we assume there has to be a reason. We avoid what others avoid. We imitate without thinking. This tendency is especially powerful when many people or people similar to us are doing it, when we are uncertain, in an unfamiliar environment, in a crowd, lack knowledge, or if we suffer from stress or low self-esteem.

Sellers of fashion, books, movies, etc., know that if enough people like something, others will eventually follow. We trust testimonials from people that we see as similar to us.

Warren Buffett says: "As happens in Wall Street all too often, what the wise do in the beginning, fools do in the end." He tells an instructive story:

This friend, who ran a property-casualty insurer, was explaining to his directors why he wanted to acquire a certain life insurance company. After droning rather unpersuasively through the economics and strategic rationale for the acquisition, he abruptly abandoned the script. With an impish look, he simply said: "Aw, fellas, all the other kids have one."

"I don't understand why they don't listen to me," said the CEO of TransCorp. When we are uncertain, we are most likely to follow what people similar to us do. The CEO would therefore be more likely to have his message heard if he used a spokesperson who already supported the CEO's ideas and who the audience saw as similar to themselves, such as a colleague.

John's stockbroker recommends the same stock as other brokers. When John asked him why, he replied "I'd rather be wrong in a group than right by myself."

We feel more comfortable as part of a majority. It acts as a protection from criticism. If we are wrong and everybody else is too, we get less blame. To quote J.M. Keynes: "Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally." Warren Buffett adds:

Most managers have very little incentive to make the intelligent-but-with-some-chance-of-looking-like-an-idiot decision. Their personal gain/loss ratio is all too obvious: if an unconventional decision works out well, they get a pat on the back and, if it works out poorly, they get a pink slip. (Failing conventionally is the route to go; as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press.)

John invested in an exclusive oil project since a group of sophisticated, wealthy investors were involved. They promised that he would quadruple his money in one year. A year later, he'd lost it all.

Former chairman of the U.S. Securities and Exchange Commission, Arthur Levitt, Jr. says, "If you are dumb enough to invest based on a lavatory wall, you deserve to lose money."

In the early 1900s, Italian immigrant Charles Ponzi, took investors for $10 million by promising 40% returns on International Postal Reply Coupons. What he didn't tell newer investors was that their money was being used to pay off earlier investors. In the end, the house of cards collapsed.

In the Foundation for New Era Philanthropy, some of the U.S.'s leading charities and donors believed they could double their money in six months. New Era used contributions from one group to pay off another - until there was no money left. New Era was a $350 million Ponzi Scheme. Charles Munger says, "Grown-up people actually believed that there was a tooth fairy out there that would double their money in six months provided they agreed to give it to charity."

Blindly following the lead of others can have dangerous consequences.

"Oh my God, he stabbed me. Please help me!"

We have a tendency to not act in situations where we are uncertain if there is danger and when we don't feel individual responsibility. Also when we want to avoid embarrassment and when we're among strangers. The more people, the more reduced we see our own responsibility.

Just after 3 a.m., March 13, 1964 in New York City, Catherine Genovese, a 28-year old woman, was stabbed to death as she returned from her job. 38 people witnessed at least one of her killer's three attacks from the safety of their apartment windows for 25 minutes without calling the police.

Why didn't the neighbors help? Were they indifferent? Frightened? Why should they be afraid of calling the police from the safety of their own homes? A pair of psychology professors found the answer. No one had helped just because thirty-eight witnesses were present. A bystander to an emergency is unlikely to help when there are other people around. Why? They saw two reasons for this.

First, we must interpret an event as an emergency. When we are uncertain, we have a tendency to look at people around us to see how they react. If others don't react, we interpret that as evidence that it is not an emergency, and we therefore don't react. We don't want to be the ones that stand out in a crowd and risk embarrassment for acting in a non-emergency situation. But here comes the problem. If each person reasons the same way, everyone draws the same conclusion. "Since nobody is concerned, nothing is wrong. It can't be an emergency." This is called pluralistic ignorance.

The second reason is called diffusion of responsibility. The more people there are, the less personal responsibility we feel. We often rationalize by saying, "Someone else probably called the police." If we all think that way, no one will help. The more people we see around us, the less likely we are to help. We can't force people to help. If we punish people for not helping in an emergency, we will only create an incentive for people to avoid the punishment by not getting involved. This will cause them to interpret a situation as a non-emergency.

So, how should we act if we are involved in an accident in a public place and need help? We should be specific. "You there, in the blue shirt. This is an emergency. Please help me!"

The board members of TransCorp were asked if they had any questions. They looked around at the other members. All appeared confident. "Am I the only one confused?" wondered John and kept quiet.

"Since no one disagrees, my idea seems to have everyone's support," the CEO said.

If we believe that we are the only one who doesn't understand, we may keep quiet. Speaking up may lead to embarrassment. Group pressure may contribute to our silence.

Sometimes mutual friendship and loyalty override our motivation to seek alternative courses of action. This type of group thinking has been found to be a factor in many historical events including the Bay of Pigs invasion, the Vietnam War and Pearl Harbor.

In the late economist Peter F. Drucker's The Effective Executive, the former chairman of General Motors, Alfred P. Sloan, Jr., is reported to have said at the closing of a management meeting: "Gentlemen, I take it we are all in complete agreement on the decision here". Everyone around the table nodded assent. "Then," continued Mr. Sloan, "I propose we postpone further discussion of this matter to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about."

John attended a meeting where an investment proposal promising a 200% return was presented. All 30 people present at the meeting invested and all lost money.

How could 30 smart individuals be fooled? Some basic math would have told them that the project was doomed to fail. Each individual automatically assumed that the other 29 individuals present at the meeting had evaluated the proposal. If there was something bad, someone else would have said so. "And since they invest, I invest." It turned out that no one had taken the time to read through the proposal.

"I flattered them and made them feel special. I gave them purpose and hope, and they ate out of my hand."

In a group we are easily seduced because of our need for social acceptance. The French social psychologist Gustave Le Bon said in The Crowd, "The masses have never thirsted after truth. They turn aside from evidence that is not to their taste, preferring to deify error, if error seduce them. Whoever can supply them with illusions is easily their master; whoever attempts to destroy their illusions is always their victim."

German-Swiss philosopher Friedrich Nietzsche said: "Madness is a rare thing in individuals - but in groups, parties, peoples, and ages it is the rule." In a group, we feel anonymous, which reduces our feelings of responsibility. We can't be blamed. This can lead to overconfident, risky behavior. We may also become impulsive and destructive. Especially in situations of severe stress. Benjamin Franklin said: "A mob has heads enough but no brains."

Imitation, obedience to authority, and the fear of being different are forces that drive crowds. Groups don't encourage differences of opinion. If a member of the group disagrees, he may be seen as disloyal. Unanimity is better than independent thought. Individuals in the group reinforce each other into believing that they collectively are right. They focus on favorable consequences and ignore the downside.

Is the tendency for imitating the group so strong it can make people commit collective suicide?

In 1978, 913 followers of the cult leader Jim Jones and his People's Temple organization died during a mass suicide and murder in a place called Jonestown in Guyana, South America. Among the dead: more than 270 children. Why?

The People's Temple started in San Francisco and moved to Guyana in 1977. Armed guards surrounded the settlement in Jonestown, food was scarce, and the members of the cult were forced to work long hours and follow strict codes of behavior. Cult leader Jim Jones committed his followers one step at a time. He controlled the information, the rewards, and the punishment. In 1978, an American congressman and three others went on a fact-finding mission to Jonestown and were murdered. Jim Jones thought that he would be implicated in the killings and that the isolation of Jonestown would result in the end of the cult. So he gathered the community to participate in an act of mass suicide by drinking a fruit drink mixed with poison.

Psychology Professor Robert Cialdini writes:

His [Jones's] masterstroke was the decision to move the People's Temple community from its roots in urban San Francisco to the remoteness of equatorial South America, where the conditions of uncertainty and exclusive similarity would make the principle of social proof operate for him as perhaps nowhere else.

Cialdini continues: "In a country like Guyana, there were no similar others for a Jonestown resident but the people of Jonestown itself."

Keep in mind

• The 19th Century American poet Ralph Waldo Emerson said: "It is easy in the world to live after the world's opinion; it is easy in solitude to live after our own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude." What is popular is not always right. If you don't like what other people are doing, don't do it. Warren Buffett says: "We derive no comfort because important people, vocal people, or great numbers of people agree with us. Nor do we derive comfort if they don't."
• Disregard what others are doing and think for yourself. Ask: Does this make sense? Remember the advice from Benjamin Graham, the dean of financial analysis:

Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it - even though others may hesitate or differ. (You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.)

• A lot of our children's personality traits and habits are shaped outside the home. Children learn from their friends what is acceptable or not so make sure the right "peer group" surrounds them.
• When part of a group, remember that the participants may have different goals, information, and interpretations. Seek out alternative points of view and encourage people to openly disagree. Appoint someone in the group to question things and point out risks and pitfalls. Use ballots to reduce the risk of social pressure.
• Make people responsible for their actions. Remember though, when all are accountable, no one is accountable.