Daniel Simons: Never Get Taken Again

26:34People who knew to look for it find the gorilla. They see it. If anything, they're maybe slightly less likely to notice the other things because they're now not only counting passes, they're looking for the gorilla. So they're using up more of their attention to find that. Wow. But yeah, the failure to notice that sort of background change and the player leaving is a related phenomenon called change blindness, that we don't notice that something's different from one moment to the next. And really all of these sorts of phenomena, these failures of awareness, reveal that we aren't taking in and remembering as much as we think we are.

27:06And that was one of the themes of our previous book from a dozen years ago now. The Invisible Gorilla was talking about these sorts of intuitions about what we notice, what we don't notice, what we remember. If nothing else, I have to say that I have very little confidence in eyewitnesses in criminal cases now? I mean, if half the people don't notice the gorilla or half the people don't notice the changing background or someone leaving, how can you be sure it was a white guy about 6 '2", red hair, that shot the guy? We have to be careful, right? I mean, eyewitnesses can be wrong. So what you look for is independent, converging evidence from multiple people.

27:48You look for high confidence at the time they make, their first identification, right? So the first time they look at a lineup and say, oh yeah, that's the person versus I'm not sure, maybe it's them. You've got to take that uncertainty really seriously. Whereas by the time they get to the courtroom, you don't want to trust their confidence judgments there. You don't want to trust the person on the witness stand saying, oh yeah, that's the person because your confidence can change over time. You want to get that very first assessment. You want converging evidence. I'd be really wary of convictions based on a single person's testimony without any other sort of concrete evidence that, quote, circumstantial evidence is often more compelling because you can verify it, whereas memory is fallible and perception is fallible.

28:31There probably goes half the conviction in Texas and Florida, but we won't go down that hole. That's a lot of what the Innocence Project finds, that a lot of the false convictions, the ones that were overturned due to DNA evidence, a lot of them were due to an initially not confident eyewitness testimony. That's the most common sort of problem. So yeah, it's a big issue. Dan, by the way, do you have kids? I do. How old are they? 21 and 16. Okay. So do you think some of this blindness and perception and lack of noticing, do you think you could explain why teenagers have messy rooms? Like they literally, they don't see the toilet paper outside the waste basket.

29:16They don't see the towel on the floor. It's not that you're a bad parent or they're bad kids. It's just a perception problem. It could well be. I think the way to think about a lot of this sort of stuff is that we tend to pay attention to the things that matter to us, that are interesting to us. If you're given a task, like count basketball passes, we can do that. We can pay attention to that, but we can't pay attention to everything. So if you are completely uninterested in the state of your room or the state of the bathroom or whether a towel is on the floor, you're not going to focus much attention on it and you might just walk right past it.

29:51And the more you walk right past it, the more you're not going to notice it anymore. Right. I mean, we all have that box that we never put away when we moved the last time. And after it sat there for three years, you no longer notice it. You're not paying attention to it anymore. It's still there. Yeah. Okay. So let it never be said that you cannot learn about parenting by listening to the remarkable people podcast now okay finally we're gonna get to the current issue so this is a big question but hey you're a big guy so just give us the gist why do people get suckered and taken in like made off or crypto or tulip mania like what happens why do they get taken?

30:36I think there are a lot of reasons, but I think the first thing to keep in mind is that the people who get fooled are not just gullible or naive or uneducated or dumb. We all can be fooled because we all use the same sorts of shortcuts to be efficient in the way we get around the world. We all have sort of habits of thought that work for us the vast majority of the time. They help us be effective, efficient. We all have a bias to accept that what we're hearing is true by default and that we only check later if we want to question it. We tend to kind of assume that when you're interacting with somebody, when you're talking with somebody, they're being truthful with you.

31:11And that's necessary to have good relationships in the world. So the problem is that those who are actively looking to deceive us hijack those sorts of tendencies. So we have these habits of thought that we use quite a bit. We tend to focus. We've already talked about that one. We tend to focus on what's right in front of us and not think about what we're missing. but we also tend to think poorly about the way predictions work and expectations work. We tend to not think about whether something was something we predicted. We kind of get it and it's handed to us. We tend to take it as, yeah, that's the way it should have been.

31:46We tend to become really committed to our ideas without questioning them. So we stop thinking about what the assumptions were that underlies our strong beliefs. And we tend not to ask enough questions. So we tend to be accepting without questioning. And most of the time, those things all work fine for us. It's just when somebody like a Madoff wants to take advantage of that, they can. They can meet expectations. They can cater to our commitments very effectively. The other factor is that we have patterns of information that we find really compelling. And the metaphor I like to use for this is a matador, bullfighter.

32:24When the matador shows this red cape, that's really enticing to that bull. It's going to charge forward. it's not to think about whether it's hiding a blade. It's going to charge right into it because that's really an appealing thing at that moment for whatever reason. This is something I've got to charge. But we all have that sort of information that we find really appealing and we charge forward without questioning it enough. And obviously we don't run right into a blade, but if somebody's trying to deceive us, they take advantage of our tendency to trust some kinds of information more than we probably should.

32:55So what's the short course in how to avoid being taken? The short answer is accept a little bit less and check a little bit more, which sounds trite, but often it's just a matter of asking one more question or two more questions. If you're seeing a demo for Theranos' Edison machine and they say, okay, we're going to have this machine process this and now you go on your tour and we'll come back and give you the results, asking, did that machine right there actually do that? Direct question. When people were investigating Madoff. They asked a lot of questions. He was investigated repeatedly. People asked a lot of questions, but they could have checked one more thing.

33:34They could have gone and checked whether the bank accounts he mentioned actually had any money in them. They didn't because they took it as truth, right? They had a truth bias. They accepted what he was saying as true. And if somebody's looking to dupe you, they're just going to leave out information. They're going to give you the information they want you to focus on, just like a good magician will and they're going to hide their method by using some other machines in the background that you don't know about i have to say that one of the most interesting stories in the book is something that very few people will pick up i think but is such a great tell about pteranos which is you said that Bill Draper invested his personal money in Ternos, but not his venture capital fund.

34:26Wow. I mean, that kind of explains everything. And I guarantee you when Elizabeth Holmes was out raising money, she was saying Bill Draper has invested with the implication that people would understand that as Bill Draper's fund has invested, which is very different. Yeah, this is a common tactic, actually. It was the same thing that happened with the Knodler Art Gallery, where instead of giving actual provenance for artwork, they instead described what family members of the artists or other experts looked at it, and they gave the description, like, that's a very nice canvas. Or they didn't say, yes, this genuinely was by Rothko.

35:07They say it looks like something from that time period. It's a very nice painting, but attaching the names of those experts to the briefing sheet about the artwork gave the impression that they had been endorsed and verified and vetted when they probably hadn't. And I bet you'll agree with me with this. Terranos is still top of mind. So, Sonny just went to jail. Elizabeth is about to go to jail. But next week, it's going to happen again. There's going to be the same kind of phenomenon, right? And people are going to say, well, Draper's in, aren't you in? And it's going to happen. We just don't learn.

35:46Are we just so stupid? So I think that's the really interesting thing, right? The same scams that have been perpetrated over and over again, they take new costuming. But they're basically the same scams over and over. And they have been for centuries. That's what's so interesting. We hear there are lots of wonderful podcasts about Theranos. There's lots of media coverage of these sorts of scams. We hear about them daily, but for whatever reason, they don't sink in. And I think the reason is that we're not thinking about what leads us to be fooled. And that's really the theme that we're trying to focus on in our book is what allows us to be deceived.

36:21If we understand ourselves better, then we might have a better chance of avoiding falling for those sorts of things. Smart people fall for these scams. These are not people who are clueless or idiots or just unnaturally gullible. most of our listeners for this podcast are not people who will fall for the Nigerian email scam. You're not going to believe that if you just give somebody a little bit of money from your bank account, they're suddenly going to give you treasure from their lost fortune. That's not believable. But we are going to buy, hey, this new tech startup has a technology that nobody has gotten to work before.

36:52It seems really promising. I've got a really charismatic leader who's great at selling it. You're going to take what they're saying as true because more often than not, when people are pitching their products and they say they can do something, they probably can. It's the cases where they really can't that you get into a lot of trouble. If the premise is that your mind focuses on the cases that are visible and at hand, e.g. Zuckerberg, Gates and Jobs don't have college degrees, became trillionaires. The case at hand now is Theranos. so wouldn't our minds default to what's most obvious in front of our faces right now and we're all hyper skeptical or do you think people want to believe the positive stuff i think there's a mix there is a range of how much people are willing to believe and how open they are to new ideas so people differ in that i probably am on the high skeptical end of the spectrum at this point having read a lot of this stuff a lot of people are much more trusting and believing that This is the next great thing.

37:57And people are optimistic. So yeah, we know that Theranos went down in flames. But if another founder comes to you and has a different product in a different area and says, hey, I have this new idea. I think this is really going to work. You're not going to initially assume that they're Theranos. You're going to want to evaluate them. And if Steve Jobs came to you and said, hey, I'm going to make this new computer that's going to be easier to use and everybody's going to love it. If he did that now, would you assume that he's doing what Elizabeth Holmes did? Probably not. There are a lot fewer frauds out there than there are genuine companies.

38:32There are a lot of companies that skirt the edges of it, but the genuine frauds are probably still pretty rare, even though they're in the media a lot. Up next on Remarkable People. We don't think about how noisy most human performance is, most financial performance is. It should be up and down a lot. Even within a day, stock values vary a lot. That's what we expect. If everything is constantly stable, you're always getting the same return, that should be a red flag. In science, it is. If you expect two groups to always be the same and you run 20 studies and every single time they're exactly the same, that's almost certainly fraud.

39:14Become a little more remarkable with each episode of Remarkable People. It's found on Apple Podcasts or wherever you listen to your favorite shows. You're listening to Remarkable People with Guy Kawasaki. Are you a wait, wait, don't tell me fan? You're in Chicago. You must be, right? I'm in Champaign, but yes, I'm a big fan. Okay. Peter Sagal has been on this show and I said, Peter, do you like get up every morning and you thank God for the GOP? Because how hard can it be to get material? Jewish lasers, just everything, right? So I just want to know, do social scientists like you, do you get up in the morning and say, oh, God, thank you for making crypto?

39:56Because now we have so much to study and we can look at all the frauds and all that. I mean, I miss tulip mania, God, but thank you for crypto. So what's your analysis of crypto? So unfortunately, there's no shortage of these sorts of overhyped, impossible success stories. The idea that there are, I mean, we literally watch the news now and we keep a list of, you know, OK, here's a new fraud today. It's not a rare thing to hear about these sorts of things. Crypto is an interesting case because it does bring together a lot of the same sorts of tendencies. There's this sort of hope for something that's radically different, that is somehow going to be much new and improved and better.

40:41They're testimonials from celebrities, which is not necessarily who you'd want to listen to for investing advice. I mean, I don't really care what Tom Brady thinks about cryptocurrency. Why should I? So that's a standard hallmark of something that's not necessarily grounded. Good companies use testimonials too, but it's something you should be wary of. So you've got this completely new sort of approach to currencies that is not well regulated, that isn't as stable as what we know of for, it doesn't have the sort of protections in place that banks do. Could it be something that's really useful?

41:16Yeah, maybe. There's a lot more risk there. So you should be asking, as just a person with not a huge amount of money, you should be asking, is this a smart move? Is this something that is a get-rich-quick scheme? Or is it something that is a safe, long-term investment? And how would I know? That's asking that next question. How would I know if this was safe? What would I do? You can do a pre-mortem. What would I do if this turned out to be a fraud? Would I be okay still? And if you treat it like, hey, I'm going to go play the roulette wheel or backgammon, it's like, okay, I know I probably will lose because the casinos generally win.

41:51It's a gamble. So you can anticipate that in advance. So you wouldn't want to bet more than you can afford to lose. Think about an investment like crypto. At any investment, would it make sense to make this investment without checking out what would happen if you just lost everything, which could happen. It's the same thing if you were investing in a money manager. If you're dumping your money into a mutual fund at Vanguard, for example, that's a giant company. It's probably pretty stable. You know how they're running it. You probably don't have to do a ton of vetting to make sure that Vanguard isn't a fraud.

42:21There's enough regulation in place that you know it's probably just fine. If you're investing in a buddy's friend who is a money manager, you probably want to check them out a lot more thoroughly than you would that mutual fund, that index fund, because you don't know. But a few years ago, wouldn't you say that Barry Madoff was just as vetted as Vanguard? Yeah, Bernie Madoff was a really interesting case because he was so credentialed. He was a former head of the NASDAQ, right? I mean, this is somebody who was really well known for a long time. And there were things you could see that you could ask questions about.

43:00There were good investors who saw what he was doing and said, yeah, I'm not going there. The consistency of his returns from year to year were impossible. You can't get 8 % to 14 % every year for 25 years. Nothing does. But people didn't question that because they weren't probably looking at it that way. He also capitalized on familiarity, one of these sort of information tendencies. We tend to like things that are familiar. He targeted his own community, people who knew him, people who trusted him, which is a common tendency for these sorts of frauds now. He had remarkably consistent results, which is what people wanted.

43:35What was interesting about Madoff, though, is his was a new kind of Ponzi scheme. He really developed this new, the Madoff scheme. Normally, you think of a Ponzi scheme as, hey, I'm going to give you 80 % returns guaranteed, no risk of loss. He never did that. In fact, he underperformed the S &P for his fraud. but he didn't have any huge swings. So he was a safe, low risk investment. People treated it as getting 8 % with almost no risk. And that was really appealing to people. I think this is an important message to highlight that what you're saying is counterintuitive in that the consistency of Madoff is a bad sign.

44:21Just like if it's in a data set and everything's consistent, something is wrong. There should be inconsistencies, right? We think about noise in the sense of being a bad thing. If it's not cleaned up, you're not getting the information that you want to get because it's noisy and messy. But for most things, we undervalue noise. Noise is what we should expect. So you don't always expect – let's take baseball. I don't know if you're a baseball fan, but if you take baseball, we don't always expect the best team to win in a one-game match. It just doesn't happen. Sometimes the best team loses. Sometimes the best team loses in a seven-game match.

44:58And that's not unusual because there's variability there. A batter who is a 300 hitter doesn't get three out of every 10 at-bats, doesn't get three hits out of every 10 at-bats. A free-throw shooter in basketball who's an 80 % free-throw shooter isn't going to make eight out of every 10. Sometimes they'll make four out of 10. sometimes they'll make 10 out of 10, but they're not going to consistently every single 10 throws make eight baskets. We don't think about how noisy most human performance is, most financial performance is. It should be up and down a lot. Even within a day, stock values vary a lot.

45:33That's what we expect. If everything is constantly stable and you're always getting the same return, that should be a red flag. In science, it is. If you expect two groups to always be the same and you run 20 studies and every single time they're exactly the same, that's almost certainly fraud. Because just randomly flipping a coin, even if they are the same, you shouldn't expect them to always end up exactly equal. They'll vary. Sometimes one group will be debating better. Sometimes another group will do better. And we don't tend to like that sort of thing. So if you see somebody who gives you the same results every time, it's like, wow, that's consistent.

46:09That's great. You're like, no, no, that's worrisome. but now like what if i'm cmo of vanguard or cmo of schwab or whatever all my literature says year after year consistently we return above the smp are you saying that you're shooting yourself in the foot or most people are dumb and they're going to think that's a good thing well no that might be that might be fine so on average do they do better than the smp that's informative over a long haul. But on average, it's different from every time. So if every single year, they're 1 % better than the S &P, that's strange, because you wouldn't expect that.

46:50Sometimes they'll be 5 % better. Sometimes they'll be a little worse. But on average, they might do better. The problem is when we confuse that on average, this is a better investment with every single year, it's going to be better by the same amount. Yeah. It seems to me that Donald Trump and the Republican Party has blown the Overton window wide open. It's not a window anymore. It's a full patio deck wide open. We have to explain what the Overton window is. So do you think when an Overton window expands like this, does it change people's perception so that they don't notice stuff anymore? So my congressman is a pedophile.

47:31No big deal. that's okay these days. It's worrisome when sort of the baseline changes like this. It is kind of a moving goalpost thing for what should be the appropriate standard for being critical. And yeah, it's really hard when people lie with impunity, get away with it, and then get more and more extreme. It makes it harder and harder to recognize when something is important or not. And authoritarians throughout history have known this, that you throw enough muck into the system, people don't know what's true and what's not anymore. And the reason for constantly upping the ante and telling lies isn't so much to get people to believe those, it's to get people to distrust in general.

48:12And that's a real problem. There's a lot of research on attempting to counter misinformation, but the volume is pretty high right now. And it's hard to think about how to do that correctly. I think of that sort of different than the sort of scams and deceit that we're talking about in our book, where I think in a lot of these cases, it's knowingly just throwing nonsense out there and seeing what sticks, as opposed to trying to persuade one individual that they should go ahead and do something that they don't want to do. It's more just throwing out mass confusion. So if the Democratic Party called you up and said, Dan, help me out here, what do we do?

48:47What would your advice be? I have no idea. It's a really difficult problem. And I should mention there are people who scam other people on both sides of the spectrum, But the misinformation these days seems to be coming from one subset of the population more. It's a hard problem. I mean, we're seeing that right now with the debt ceiling negotiations. And when one side is willing to shoot the hostage, it makes negotiating really hard. So to give you a break, this is the hardest question of all. So hearing all of this. This is the break? Yeah, this is the break. I think people listening to this, in a sense, the bottom line question is, how do you balance accepting versus checking?

49:37Because you cannot check everything and you cannot accept everything. So how do you balance? And that's the real challenge is that you can't go through life distrusting everybody, assuming everybody's lying to you, being a perma skeptic about everything. It just doesn't work. You can't go to the grocery store, well, you could, but it wouldn't be very productive, to go to the grocery store and cross-check every price on your receipt with the price that was listed on the sign. You could do it, but it's probably not a good idea. You could then say, okay, well, should I trust that this product that claims that it's organic isn't or is?

50:12So do I need to go to the farm and investigate what fertilizers they're using on their crops? No, of course not. At some point, you could go down every rabbit hole and you'd never do anything. We have to believe that other people are being truthful at least some of the time. So I think the real challenge is setting that balance. And I think that's why that's the hardest question. How do you set this balance between checking more and asking more questions versus let's let it go? I think everybody's going to set that a little bit differently. So some people are going to be really risk averse. They're going to want to make sure every time.

50:44If you're the sort of person who, if you're buying a new computer, if you're the sort of person who spends hours checking out every single feature of all of the different options before just making a decision about what to buy. You're probably going to be the sort of person who checks more. If you're the sort of person who says, yeah, they're kind of the same, I'll just buy it, then you're probably going to check less. But the key is thinking about when are the times when you're at the greatest risk? When are the times when it would be catastrophic to be deceived? Investments are an obvious case.

51:14If you're putting a lot of your money into something and you don't want to lose that money, it makes sense to be much more careful. If you're an art collector, it makes sense to be really careful in checking out the provenance of the art you're trying to buy if you're buying expensive art. The reason is that if somebody were trying to scam you, if somebody were trying to pass off a forgery, it is worth that scammers' while to spend a lot of time setting up fake information because they sell one piece of art for a million dollars if they have to spend a year or two setting up fake provenance for that painting, they make money.

51:54All they have to do is sell that one. So thinking about it from the scammers perspective, what would they need to do in order to make this worth it to them? If it's worth it to them, you need to check more carefully. So if a company is trying to get huge amounts of venture capital, it makes sense for those VCs to investigate very carefully. And most of them do, because you don't want to invest in something that might be a fraud because you could lose a lot of money that way. So thinking about it in terms of what would be the risk to me if I were wrong and then how much would the scammer stand to benefit if they were scamming me.

52:31Those two things together end up kind of helping you come to some sort of a balance. I'm not going to worry too much about things that I could afford to lose. I'm going to worry a lot more about things that could affect my future. I don't want to burst a bubble of yours regarding venture capitalists, but I think you're giving them way too much credit. The due diligence they do is not that great. And it's not that thorough. And I also believe that most venture capitalists, they make a decision about a company in the first minute of the pitch. This is way before some associate is cranking spreadsheets.

53:13And my explanation is that the fear of losing somebody else's money is much less than the fear of missing out on the next unicorn. One of the real challenges is what counts as due diligence. We actually talk about in the book that due diligence is one of those buzzwords that often means nothing at all. So when a company says, oh, yeah, we're using best practices, what are your best practices? What are they? If you're doing due diligence and somebody says, oh, yeah, we did our due diligence about this company, you can ask them, what did you do? What did you actually do? And if it was, I listened to a one-minute pitch, that's not very compelling.

53:55So this is one of those cases where asking another question really helps. If you trust that somebody is doing their diligence, they should be able to tell you exactly what they did. It's a classic case of, as a consumer, as somebody who's interacting with them, you want them to show you, not tell you. It's a standard writing principle, show, don't tell. You want them to show you what their diligence was. You want to show that they are using best practices. You want them to define what those best practices are. And it shouldn't be a huge imposition to ask them. So you're saying that George Shultz and Tom Brady invested is not enough due diligence probably, huh?

54:32Probably not. No. We find it compelling though, because they're familiar people. Having generals on a board is not necessarily a great predictor of how good a company it is.

54:45I hope you enjoyed this episode with Dan Simons. Please tell me that you're always going to be wondering what's missing, and you will create possibility grids to ensure that you think of everything that could be missing. Dan has dedicated his career to uncovering the mysteries of human perception and attention. And we are fortunate that he did. Now go watch the gorilla videos and see if you notice everything that happens. And order his new book, Nobody's Fool, Why We Get Taken In and What We Can Do About It. I'm Guy Kawasaki. This is Remarkable People. My thanks to Peg Fitzpatrick, Jeff C., Shannon Hernandez, Alexis Nishimura, Luis, Broken Finbox Magana, and the drop-in queen of all of Santa Cruz, Madison Nismar.

55:47Until next time, paddle out, turn and burn, and catch the wave that makes you remarkable. Mahalo and aloha.

56:02This is Remarkable People.