Good lessons from bad persuasion

Every swindle is driven by a desire for easy money; it’s the one thing the swindler and the swindled have in common.
— Mitchell Zuckoff

On my desk is a book called Catastrophe. The subtitle of the book: The story of Bernard L. Madoff, the man who swindled the world. In case you don’t know who he is, he was a respected fund manager and former chairman of NASDAQ who was arrested by the FBI for the “white-collar crime of the century”: swindling investors out of US$50 billion.

The Wall Street Journal recorded some of the biggest losers:

Plenty of organisations in the 128 biggest losers should have known better. 27 banks lost US $10,603 million, 17 insurers lost US $ 198 million and 16 Investment Managers lost US $ 718 million.

How could so many professionals—who should have known better—be seduced into investing. Madoff was arrested in December 2008. Interestingly in November 2005, an investment analyst, Harry Markopolos sent a letter to the regulators listing 29 Red Flags that suggested Madoff was doing something illegal. Markopolos had reported concerns to the regulators as early as 2000. In essence, Markopolos argued that Madoff’s performance was too good to be true. So, how could so many professional investors and regulators be fooled, and for so long?

Robert Cialdini has been researching persuasion for decades and has written about six principle of influence. Two of these principles help to reduce uncertainty when you are trying to persuade someone: Authority and Social Proof.

Let’s look at Authority first. People tend to be persuaded by others who are seen as an authority or experts in their field. Bernie Madoff was formerly chairman of NASDAQ a large securities market place established in 1971. He had been one of the first US members of the London Stock Exchange and he was a founding member of the International Securities Clearing Corporation, London. Adding to his authority, his brother Peter had also been a member of various boards including the Securities Institute Association and had worked with Bernie at Madoff Securities. So, from most people’s perspective he was an authority in investing. His pitch was that he had a secret method to get better investment returns. His background certainly had the authority to support his persuasion.

Next is Social Proof. People tend to be persuaded to do things that others are already doing. People who invested with Madoff were well respected and trusted in their communities. So, when those respected members of the community were asked to recommend someone to manage their money, they recommended Madoff.

Imagine you were considering investing and were told 27 banks, 17 insurers and 16 Investment Managers were already investing. Most people would think, if it’s good enough for them then its good enough for me too. This is a combination of Social Proof and some Authority. We would all assume those banks and insurance companies were experts in investing.

So, using Authority and social proof helped Madoff persuade people. We would never recommend using tools of persuasion for unethical purposes. The Madoff story shows the power of these principles to persuade people effectively.

Assuming you want to ethically persuade people to do something, how can you use these tools in business? For authority, include details of your expertise and experience in any written persuasion. When presenting face to face, have someone else introduce you and tell the audience about your experience and expertise. Why someone else and not you? Because it’s more credible when someone else talks about your expertise.

For social proof, talk about other customers or other organisations who are already doing what you are asking your audience to do. Rather than listing organisations, use their logos because your audience will recognise these faster than they can read the names. Also, if it’s possible have a video of one of these other customers talking. Best of all have someone from one of these customers in the room as you try to persuade the audience. If you could have more than one other customer in the room that is the best of all.

These may seem like simple things, but we are surprised how often they are missed. So learn the good lessons from this bad persuasion.  Every audience asks at least two questions:

1.    Why should I be persuaded by THIS person? Answer this by having someone show your authority: expertise and experience.

2.    Who else is doing what you want me to do? Answer this by showing social proof: name other organisations in your persuasion. Better still have someone from these organisations in the room.

Watch this video about Madoff