How I was almost suckered into a pyramid scheme

March 10, 2015 | Kara Lilly Print

“Just because something isn’t a lie does not mean it isn’t deceptive. A liar knows that he is a liar, but one who speaks mere portions of truth in order to deceive is a craftsman of destruction.” Criss Jami

There was a buzz in the air as hundreds of “suits” started to take their seats. My friend escorted us to the seats she had saved for us in the fifth row. Shortly thereafter, a man and a woman took to the stage and were met with an enthusiastic standing ovation. Unusual, I thought, but I shrugged it off and proceeded to rise and clap as is the social custom.

By all accounts, this was not my usual Friday night. I had agreed to attend a “leadership seminar” because my friend Linda (name has been changed) had invited me and I respected her. A young woman whom I had met a while ago at a coffee shop, Linda seemed authentic and cool, and I was willing to invest time with her even if her description of this event was vague.

So there we were, 800 professionally dressed individuals applauding the young man on the stage. He was charming, funny and had the kind of all-American good looks that make women swoon and men want to be him. He began a passionate talk about values, creating passive streams of income and raising up your game in life. It was easy to agree with what he was saying. And apparently he was striking a chord with the audience, as many of them began randomly shouting out “YES!” and “AMEN!”

After about twenty minutes, I couldn’t escape the nagging feeling that something was off. It was then that I realized I had never paid for my ticket – Linda had.

What was she getting out of this?

Why were they putting this event on?

And wait – how did I meet her again? Wasn’t the coffee shop the same place she had met the two other guests that she had brought along?

I groaned as I realized I was most certainly on some sort of ride. It only remained to be seen whether I was going to be asked to part of a pyramid scheme or a cult. I glanced around the room. Everyone seemed to be smiling and nodding vigorously. Except the guy to my left; he looked like he might throw up. I felt his pain.

Finally, the charming man on stage concluded his speech by presenting the real reason we were there: to be invited to be part of an online product marketing program – in other words, a giant pyramid scheme. In this business model each “associate” could make money either by selling products online or by bringing other associates into the network. Yet it was obvious from the math that material financial success depended on whether new people entered the pyramid. Again, I looked around the room. Most of the audience remained spellbound.

How Charlatans Deceive You

That Friday night was an important lesson for me. I know Ponzi and pyramid schemes are fairly common but I thought they were something that would never impact anyone I knew. As far as I was concerned, only fools bought snake oil. Yet there I was in the midst of one big ruse, watching hundreds of people be taken in by a man who, as far as I could discern, had nothing of value to say. And most of the people in the audience appeared intelligent.

This got me thinking. What makes people like this so effective? How is it that smart people routinely lose their life savings to hucksters? How can we identify their strategies in advance so that we don’t fall into these traps?

While I don’t have all the answers, the presenter at this event used many classic emotional-manipulation techniques discussed by Robert Cialdini in his book, Influence: Science and Practice.

Tactics the speaker used to build trust:

1. He established his authority up front.

Even before the speaker stepped on stage, an emcee introduced him as a millionaire who had become rich through this program. The audience listened because they saw him as a trusted authority.

But people at the top of a pyramid scheme are going to be successful…for a while. Their success is more a product of when they joined the pyramid than any meaningful contributions to society.

2. He tapped into unmet desires.

The speaker did this by asking questions to which most of the audience would agree.

Who is frustrated by a job they dislike? Who wants to spend more time with their family? Who would like to worry less about money and have some passive income?

Of course, the speaker selected questions to which many would naturally answer “yes.” This was his genius. As the audience kept answering in the affirmative, they focused more and more on their unmet needs, and went deeper down the rabbit hole of dissatisfaction and delusion. Once they were effectively in his back pocket, the speaker’s next step was simple: show them a better life that appears easily attainable.

3. He leveraged social proof.

Perhaps the best strategy employed at the event was utilizing social proof, or the human tendency to look to what other people think in order to ascertain what is correct. Not only was everyone there because of someone else, they all stayed because of these relationships. I will admit that I stayed for two and a half hours because I was sensitive to how Linda might feel if I left early from the fifth row. Remarkably, not one person left early throughout the entire presentation.

4. He disarmed skepticism with humour and acknowledgment.

One of the presenter’s greatest skills was his ability to disarm the audience’s natural skepticism through humour and well-timed interjections of empathy. Multiple times throughout the presentation, the speaker would endear the audience to him by saying something funny. He would then follow this up with the acknowledgement that we didn’t have to agree with him – we merely had to be open to new ideas and “be brave enough to have faith.”

5. He was likeable and good looking.

One of the presenter’s advantages was that he was both good looking and likeable. What person doesn’t like a values-based dad who builds his kids ice hockey rinks in their backyard?

Final Thoughts

While it would be rewarding to ship all the charlatans in the world off to an island and forget about them, society allows for no such recourse. Governments have historically been unable to keep up with the various ways these individuals have misguided others which is part of the reason financial frauds and miscreants remain prevalent. Unfortunately, we cannot afford to place sole responsibility on our public leaders’ shoulders. Individuals must foster a skeptical mindset in order to detect deception.

It would be remiss of me, however, to leave on that note. Because while our team fundamentally believes that skepticism is a useful trait in investing and in life, we still get very frustrated at the number of shysters out there.

After the presentation, I mused on the nature of my own vexation. It was not the wasting of time that irked me the most; it was the blatant misguiding of people. The vast majority of the audience appeared to be young, impressionable individuals – many of whom, I’m sure, could amount to much more in life than being the next layer in a pyramid.


Comments

  • David Sovie 10/03/2015 7:08pm (5 years ago)

    I really appreciate Kara Lilly's mind and articles. I watched a YouTube TED talk that reminded me of the kind of mind she might have. It is called "What does wrong feel like" It is done by a young graduate woman whose name I forget. The blurb is about 17 minutes long. Perhaps she can find it.
    Any way it is reassuring to know that Mawer is staffed by such high calibre people such as Kara.

  • Cliff Hrankowski 13/11/2015 6:00pm (4 years ago)

    My first exposure to a pyramid scheme was being a paper boy . It was a five year investment of time and extreme energy delivering 25 papers each night from one end of a small town in Manitoba to another. The winters were brutal . I call those 5 years my MBA years . I learned more from walking through snowdrifts contemplating the merits and deficiencies of my business plan. Commitment to my customers was paramount . Reputation was everything. I was developing a formula for success . So why do I call this little business a pyramid scheme. It forced me at a very young age to think critically. To question motives and to not easily be taken in by the pleasant words of others. "SNOWDRIFTS" more than frozen water.

Join the Discussion

Stay Curious

Subscribe to receive our latest insights and quarterly updates.


Popular Posts

Playing the plan: Mawer’s Canadian equity portfolio | EP49

Investing: The infinite game

Technical debt | EP48

Columbia Business School interviews Mawer CIO


Categories

(Not) Boring Links

Business Models

Investment Approach

Mental Models

Risk

This blog and its contents are for informational purposes only. Information relating to investment approaches or individual investments should not be construed as advice or endorsement. Any views expressed in this blog were prepared based upon the information available at the time and are subject to change. All information is subject to possible correction. In no event shall Mawer Investment Management Ltd. be liable for any damages arising out of, or in any way connected with, the use or inability to use this blog appropriately.

Stay curious

Subscribe to receive our latest insights and quarterly updates.