Psychology

Why Do Some People Commit Fraud? Psychologists Say It’s Complicated

If you’ve read any news in the past five years, chances are you’ve seen at least one story about a high-profile scam. In 2015, The Wall Street Journal published a bombshell expose on the blood testing company Theranos, alleging that its CEO Elizabeth Holmes had made inaccurate claims about the company’s testing devices. (Before it dissolved, the company had denied this and settled charges with the SEC without making an admission of wrongdoing. Holmes pled not guilty to wire fraud charges in 2018 and is currently awaiting trial.) In 2017, news broke that Fyre Festival, a much-hyped luxury music experience promoted by A-list influencers like Kendall Jenner, was a massive failure. CEO Billy McFarland later pled guilty to defrauding his investors and was sentenced to six years in federal prison in 2018.

Scammers have infected seemingly every industry, from Silicon Valley to Wall Street and beyond. But what drives a scammer to commit fraud in the first place?

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Elizabeth Holmes, founder and chief executive officer of Theranos Inc., speaks during the 2015 Fortune Global Forum in 2015. Photographer: David Paul Morris/Bloomberg

© 2015 BLOOMBERG FINANCE LP

According to Dr. Thomas Plante, psychology professor at Stanford and Santa Clara University, scammers have a few different motivations.

The first is narcissism: “Basically, the thinking is that ‘I’m important and the rules just don’t apply to me,’” says Plante. “[These scammers] do and take what they please and find a way to justify it given their superiority, importance, or desire.”

In an interview with Laura Ingraham about the USC college admissions scams, celebrity psychiatrist Dr. Drew Pinsky named parental narcissism as a contributing factor. “We’ve had a narcissistic turn in this country for the past thirty to fifty years,” Pinsky said on the show. “And if you’re a parent, your child is an extension of you and you cannot stand to see them uncomfortable. You have to save them from every discomfort. Their achievements are your achievements and you have to make sure that they achieve,” Pinsky said.

Other scammers, Plante says, have antisocial tendencies, like sociopathy, that drive their behavior. In this case, scammers believe that not only do societal rules not apply to them, they also have no empathy for other people. “They feel like if folks are cheated, then it’s their own fault. Their interests are what matters, regardless of the consequences for others,” says Plante.

But for other scammers, it’s not so cut and dry.

“Some scammers make a small compromise or act unethically in a way that isn’t much of a big deal, no one really cares or notices, and they get away with it,” Plante says. “So they do it again and perhaps try a larger or more significant scam. Before you know it, they’re caught in a big scam, and people finally notice.” The most notable example of this is Bernie Madoff, former NASDAQ chairman who stole millions from his clients in an decades-long Ponzi scheme. Madoff, who started off as a legitimate investment broker in the 1960s, started falsifying his returns in the early 1990s, supposedly “too afraid” to tell his clients that they lost money in the stock market. Madoff continued to lie for the next eighteen years until the scam fell apart in 2008.

But paradoxically, some people scam because they believe what they’re doing is actually ethical. Toby Groves, for instance, was a mortgage broker who pled guilty in 2008 to defrauding financial institutions. To get a loan for his company, Groves falsified his income to say that his agency made much more than it really did. Groves knew what he was doing was unethical – but the bigger issue, in his mind, was saving his company and the jobs of his employees. This is called “bounded ethicality” – when we can convince ourselves to do unethical things depending on the way something is framed. Lying on a loan application is obviously unethical – but doing it to save a company can make the decision seem less so.

This might explain why Elizabeth Holmes – who said repeatedly that she wanted to “make a difference” with her blood-testing company, Theranos – allegedly lied about the company’s revenue and the capabilities of its blood-testing devices: It may be that, like many other scammers, Holmes believed deeply in the mission of her work, and was willing to lie to make it happen.

[“source=forbes”]