How could people like Sam Bankman-Fried and Elizabeth Holmes manage to fool the world?
Venture capitalists & investors with solid backgrounds and deep experiences failed in hearing the tocsins. Were they looking at the numbers or were they blinded by something else? Are our intellectual vices keeping us from seeing things clearly?
‘Theranos’ was founded by Elizabeth Holmes, a Stanford chemical engineering dropout. The company claimed to have created a machine called “Edison” which was supposedly capable of running a multitude of tests from diabetes to liver dysfunction to cancer, from just a few drops of blood. The ‘technology’ was believed to be a ‘disruptive innovation’ and could revolutionize the healthcare industry.
In 2014, Theranos was valued at over $9 bn. Holmes was “the world’s youngest self-made female billionaire”, as mentioned in Forbes magazine.
But in 2015, there were doubts about the technology and if it worked at all or not. Within a year, Holmes was exposed as a fraudster. Last week, Holmes was charged with fraud and now faces over 11 years in prison.
A similar story surfaced a few days ago.
Sam Bankman-Fried, a Physics graduate from MIT was 26 when he co-founded FTX; a cryptocurrency exchange. By 2021, it had over one million users and was the third-largest cryptocurrency exchange by volume. Some of the companies that invested in FTX are — Sequoia Capita, Temasek, and BlackRock. The valuation of the company had reached $32 billion.
Sam Bankman-Fried known as SBF, was considered the ‘Golden Boy’of Crypto world until recently. Last week, the exchange of FTX collapsed shocking everyone in the crypto world. Investigations by the Securities and Exchange Commission and the Justice Department have begun.
Why was so much investment pouring in? Did none of the investors ask the right questions? Did nobody check if the technology actually worked or not? Was due diligence done? Why were the red flags ignored?
What were these investors thinking? Seems, investors fell prey to something known as ‘Intellectual Vices’. These vices might have overpowered their decision-making in both of the above cases here. Let’s understand the meaning of ‘intellectual vices’.
As per Cambridge Dictionary, the meaning of both terms:
Intellectual: relating to your ability to think and understand things, especially complicated ideas
Vice: a moral fault or weakness in someone’s character
‘Intellectual vices are character traits, thinking styles, or attitudes. Closed-mindedness is a character trait, wishful thinking is a thinking style, and prejudice is an attitude.’- Quassim Cassam
Quassim Cassam is is professor of philosophy at the University of Warwick and had published a book called — Vices of the Mind: From the Intellectual to the Political. Based on his book, he explains the ‘vices’ with an example of the famous case of the 1973 Yom Kippur war.
‘In 1973, Israeli intelligence was starting to receive multiple reports of military preparations by the Egyptians and Syrians to attack Israel. The Director of Military Intelligence in Israel was someone who very strongly believed that Arabs would not attack. And therefore, any evidence indicating that they were about to attack, was dismissed.
what happened was, that they did attack! They attacked on Yom Kippur in that year, and because no serious preparations had been made on the Israeli side, the initial phase of that war went very badly for Israel.
Well, what’s the vice here? Well, the vice that we’re talking about in that case is closed-mindedness. The Director of Military Intelligence froze on the idea that Israel would not be attacked at that time. Having fixed on that idea, his mind was really closed to all alternative perspectives. So, that’s really close-mindedness where you are simply not willing to give serious consideration to other points of view, to other perspectives’.
In the cases of Elizabeth Holmes and Sam Bankman-Fried, things start to resemble the behavior of Director of Military Intelligence in Israel. The Director dismissed the evidence, because of the way his ‘thinking style’ or ‘character trait’.
Our investors, who were so experienced and experts in the field, had all the resources, knowledge, and wherewithal to investigate, but failed in their judgments. That too about two novices in their 20s!
Well looks like, there was a problem with their ‘thinking style’, or ‘character trait’. Though not sure which intellectual vice it was, it seems, there was definitely one! Perhaps it was the ‘overconfidence’, or again ‘closed-mindedness’ (just like our Director of Military Intelligence in Israel), or even ‘carelessness’. The obvious thing could be that they were too excited at the prospects and potential shown by FTX and Theranos and therefore did not want to miss the bus. Maybe, that’s why they skipped clues or failed to hear the warning bells. They were in an absolute hurry and overlooked ‘the signs’, which should have been paid attention to. Then, should we say the intellectual vice was — FOMO (Fear Of Missing Out)?
Don’t know if ‘FOMO’ can be categorized as a vice, but in the ever-changing world we live in, seems like our ‘thinking styles’ are also evolving, and so are our vices. looks like, FOMO deserves a spot on the list of vices. More so, because one of the most intelligent bunch of humans alive (investors, VCs, Investment Bankers) seemed to have been affected by it.
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