Bernie Madoff used many of the principles in Cialdiniâ€™s book Influence: The Psychology of Persuasion to persuade investors to willing hand over nearly $50 billion dollars in one of the biggest Ponzi Schemes ever seen in the United States. He used behavioral psychology to influence people and his manipulation of others yielded huge returns for decades.
Madoff helped to create the NASDQ and served as its chairman. Madoff had also been in the investment business since 1960. All these credentials hung on Madoffâ€™s wall so to speak for all to see. People were naturally impressed. This is what is known as the Authority principle. This principle is credentialed based and Madoff was seen as an expert. People jumped at the chance to do business with him. The everyone believes/trusts an expert mentality was one of the regularly used items in Madoffâ€™s bag of tricks.
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Many of his investors genuinely like Madoff and felt that he was doing them a favor by letting them in on the investment opportunity of a lifetime. This led to what is known as the Reciprocity Principle. Many of his investors felt inclined to tell their colleagues about their investments with Madoff. These colleagues would eventually end up investing with Madoff as well. Because of these principles the Social Proof Principle followed suit. Investors that were paid dividends from the new investments spoke of their positive experiences with Madoffâ€™s firm. Madoffâ€™s name was a household name amongst the rich and famous. These testimonials from investors lured in even more people and this enabled the money train to continue to operate which is imperative part of any Ponzi scheme.
Another Principle that Madoff used quite well was Scarcity. Investors had to be invited into this â€œGood Ole Boyâ€ club. Madoff used this exclusivity to entice unsuspecting investors. It was framed as a limited time offer and if the investor did not invest immediately, they may not have the opportunity to invest again. Madoff and his employees, which were mostly family members by the way, often presented investments as windows of opportunity that were open for a short time period and if the investor do not act soon that window would be slammed shut. This made many people to want in. Investorsâ€™ eagerness to join let their guard down and basically any caution that they would normally have was nonexistent.
Madoff was an extremely intelligent man and had he used these principles for the good, he could have easily been a success. The house of cards that Madoff built was destined to fall, because he used Cialdiniâ€™s principles dishonestly and manipulated others. As Cialdini points out, if these principles are used to motivate and inspire people honestly and openly they can be a powerful tool in making agreements, creating new business ventures and successful businesses.