How scammers from Bernie Madoff to SBF use our fantasies to manipulate our brains

Our instinctive attraction to aspirations like celebrity and fame, or notoriety and social currency, can cause us to overlook red flags. Even when the truth is right in front of us, hero worship and desire can displace common sense, and we’ll do just about anything to get a slice of that fantasy. We fail to look further into the matter or perform the proper due diligence because we’re blinded to reality. It’s called the “Madoff Effect,” named after the disgraced investment manager Bernie Madoff and his nearly 30-year Ponzi scheme.

There are three elements that constitute the Madoff Effect. The first is a nearly impenetrable goodwill buffer. Madoff had developed such a buffer over the years, a result of the positive associations he accumulated over a stellar career spanning decades. After getting his start in finance in the 1960s, developing relationships with high rollers and influential businesspeople in New York City and Palm Beach, Florida, he built a name for himself helping launch the Nasdaq market and acting as its director for three terms in the early ’90s. Known as reliable and trustworthy, he was chummy with financial regulators, even sitting on Securities and Exchange Commission (SEC) advisory committees. Madoff solidified his reputation in the late 1980s when his brokerage business was one of the few to answer the phone when hundreds of clients wanted their money during the 1987 stock market crash, a day that became known as Black Monday. But Madoff came out looking like a knight in shining armor—pristine. On that day alone, he created such a large goodwill buffer, that no one would ever suspect he was secretly running the world’s biggest Ponzi scheme.

The second element of the Madoff Effect is the combined promise of wealth and celebrity. Madoff wasn’t just a Wall Street darling. He developed a client base that had the air of exclusivity, made up of A-list celebrities and top-rated banking institutions: Steven Spielberg’s Wunderkinder Foundation, Elie Wiesel’s foundation, Mets owner Fred Wilpon, billionaire media mogul Mortimer Zuckerman, the U.K.’s HSBC Holdings, the Royal Bank of Scotland, Nomura Holdings in Japan, and BNP Paribas in France. In time, everyone wanted in, and recognizing the power of fantasy and prestige, Madoff stoked the flames of interest. By using the names of celebrities and respected financial institutions that invested with him, people assumed it must be a smart, safe investment. All Madoff had to do was say “Spielberg put money in my fund” (an obvious verbal Growth Trigger) and investors practically begged him to take their money. And if not every investor in Madoff’s fund could mingle with his celebrity clientele, then at least their money could.

Just like any successful brand, the third element of the Madoff Effect incorporates distinctive brand assets and Growth Triggers. Consistent with his brand, he leveraged DBAs that held associations of wealth, prestige, exclusivity, and success. He moved his offices into the glamorous, iconic Lipstick Building on Third Avenue in Midtown Manhattan and took a seaplane to work from his home in Rye. Elite money managers started telling people they had to invest with Madoff—he’s magic. He was creating extraordinary returns for his clients, only further solidifying his reputation as the wizard of Wall Street.

An outcome of these three elements is that the Madoff Effect targets our inherent FOMO. As Rabbi Leonid Feldman of Temple Emmanuel in Palm Beach explained, “If someone said, ‘I want to invest five million in your fund,’ he would say ‘no no no.’ You had to know somebody who knew somebody who knew somebody to get to invest with him.” People were clamoring to do so. In other words, the Madoff Effect relies in part on the scarcity effect, a cognitive bias that causes us to value something that is in short supply. If something sells out or if somebody tells you someone else wants it, you want it more. There is nothing better than empty shelves to stoke interest.

Although they had received multiple reports implicating Madoff, even the SEC was fooled, thinking he could do no wrong. Meanwhile, $50 billion in assets was going straight into Madoff’s pocket. Perhaps the most tragic part of the Madoff Effect is its ability to hurt innocent people who are caught up in its swirl. Everyday folks who had the “privilege” of investing with Madoff were completely wiped out. For example, seventy-six-year-old former carpet salesperson Arnold Sinkin had invested all of his and his wife’s money with Madoff, around $1 million after fifty-four years on the job. Within forty-eight hours of Madoff’s arrest, the Sinkins’ entire life savings and retirement fund vanished.

It seems that every few years another shocking report of investors getting ripped off comes to light. From Enron in the mid-2000s to the 2022 collapse of the FTX crypto exchange under CEO Sam Bankman-Fried, there are unfortunately too many examples out there. They all say a lot about how our brains work and how the Madoff Effect preys on our unconscious desire for both fame and wealth, a lethal combination. These opportunities are so elevated that they seem like a no-brainer. Our brains instinctively brush aside the need to conduct research and investigation on decisions that really require it. Our fantasies cause us to put people on pedestals, overstate the upside, understate the downside, and forever lure us into the possibility of easy money. So though fantasy can be helpful in creating a large connectome and building your brand, you also need to be aware of its pitfalls.

Like a moth to a flame, we are drawn to aspirational brands and ideas, even if so many of us consciously claim we want reality. Fantasies come in many forms, and our brains welcome them with open arms. Some we look forward to achieving; others may never come to fruition. But that doesn’t stop us from dreaming. Some are as small as having a fresh-smelling home; others as large as becoming unimaginably wealthy. But rest assured, fantasy is not a technique limited to a handful of industries like cosmetics and fashion; it works effectively across all industries, from health care and financial services to television and entertainment. Though the details of aspirations and desires may vary from person to person, our fantasies are remarkably convergent—family togetherness, being appreciated at work, going on an exotic vacation. They all speak to who we want to be, what we want out of life, or what it might be like to do something totally outside our ordinary, everyday experiences.

Because of their high brain utilization and multidimensional connections, fantasies dominate our minds, shutting out everything else. Similarly, by connecting your brand to a fantasy, your connectome grows, shutting competitors out and contributing to an instinctive advantage. But fantasies can also blind us if we’re not careful. They tend to close us off from information we should seek out, such as hard data, proof of performance, and downside risks. By understanding this fact, and how these concepts work, you can recognize when due diligence is necessary, and protect yourself from people who might use fantasy to take advantage of you.

Excerpted from The Power of Instinct by Leslie Zane. Copyright © 2024 by Leslie Zane. Used with permission of Hachette Book Group, Inc. New York, NY. All rights reserved.