The Confidence Game

by Maria Konnikova

  Not only do we get fooled into thinking that just because something is working now, the future will be even better, but we often project our desires onto our estimations of likely success. In other words, we tend to think that what will happen is what we want to happen, especially if the outcome is an important one. It’s Paul Frampton’s near certain calculation that Denise Milani will be his wife, Ralph Raines’s certainty in a happily ever after with his “family,” or Oscar Bergstrom’s calculation that he can steadily give all his money to William Miller and live off the returns that will, of course, never end.

  In 1935, Jerome Frank, a psychologist at Harvard University, asked a group of people to perform three separate tasks, each repeated a number of times. The tasks were simple enough. In one, they would have to print a set of words as quickly as possible; in another, pitch rings onto a stick (a game called quoits); and in a third, manipulate a series of shapes in their heads under time pressure. Each time a participant finished a particular task, Frank would let her know how she’d performed—and would ask her how well she wanted to do on the next go-around. The better she wanted to perform, he found, the better she’d estimate she would, in fact, perform in the future, even when that performance was in no way warranted by her past experience. We want our schemes to succeed, our investments to go well, our love life to flourish, our luck to hold, our health and looks to improve. And we will that desire into being. It’s perfectly understandable—but it’s also how a convincer becomes so convincing, and how a con goes from short to long in a matter of moments. We’re working just as hard to convince ourselves as the confidence man is working to convince us.

  The optimistic illusion applies not only to the con itself; it applies to the con artist. Just as we think, once we’ve tasted the convincer, that everything is on the level, so we believe that just because someone has been trustworthy—or so we believe—up until now, he will continue to be so in the future.

  Victor Lustig was born in Prague in 1890. Early on it became apparent that the child had tremendous linguistic ability; he wasn’t yet out of his teens before he spoke not only Czech but English, German, Italian, and French. It would prove a useful skill: Lustig’s silver tongue became his livelihood. The Count, as he later styled himself, went on to become one of the master confidence men of the early twentieth century. It was he who sold the Eiffel Tower to unwitting investors—not once, but twice—convincing them it was to be destroyed for scrap metal. It was also he who created a famed money box that could make perfect copies of twenty-dollar bills on demand—yours for the low cost of $4,000 (more if you could afford it; one banker was purported to have bought one for $100,000). He’d seed the box’s false bottom with real bills, and almost never failed to make a sale. And it was he who managed to get a sheriff who’d arrested him for fraud to purchase a money box of his own.

  Lustig’s reputation preceded him. It was even enough, when he found himself in Chicago, to gain an audience with the man who ran the whole place, Al Capone. Lustig had, he told the bootlegger, a proposition. If Capone gave him $50,000, he would double his investment within two months. Capone was naturally suspicious, but he also had many a hired gun by his side. “Okay, Count,” he told him. “Double it in sixty days like you said.” Or else, came the implicit threat.

  Lustig was a smart—and cautious—man. He liked to live the fine life, but more than that, he liked to live a life, period. He wasn’t about to invest Capone’s money and risk losing even a penny. That had never been the plan. Instead, he made his way to a safety-deposit box, where he left the full amount, and from there traveled to his home base in New York. Over the next few months, Lustig went about his business, and on the promised day he returned to Capone’s office.

  Eagerly, Capone asked for his doubled return. The Count couldn’t have been more humbled or apologetic. “Please accept my profound regrets,” he told Capone. “I’m sorry to report to you that the plan failed. I failed.” He then reached into his pocket, removed the whole of Capone’s money, and returned it to the gangster. He’d wanted to make it work, truly, he continued. He needed the cash himself. But the plan had fallen through.

  Capone was, for the moment, speechless. He had known Lustig was a flimflammer, he said. And he’d expected either a cool hundred grand, through some shady scheme or other, or zero. But now the Count had shown him another side to his personality, a side he wouldn’t soon forget.

  “My god, you’re honest!” With that, Capone gave Lustig $5,000, to “help him along” in his financial difficulties. That’s all Lustig had ever wanted. Capone was a mighty fine judge of character.

  Each year, Roderick Kramer teaches a class on negotiation at Stanford’s business school. And each time he teaches it, he poses a question: how good are you at judging someone’s trustworthiness? About 95 percent of people, he has repeatedly found, think themselves better than average—and not just any average. The average Stanford business student. Others may not be good judges of character. But the students, well, they can rate not just trustworthiness but reliability, honesty, and fairness. Over three quarters of the class rank themselves in the top quarter on their character-reading ability—and a fifth place themselves firmly in the top 10 percent. We are confident that we can judge how sound of character someone is. And the moment they prove us right, it will take a miracle for them to lose that trust.

  * * *

  The same morning that the Franklin Syndicate hit $1.2 million in investments, November 24, 1889, it hit another landmark: a lead headline in the New York Times—that is, a legitimate article, not one of Miller’s own paid adverts. It ran at a cool three words, exhorting people to no uncertain action: “Desert Miller’s Company.”

  Leading financiers, the story said, were asking questions about the venture: Who was the backer? Where were the deposits being invested? From whence the consistently dazzling returns? Four days earlier, a Franklin Syndicate did indeed apply for incorporation in New Jersey, investigators had found, but none of those concerned knew anything of Miller. “I know nothing of Mr. Miller, of his business affairs, or of the statements contained in the papers as to what he is doing in Brooklyn,” Howard Wood, the secretary of the Corporation Trust of New Jersey, told the press. From there, it only got dicier. “They have no officers; there is no general manager; they could only do business outside New Jersey through a vote of the Board of Directors, which has never met, for the reason that there are no Directors.”

  Miller’s fantastical returns had been catching the eyes of journalists for several months. Even as the syndicate heated up, so, too, did the scrutiny surrounding its investments, its methods, its financial soundness. Repeatedly, reporters had come to Miller’s door, poking, probing, demanding answers and financial statements. The headline of November 24 was the culmination of the effort. And so, that Friday night, as markets shut down for the weekend and subscribers retired for a two-day break, Miller fled north, arriving in Canada before the week was out.

  As Miller was making his way northward, the police were closing in on his operation. Hours after he’d left, they arrived to find the house on Floyd Street bereft of its proprietor. Cecil Leslie, Miller’s public face and press officer, was also nowhere to be seen. Gone was Schlesinger, his partner. The owners, it seemed, had left in a hurry. There was $4,500 just lying there on the table, next to $400 worth of stamped envelopes. There was a large safe, unopened, in the corner. There were some clerks and secretaries, forty-five or so, wandering around in a bewildered haze. They had stuck around for payday: where were their checks?

  That evening, a crowd of thousands—two thousand, according to one account—swarmed the syndicate. They weren’t particularly anxious, merely curious. Past six o’clock, they were making their deposits. Fifty dollars here. A hundred dollars there. True, earlier in the day some had demanded refunds, but the tide had turned. A few loudmouthed men had screamed at the clerks to return their money, promptly received the entire sum, and then sheepishly returned a second time to
ask if it could be re-deposited; they apologized for being hasty and untrusting. Soon, the demands for returns—about a hundred at last count—began to turn into further deposits. And the tide of trust kept rising. “Why, Mr. Miller has never failed us,” said one woman who’d been lingering outside. “He’s always paid dividends. I put in $100 six weeks ago and have taken $60 out. It is these newspapers and bankers that are causing this trouble. Nobody believes the papers,” she continued. “It’s envy. They’d like to make money themselves.” Investing with Miller was the best thing “that ever happened,” affirmed the local druggist H. M. Uhlig.

  A young woman who’d persuaded three of her friends to go in with her on the scheme agreed. She’d come that afternoon with the goal of investing further. She was being a fool, someone warned. She replied confidently, “No, never. Mr. Miller will always do as he says.” At the livery stable around the corner, where all the employees had invested with the syndicate, an elderly German reassured onlookers. “Miller’s all right,” he told the New York Times. “He can have anything he wants in this section. We’d send him to the Legislature, if he wanted to go.” A local tailor, Adolph Breman, had closed his business on the strength of Miller’s dividends—$75 a week for two weeks. He was confident the sums would continue to arrive.

  On Saturday, a crowd of some two to four hundred lingered outside the office. “Closed on Saturday,” read the sign, as it always had. The crowd seemed reassured. After all, Mr. Miller never came in on Saturdays. Why today? Mrs. Charlton, a Brooklyn sweatshop worker who toiled twelve hours a day for fifty-six cents, anxiously surveyed the crowd. Just two weeks earlier, she had put $160—her entire life savings—in Mr. Miller’s keeping. She’d received $32 back—dividends for two weeks. Would her money be lost? she anxiously asked the gathered onlookers. No, they told her. It was all a plot against “poor Mr. Miller.” Reassured, she went on her way.

  As the afternoon wore on, more investors arrived. There was Carl Preuss, a cripple, who proudly displayed his receipt for $450 from the day before. He wasn’t anxious—no, sir. He was just seeing what all the hubbub was about. And he’d be back early Monday—you could count on it—to receive his first week’s dividend. There was an equally confident H. D. Strunk (investment: $500). He was a grocer from down the road, and Mr. Miller had always been as good as his word. There was the confectioner, Frank Weinstein, who’d invested $50 and had, just the day before, convinced his cousin that this was the safest place by far for his $200. There was the delicatessen dealer, August Weber, so confident in Miller’s returns that he’d also secured investments from his wife and mother-in-law. So large was his deposit that he refused to divulge it, as those around him had so proudly done. “That’s none of your business,” he retorted. “But I tell you that if Mr. Miller wants $500 from me on Monday, he can have it.”

  And there was Miss Wolford, there to deposit another $50, to double her account and returns both. She wasn’t much of a reader of papers. Mr. Miller, fled and unable to take her money? Nonsense. She wouldn’t hear of it.

  It wasn’t just the locals, either. Policemen, firemen, detectives, mailmen: all had, up until the last, received dividends from Miller. “If the officers are not afraid,” chanced someone in the crowd, “why should we be?”

  On Monday morning, when the anxious account holders gathered to receive their funds, they found the house taken over by the police.

  And yet, even now they didn’t panic. So strong was Miller’s pull—and their optimism, born out of experience and necessity—that they maintained a quasi-religious faith in his return. It would all prove to be a misunderstanding. Tradesmen, neighborhood housewives, members of his church: all crowded Floyd Street, but only to be there when he returned. It was the newspapers, they repeated, that were the true culprits. They had cast such deep, unfounded aspersions that of course Miller was forced to flee. “It seemed yesterday as if the majority of the crowd gathered in front of 144 Floyd Street were awaiting his return,” wrote the New York Times on November 27, four days after Miller’s flight. “To be followed by the announcement that the syndicate would resume business promptly and that he would confound all his enemies.”

  Captain Lees, the district captain who had been among the earliest skeptics of Miller’s venture, sought in vain for someone to pull the trigger on his illegitimacy. “I have yet to hear any of that man’s customers speak against him. They all believe in his honesty, and cannot be convinced that his business methods are crooked,” he said. Brooklyn detective James Reynolds added, “The people in the neighborhood all had faith in him, and many of the merchants there honor his checks even now. The principal feeling among these people is one of animosity to the newspapers for destroying what the people thought was a ‘good thing.’”

  On November 28, five days after Miller’s disappearance, press at a high and police search going strong, his investors remained undeterred. Letters filled with cash—hopeful investments for when Miller returned and the syndicate resumed, as it surely would, its daily operations—flooded the Brooklyn Post Office. At Station A, at Broadway and Graham, over twelve hundred letters awaited the return of the greatest stock manipulator of all time. Nearby, at the main post office, there sat over $10,000 in money orders. As more than a dozen detectives spread their net beyond New York, scanning European freighters, New Jersey trains, anything that might give a sign as to Miller’s whereabouts, crowds gathered on Floyd Street, awaiting the Franklin Syndicate’s grand reopening.

  * * *

  Unrealistic optimism about the future doesn’t just make us think everything will continue to go well if we’re seeing returns at this very moment. It also makes us complacent—and complacently overconfident—even when we have the chance to get out. It’s like Miller’s investors, who came to withdraw and ended up depositing. The logic is actually quite clear. You are wavering—maybe things aren’t that great—but then you see just a hint of reassurance: Miller’s plants, who asked for refunds and then promptly redeposited the cash. (A vaunted strategy of the con artist: work with a gang, and make sure plenty of those who look just like the marks are actually nicely paid to string those marks along.) And you start the age-old game: What will I regret more? Knowing I’m safe, and having missed out on a potentially great investment, or risking it, and knowing that if the fantastic returns continue, I will grow rich along with them?

  Anticipated emotion—that is, the emotion we can anticipate feeling if we take a certain course of action—strongly favors the status quo. Anticipated regret makes us want to keep doing what we’re doing; anticipated stress makes us want to cope proactively, by not doing anything that might provoke said stress; and anticipated guilt makes us likewise want to prevent it from ever happening.

  In one of their famous thought experiments, Daniel Kahneman and Amos Tversky described two individuals who’d been playing the stock market. Both had just lost $1,200 on a certain stock. The difference between them was in how they’d lost it. The first had lost it after initially buying one stock and then, after a bit of thought, switching to another. The second had made the mistake of sticking with a losing stock rather than, after some reflection, switching to a winner. Who would feel worse? Almost without fail, the participants who read the two scenarios thought that the first investor—who’d had a winner and switched to a loser—would feel more regret. The thought that you’d been right all along, if only you’d stuck to your guns, is just too painful for most people to consider.

  Over a decade later, Maya Bar-Hillel and Efrat Neter demonstrated that the same behavior would hold when it came to actual money. The researchers asked participants to trade a lottery ticket they already had (they’d been handed it at the start of the experiment) for a new one with an equal chance of winning, alongside a delicious chocolate truffle. Three out of five refused to make the trade. The psychologists then sweetened the deal: not only would they give out new tickets; they’d also give out hard cash to anyone willing to trade theirs in. Even still, fewer than 40 per
cent of the participants made the trade. The number fell to a low of just over a quarter—27 percent—when the possibility of regret was raised explicitly: there would be a public drawing, and a prior owner would know if her ticket had actually won. Even if the ticket was completely withdrawn from consideration—it couldn’t win, no matter what—fewer than half were willing to give it up.

  It wasn’t just about what is known as the endowment effect—the fact that we value what we already have more than what we don’t—Bar-Hillel and Neter concluded. The possibility of regret loomed so strongly on the chance that the player had given up a winner that it overcame all rational considerations. Trading pens instead of lottery tickets, in fact—an object without any uncertainty surrounding its value—yielded a 90 percent compliance rate. It wasn’t about letting go of what you had. It was about letting go of the chance of winning and having to live with the regret.

  A 2007 follow-up found that not only were people reluctant to exchange tickets; they actually judged an exchanged ticket more likely to be a winner. The truth is, when things are going according to plan, we are that much more likely to believe the plan a solid one. If we startle, if we run now, if we walk away, we may live to regret it. And then who’s the sucker? As they say, nothing ventured, nothing gained.

  And that is precisely what the confidence artist is depending on in the convincer. That nagging feeling in your gut: what if you scream foul and it ends up that it wasn’t a con after all?

  * * *

  Sightings of Miller started popping up around the continent. In early December, a hotel clerk at the Hillago Hotel in Monterrey, Mexico, swore that Miller had checked in with two large suitcases, only to depart for Tampico, and from there on a boat to Central America. Next, he was arrested and headed back to New York—except it wasn’t Miller at all. It was a local reporter.