When Bernard Madoff castigated the banks this week for being “willfully blind” to his fraud, he was being wholly disingenuous. What lost investors millions wasn't banking laxity but his own deliberate misuse of funds over years.
That said, however, the old fraudster chose his words knowingly. Willful blindness is a legal concept that states that if there are things you could have known and should have known, then the law treats you as though you did know; you are still responsible. And both the banks and Mr. Madoff's investors could have known, should have known that his numbers were implausible.
In recent years, willful blindness has become a potent concept because so many disasters – not just the banking collapse but private tragedies and public crimes – have occurred in full view of people who could and should have known better, prompting the question: What makes us so blind?
The power of affinity
In the case of Mr. Madoff's investors, part of the answer lies in an innate preference for the familiar. We tend to marry people like ourselves – similar height, age, eye colour, build, background – because what we know is what makes us feel comfortable. That preference goes beyond romantic partners. We choose to live in neighbourhoods full of people like us, we prefer products that share our initials (Peter prefers Pepsi, but Carol likes Coke) and we're more likely to contribute to hurricane relief funds if we share its name or first initial.
This bias impels us to like and to trust people with whom we have a lot in common, blinding us to potential flaws and failings. One reason Mr. Madoff's fraud grew so vast is that many investors were drawn in by their friends. Their comfort with each other blinded them to fundamentals they all knew.
“I inherited the account from my Dad,” Irvin Stalbe told me. “And when my family and friends, even my accountant, saw the safe, stable returns, they wanted to come in with me. We all trusted each other so much that we forgot the golden rule: Never put all your eggs in one basket.”
The mind as editor
But we all take these kinds of shortcuts, trusting informal advice over more rigorous research. We pay most attention to information we like, while studiously avoiding anything unsettling.
Psychology experiments demonstrate this graphically. Presented with an image of an old man reading a newspaper in an armchair flanked by a naked woman, Mrs. R, an elderly and shy woman, could remember almost nothing. But Miss I, a young art student, took in the whole picture. Film of their eye movements shows that Mrs. R's eyes stayed firmly fastened on the reading gentleman while Miss I's gaze took in the entire picture.
In fact, we can't take in everything. The cognitive capacity of the mind has hard limits – and if we are too busy or too tired, much gets left out. That's why driving while talking or texting on a cellphone is so dangerous; with so much data coming in at once, some gets lost or delayed, leaving us as vulnerable as if we were over the alcohol limit.
Similarly, exhaustion depletes our mental resources. If we work through the night, it's the thinking part that degrades first. And the idea that we can multitask, endlessly navigating multiple streams of consciousness, turns out to be no more than an urban myth: something we might like to believe, but which turns out not to be true. We can switch between tasks – even very fast – but between one activity and another lies the blind spot. Such cognitive limits are implicated in almost every major accident, from the Exxon Valdez to the explosion at BP's Texas City refinery in 2005.
No safety in numbers
It's tempting to imagine that such human failings might be overcome by sheer force of numbers. Do more eyes make us less blind? Not necessarily. A famous experiment in which volunteers inhabited a room that gradually filled up with smoke demonstrated the rule that the larger the number of witnesses to a crime or accident, the less likely it is that any one will intervene. When Toronto subway riders did nothing last April as a 79-year-old man was mugged, they perfectly illustrated the point.
