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I'm gonna stay there and life I breathe, but you can get them to the present. From full Global Headquarters, this is Motley Full Money. Welcome to Motley Full Money. I'm Chris Hill.
This week it's our Labor Day weekend special. We'll get some career advice from a former mobster, but we start by talking about the business of lying. Dan Airelli is a professor of psychology and behavioral economics at Duke University, and the author of two best-sellers, predictably irrational and the upside of irrationality. His new book is The Honest Truth about dishonesty, how we lie to everyone, especially ourselves.
Dan, welcome back. Oh my pleasure. So we're all liars? What is going on in one?
Wait, wait, not you, not you, other people, other people. Oh, thank you, thank you. So here's the question. You probably think of yourself as an honest, wonderful, caring human being, right?
No question about it. No question. But if you actually went ahead during a regular day and you counted how many times you lie, what do you think that number would be? I think it would be in a single digit.
Well, I recommend this experiment, but what is clear is that we lie a lot. And what's interesting is that we lie a lot, and at the same time, we think of ourselves as honest. Now, in Japanese, there's a term, there's a term for internal truth, the real truth, and the term for the truth we tell other people. And not just for Japanese, we all have this.
We all have something that we trade off. Now, the truth is that a lot of human values, honesty is one of them, and not all human values are compatible. So what happens when somebody asks you, how do I look and address? What happens when somebody asks you a question that would make them, the answer would make them feel bad?
All of a sudden, we think differently about honesty, we trade things differently and make a different decision. Now, imagine you're an accountant. And all of a sudden, you're faced with the same dilemma of the truth inside and the truth to the outside world. Now, how does that work?
And it turns out, in those cases, too, people find all kinds of creative ways to cheat a little bit and still think of ourselves as good people. Now, the origin of this book, as you write about, really goes back a full decade. That's when you got interested in dishonesty was with the collapse of Enron. What was the problem at Enron?
Was it really just the guys at the top? Because that's how it seemed to be for a lot of people. That's exactly right. When we think about Enron, we think about three terrible people who plotted and executed a large accounting scheme.
But the question is, this is really a good description of what's happening. And you can say, maybe that's the case, or maybe it's a lot of people who were slightly motivated to not see reality in the correct way, including consulting firms, auditor, or people who worked with Enron, all kinds of people. And the reason this is an important question is that the way to solve dishonesty is different, whether it's a few bad apples, or lots of us can cheat a little bit. And in the experiments we ran, we basically find that there are bad apples, but there are incredibly few of them.
So just as an example, our basic experiment looks like this. We take a sheet of paper with 20 simple math problems that everybody could solve if they had enough time, and we tell people, solve as many as you can in five minutes. People work very hard. At the end of the five minutes, we say, stop.
Please count how many questions you got correctly, and now go back to the back of the room and shred your piece of paper. And then come back to me in the front of the room and tell me how many questions you got correctly. People do this, they go to the front of the room, and they say they solved six problems. But what they don't know is that we can go back into the shredder.
The shredder we fixed it, so they only shred the size of the page, but the main body of the page remains intact, and now we can go in and we can find how many questions people really solve correctly. And what do we find? The average solved four problems and report to be solving six. And the way to work is that we have lots of little cheaters and very few big cheaters.
So in the book, in total, I described lots of experiments. In total, we had about 30,000 people in the experiments. And from those, about 12 were big cheaters. They basically claimed to have solved lots of the problems.
And maybe they took about $150 from us. At the same time, we had about 18,000 little cheaters, who each individually did not steal that much, but together they stole about $36,000 from me. And if you think about it, I think this is kind of a good reflection of what's happening in society. Sure, there are some big cheaters out there, and it's really terrible and annoying, and every time somebody breaks into my car and steals my GPS, it's very annoying.
But the reality is that the big financial devastation probably doesn't come from that. It comes from the lots of good people who cheat just a little bit, many times, but it ends up very, very quickly. Now, you write about things like conflict of interest, and certainly that is something that we see at the Motley Fool in the financial services industry. To what extent does full disclosure, the whole notion that the best disinfectant is sunshine, to what extent does full disclosure really solve the problem of conflict of interest?
It's actually worse, right? It's not just that it doesn't help, it can hurt. And here's basically the finding from the research. So imagine that you have two parties.
You have a financial advisor, and you have a client. And the financial advisors, if they have a conflict of interest, that of course biases their opinion. Now, I should point out that the logic for conflicts of interest is that people are doing everything consciously. It says that the financial advisor is planning to deceive the client.
And because of that, if they only had to disclose, they would not plan to deceive the client in the same way. I think this is actually not fair to financial advisors, because I think that much of the conflicts of interest is something that they themselves don't see. If I had put two portfolios I could propose to you, one of them from company A and one of them from company B, and company B promised me some kickback. The question is, would I think myself, oh, I'm cheating you by proposing B?
Or would I actually start seeing reality from the perspective of company B? And I think the second one is more likely. That'll actually change my view of reality. But here is what happens with disclosure.
So again, we have an advisor, and we have a client. And the advisor exaggerates your opinion a little bit to fit with their internal financial interest. And now what happens when there's disclosure? Now the client knows that something is fishy, and they discount the opinion of the financial advisor.
But at the same time, and that's good, right? That's what disclosure is supposed to do. But at the same time, the financial advisor is not necessarily static. The financial advisor might not behave in the same way when they disclose to when they don't disclose.
And what the result's fine is that when people disclose, the financial advisor disclose, they actually exaggerate your opinion even more. So now the question is, what is larger? The extra exaggeration of the financial advisor when they have a disclosure or the discount of the client? And sadly, the result shows that it's the extra exaggeration of the advisor rather than the client.
So in this case, disclosure actually makes things worse. Because the advisor exaggerates by a higher amount, and the client doesn't understand how big conflicts of interest are. It doesn't discount sufficiently. And because of that, the client's financial situation at the end of the deal is even higher.
So for people who are working with a financial advisor, what is one thing that people can do to essentially keep their financial advisors more honest? So I don't think there's one thing. First of all, I think we need to be aware of conflicts of interest. It's really a good discussion to have with a financial advisor.
By the way, it's very tough because many people have their financial advisors, or friends or neighbors, they have kids in the same school. And to go to the financial advisor and say, you know, I suspect that you probably have some conflicts of interest. Let's examine them. But I think it's incredibly important, right?
Because it's a little socially embarrassing, but it would be nice to do. So I think people should go to the financial advisor and figure out how many conflicts of interest they have. And then they should also make a list of a contract between the financial advisor and the individual and agree what to do with these conflicts of interest. For example, the financial advisor could agree to never put in your portfolio stuff that he gets a kickback on.
Or he can agree to never have what he's called soft dollars from the people he's dealing with. Or if he does do that, he would let you know. I think basically trying to figure out what are the exact rule of behavior. Here's the thing.
Every time that we have large and unclear gray zones in terms of what is acceptable and not acceptable, people would interpret them in ways that are selfishly good for them. Even if they care about the person sitting across the table from them. So what you want to do is you want to create very strict rules about what is acceptable and not acceptable. Now on top of that, we can look for financial advisor and have less conflicts of interest.
I think in fact, if people start demanding financial advisors with less conflicts of interest, financial advisors will have to deal with that and will have to change in some important ways. We can also think about how do we pay financial advisors? Is the percentage of asset under management a good idea? And finally, I think all the hidden fees that financial advisors have should come out.
So we should be aware of what they're paying, we should agree with them upfront. I don't think financial advisors will sit across the table from the client and lie to them directly. But lying indirectly with all kinds of fees and payment and back payments, there are probably too many of them due to routinely. I know that you were doing these tests and essentially sending out to write a book about dishonesty.
But were you surprised by the level of cheating that you did discover? And if not, what surprised you the most when you were working on the book? So the amount of cheating surprised me, how much, how prevalent it was, right? I expected to see some of it.
But the two things that surprised me the most are the following. The first one is that experiment that we did on the distance from money. So imagine the regular experiment. People work on the sheet of paper, they shred it, they come to the experimenter, they report how many questions they got correctly, and they say Mr.
Experimenter, I solved six problems, give me six dollars on average. Well, in fact, they only solved four. The second group come to the experimenter and instead of saying, I solved x problems, give me x dollars. They say I solved x problems, give me x tokens.
And we paid them in pieces of plastic, and then they walked 12 feet to the side and changed every piece of plastic for a dollar. Now think about this, this is a very simple thing. It's about being one step removed from money. There's a little joke that Johnny comes home from school with a note from the teacher that said that little Johnny stole a pencil from the kid who was sitting next to him.
And Johnny's father is furious. He said, Johnny, I'm embarrassed and humiliated. You never, never steal a pencil from the kid who's sitting next to you. You're grounded for two weeks and just wait until your money comes.
And beside Johnny, if you need a pencil, you could just say something. You could just ask, and I will bring you dozens of pencils from the office. Now, this is basically the question we asked. What happened if you once step removed from money?
And what we found was that people doubled your cheating, right? And for me, this was the most disturbing result in that experiment. Because we're moving to a cashless society. We're moving to a society that has electronic wallets.
We're moving to a society that has higher order representation of money. Stock, stock options. We have derivatives. We have mortgage-backed securities.
And the question is, could it be that with all of this increased distance for money, people can both act more dishonesty but feel better about their own behavior? And I think the answer is basically yes. So this actually worries me a lot. And I think that as we move to have more distance between us and the consequences of our dishonesty and the consequences of the money, we need to take extra precaution about being honest.
Coming up more with Dan Ariely, including around by Sellerhold. Stay right here. You're listening to Motley Fullmont. Welcome back to Motley Fullmont, talking with the best-selling author Dan Ariely about his new book, The Honest Truth About Dishonesty.
One of the things that you discover through the test that you put people through in this book is that when people sign their names to some sort of pledge, it puts them in a more honest frame of mind and armed with that information, you go to the IRS and basically say, listen, why don't have taxpayers sign their names at the top of the tax forms rather than the bottom? How'd that go over with the IRS? Yes. So first of all, I think the finding is just, I love the finding.
I love the idea that when you get people to sign at the top of the form, they are more honest, when they sign at the end of the form, it's over, right? People finish cheating. And it basically tells you that when you get people to think about their own morality, people behave much better, which tells you that actually people are quite good and have a desire to be good, we just need to remind them about their own desire. So I went to the IRS and the first thing I proposed was I said, let's get people to sign at the top.
And they said, well, that's illegal because the signature is for verification. Now, in my mind, the verification is not that important. What's important is the mindset. And because of that, it's important within the beginning.
So then I said, what would we do it both? Let's do it upfront for a mindset and the end for verification. So they said that that's confusing. Now, if you've seen the IRS forms recently, you would know that that's really funny, but they think this is confusing.
The third thing I proposed was why wouldn't we have the first item on the tax return to ask people whether they would contribute $25 to a task force to fight corruption? And I said, if people do that, not only would they have said something about their own morality, they would have put some money down and that would have even make the statement stronger. Plus, I proposed that the people who don't want to give money to a task force to fight corruption might be good candidates for audits. But we didn't get very far from the IRS.
I'm still hoping the British government has no office for behavioral economics and they're doing all kinds of things and they're going to try the signature solution as well. But we did try it with a big insurance company. And this is an insurance company that sends people a letter asking them to tell us how many miles they drove, what's the odomatier reading? And some people did the regular trick, which is to fill the form and then sign at the bottom.
And for some people we flipped it. And they signed first and then they filled the numbers. And what we found was the people who signed first cheated by 2,400 miles less on average. Now we don't know if they didn't cheat at all because we couldn't go back to their actual odomatres, but at least they cheated much less.
Now this for me is incredibly optimistic on two grounds. First of all, it means that the experiments that we do in the lab seem to replicate in real life in some nice ways. It seems that the magnitude of cheating is about 15%, so there's a similar even in magnitude. But it also means that there's all kinds of small tricks that we could do that would get people to behave much better and are actually not expensive and are simple and cheap and we just need to implement them.
Alright, Dan, we will wrap up with a round of Bicellarhold. Let's start with Bicellarhold, a nationwide ban on texting while driving. I would not hold much faith in bans. I think basically expecting to give people cell phones that they play with throughout the day and then expecting that they will not text and drive is kind of like covering your desk with donuts and hoping that you would not eat them.
I think we need some better technological solution that would not allow people to text and drive even if they want to. And finally, keeping in mind your lovely wife, Sumi, to whom you give great thanks at the end of this book, Bicellarhold engaging in a policy of total honesty in one's marriage. Definitely not. This is not a good recipe for a good life.
I'll tell you one thing. There's a story in Judaism that God comes to Sarah and he said, Sarah, you're going to have a son. And Sarah said, how can I have a son when my husband is so old? And then God goes to Abraham and said, Abraham, you're going to have a son.
And Abraham asked, did you tell Sarah? And God said, yes. And Abraham said, what did Sarah said? And God says, Sarah said, how could she have a son when she is so old?
And the religious scholars have asked the questions of how can God lie? How can it be that Sarah said, how can I have a son when my husband is so old? And God said to Abraham, Sarah said, how could she have a son when she is so old? And the interpretation has been that peace at home, what's called in Hebrew shlumbite, is more important than honesty.
The book is the Honest Truth about dishonesty, how we lie to everyone, especially ourselves, is available everywhere. It is always fascinating to talk with Dan, Arielle, Dan. Thank you so much for being here. My pleasure of great talking to you.
Take care. Coming up, business lessons from the mob. Stay right here. You're listening to Motley Fool Money.
Welcome back to Motley Fool Money. I'm Chris Hill. Forget Harvard Business School. I guess this week says, you want to learn about business?
Study the mafia. Lewis Ferrante is a former insider with the Gambino family. And after spending eight and a half years in prison, he is now an author and motivational speaker, his latest book is Mob Rules, what the mafia can teach the legitimate businessman. And he joins me now.
Lewis, thanks so much for being here. Thanks for having me on your show. I want to talk about the book in a minute. But first, let's start with your own experience.
What was your role in the Gambino family and what was the primary business of the Gambino family? Well, the primary business starts the primary business is making money. So that's the, I kind of had, I guess, a role at one time for the company. I shouldn't what you make.
You get a piece middle manager, a family and handing them down to my crew. And I was a CEO of my own crew. I did a franchise. Wow, it's amazing.
I guess I never thought of the mafia as having middle managers. I just think of that as like, you know, office parks out somewhere have middle managers. Yeah, so the middle managers are usually like coppos, you know, usually captains of crews, analogy you could use for them. But yeah, it's built to the CEO, a whole confliad, a small confliad, and a family, but they're also a lot of guys.
And in terms of your own operations for your own little business, you were, among other things, hijacking trucks, weren't you? I was, I was the guy the family came to if they had a tip on a score. That was my thing. I had a, like I said, a part when we had a score to take down a heist, a jungle hall, whatever it might be.
Just imagine how far you go in this warehouse. You'd look so foolish though. They were, you know, this is why I'm employee. I did my job exactly the way it was supposed to be done.
And so you end up eventually going to prison. And what changed for you in prison? How does a guy go from being an elite performer for a mob family to becoming an author of multiple books? And then my eyes opened up in a prison cell and I saw that, you know, there is a violent part of the mob too and there was a fight from the violence.
You could say that, but there is still violence. But aside from that, turning bad and sending us to jail, you know, where was that going with this? I said, hey, I'm not going to come out of jail and we're not going to turn one day and then send me away again. And I mean, you know, the decision to change, like anybody can, any who's maybe unhappy with a job they might be doing in the real world and they say, you better for me.
And they leave their company or they're even trying it on their own. So when you're, you know, on the inside, you make this decision to sort of turn your life around. What leads you to the world of writing? So I, in the mind, he was actually the caretaker of John Godie's South Queen Social Club.
John Godie was the big reigning boss at the time. And he was the caretaker of the club and he had all these tattoos on his body and some of the tattoos were biblical verses. Now, I had the mouths, but these biblical from the send me box and he sent me, he sent me a mine called for Adolph Hitler. He says, what do I ask him for?
I said, where did you get these ideas? He said, I gave me these books. I said, what did you tell him? He said, I told you were shorting bossy.
He said, you're three, you're three, you're three, okay. This is the thing of my reading. Three books. I have the spirit almost when I put those, what do I want to do?
So luckily I went to jail and then it twisted with the content century novels. I take notes as I was reading and I thought I put myself at right. You're listening to Marley Fool Money? I guess this week is Lewis Ferrante author of the new book, Marv Rules.
What the mafia can teach the legitimate businessman. Before we get to a few of the rules, a couple of questions about the Marv itself. In what industries is the mafia most prevalent? They are stronghold on a lot of the major industries that they once did hold.
When I was coming up in the Marv, a lot of the old time it's had control of the peers in the seaport. They had control of the garment center. They had to be waste management industry. As far as New Yorkers concerned, they were rude off Giuliani from finding jobs and cleaning a lot of that stuff up.
He really, really banged away at these periods that the mob had controlled and took them away from the earth. So today they're probably grasping onto a few unions now. I've been the house that came home from prison. I went straight, I'm a writer now.
But from what I understand, they have a couple of strongholds as far as unions are concerned. The contrary is very, very big for them. The mafia is earth moving. They're still there but there's a lot of their power and a lot of the bigger industries.
Now at the Motley Fool when we're looking at businesses and industries, one of the questions we like to ask as investors is, what's the opportunity here for this company? So you say they're losing their stronghold. What is the big opportunity for the mafia these days? I would say that it was at one point.
So the opposite is back then drug dealing and stuff like that maybe. The opportunities I think that are left, lately then books, where I can explain it. You're listening to Motley Fool Money, I guess this week. Louis Ferrante, author of the new book Mob Rules, what the mafia can teach the legitimate businessman.
Let's talk about the book. I'll spot you up with some of the business lessons in the book and have you elaborate on them. Let's start with one which is get your own coffee. In that chapter, that's a real prime example.
I mean there were a number of examples that popped in my head. The full chapter title is respecting the chain of command without being a soccer. And that's going to get your own coffee. Here in the mob there's a chain of respect, your elders and you must follow that chain of command.
And the penalty for you can't spend your day making coffee for the boss. You never get anywhere. And Frappuccinos, it's Starbucks for the ball. The whole game which are high ranking Gambino, family, family, and an outfit for him.
He didn't know me. He didn't really want to street. He didn't want to get a lot of Gambino family members. You don't know every single one of them when you're on the street.
I was well acquainted with the people I had in my pants. I said, hey, I do my own pants. I hate somebody. So he asked me again, because of his high rank and he was twice a tremendous amount of respect.
I guess he thought because I was a Gambino guy also in my pants to crumple him up into a ball. I'm making him look even more heavy. I'm not here facing the rest. He was my friend.
I used my kid. I'm a brand new uniform. He gave it a hand smile and he gave me tremendous respect after that. And he would never ask me to do a menial task again.
So they're all raised in the corporate world where we date Starbucks. You can let the boss get the message in a funny way. Coming up, more mob rules with Louis Verante. Stay right here.
This is Mobley Full Money. You're listening to Mobley Full Money, I guess this week. Louis Verante, author of the book Mob Rules with the Mafia can teach the legitimate businessman. Another rule from the book, don't build Yankee Stadium.
Just supply the concrete. Great chapter. This chapter is when the mob operates and you were asking earlier about the increase that they once controlled. Maybe years ago, the mob was able to be able to contract a build Yankee Stadium or somehow get it.
Now, being that the major things were taken away from, they still had that credit for it. They may see, they may look at Yankee Stadium as, maybe we can't get the major contract to build a stadium. The 100,000 antlery needs that stadium needs that we could prepare it be concrete, whether it be a flagpole stadium and it's money making potential. You know, sit and ponder it.
I should sit in a coffee shop if they were faced with this and say, okay, they're building a salatowrits, sorry. Well, how can we move in? Well, we could stop by opening up sausage and when the workers get there and hop over to the stand, make sure all the workers are supplied with our food. Definitely try to get the concrete contracts.
Then we could get all this flagpole. I know a guy Bobby Flaggpole. He sells flagpoles. I'll get the flagpole from Bobby.
We'll see if we can get them cheap enough, we can get the contract to flagpole. The sign. Oh, I know Johnny signs. Johnny signs make signs over in Brooklyn.
Maybe we can make the Y, the A, the N, the K, the double E's and they'll try to really, really attack that stadium from every different direction. And there might be other people who turn their nose off that and the mob will run into. You know, mobster might say, I could supply the two, let me get the bathroom contract. All I need is the urinals and I'll have a $4 million contract just putting the urinals in.
So this is what the mob does and they really, really work hard to getting anything that is put to use in that stadium contractor and they work to getting those contracts. They use their networking capability. Yeah, those contracts too. They're working huge in the mob.
Every mobster has a huge list of and the other jet friends who he could turn to, they're trying to accomplish it. Another lesson from the book, which is near and dear to my heart, certainly my favorite film of all time, and the lesson is leave the gun, take the canole and be aware of hubris. Yeah. I started out with leave the gun, take the canole, when I left the mob, I had a gun behind and that's symbolic for the violence and the cut-road ways, etc.
Sweet things I learned along the way. The different experiences that I'd lived through, the integrity that we did share when we were with each other. You know, there were a number of mobsters that violence all the time. And we may all, and beware of hubris, the second part of that chapter is a very, very stern warning to people who make use with a national leader, Adolfo, pretty much through his, and he was a good boss, but the mobster was ruined by being so flashy and causing so much attention and his Gambino family was dismantled by informant.
I saw that era and who put it in. We're going to wrap up with a round of buy-seller hold and let's start with this face is more and more competition. Buy-seller hold the future of Atlantic City. Just briefly?
Hold for another year or two. It's still like a place of a casino. E-books will not overcome books completely. Six months or a year.
It looks like the same thing with Atlantic City. I think people are still in that prime rib dinner that they can't get in their living room. You know, that nice Romeo and Juliet to go off. You're not going to get that in your living room.
But then you're going to lose a lot of people, you know, who just rather sit there and do that thing. So I would hold it and see where it goes. I wouldn't sell so quickly. It's a new TV show on VH1, following some women affected by the mafia.
Buy-seller hold mob-lives. I'm going to go buy the many fan mail I've gotten from around the country who read my first book, telling me that it's paying cuffs. Yeah. I haven't watched it myself.
I just tremendous my fan mail to be inundated with people saying, oh I'd say sell. Fair enough. And finally, the hurricane is an Oscar nominated film about a tough guy who becomes a writer in prison. Buy-seller hold a movie based on the life of Louis Ferrante.
And I mean, you get to cast it. Who are you picking to play? One year ago when I was running around on the streets before I went to back up, maybe not the comma that I haven't even seen yet. I don't even like to think about it.
I'll tell you it's true. That phone call. But a coach by a major actor in Hollywood to purchase mob rules. So I'm interested in I'd be lax with where it's going, but I may get a little more aggressive with that.
So mob rules, what the mafia can teach, the legitimate businessman. It's just out this week. It is available everywhere. Pick up a copy.
It is great stuff. Louis Ferrante. Thanks so much for being here. Thank you, Chris.
I had a great time with you. That wraps up our Labor Day weekend special. You know, you can always drop us an email. Love to hear from you.
Drop us an email. It's radio at fool.com. That's radio at fool.com. Tune in next week when we'll be analyzing the latest Wall Street, including the big events Microsoft and Google have scheduled to unveil their latest products.
The conversation continues online at fool.com. That's it for this edition of Motley Fool Money. Our engineer is Steve Broido. Our producer is Matt Greer.
I'm Chris Hill. Thanks for listening. We'll see you next week.