The recent death of Bernard Madoff, who was the mastermind behind a $20 billion Ponzi scheme – the largest financial fraud in history, prompted me to contemplate some examples of what might be called “stupid human errors.”
Go to any grocery store and you’ll see examples of what behavioral-pricing researchers refer to as “the left-digit bias.” When an item is priced at $2.99, the idea is that consumers will think of it as $2.00. That’s because the mind compares the left-most digits before it can round up the numbers. People look left first.
Recent experiments found that when consumers see a jar of peanut butter by itself for $2.99, in their minds they round the price up to $3.00. But that’s not true when two jars of peanut butter are displayed side by side. When participants in this experiment were shown a premium brand priced at $4.00 alongside the store brand priced at $2.99, their minds compared the left-most digits first, before rounding any numbers. So they thought the store brand was $2 less than the premium brand.
Now let’s consider stupidity on a bigger scale. It was little more than a hundred years ago that the original Ponzi scheme was put in operation. It started because investors were concerned about the huge amount of international debt left over from World War I. Beginning in 1919, Charles Ponzi, a Boston banker, offered to pay investors, within 45 days, $150 for every $100 they lent him. The immigrant from northern Italy credited this…