Ben Carlson: The Smarter You Are, the More Likely You Are to Make Big Mistakes in Investing—How Self-Deception Amplifies Blind Spot Bias
US wealth manager Ben Carlson uses the Theranos fraud as a starting point to argue that highly intelligent people are more prone to blind spot bias due to stronger self-deception capabilities. Cognitive science research indicates that high cognitive ability does not mitigate this bias but rather exacerbates it.
In 2015, then-US Vice President Joe Biden visited the Silicon Valley blood-testing company Theranos and stated during a roundtable discussion that he had just witnessed "the laboratory of the future." The company promised to perform a full suite of diagnostics with just a drop of blood from a patient's fingertip. Founder Elizabeth Holmes claimed this was "the most important thing humanity has ever built." The entire company was a fraud—the lab shown to visitors was a staged set, the equipment did not actually work, and most employees were told to stay home that day. Biden was far from the only big name to be conned by Holmes.
The Walton family, heirs to the Walmart fortune, lost $150 million. Media mogul Rupert Murdoch invested $125 million based strictly on gut feeling alone; he later sold the entire stake for $1 to take a tax write-off for the enormous loss on a worthless investment. Betsy DeVos, Education Secretary under President Trump, and her wealthy family lost $100 million. Partner Fund Management, a well-known hedge fund, purchased shares at a valuation that pegged the company’s value at $9 billion, making Holmes worth a staggering $5 billion on paper.
US wealth manager Ben Carlson revisited a chapter from his book Don’t Fall For It in his blog A Wealth of Common Sense, attempting to answer an counter-intuitive question: Why were these smart, wealthy, and top-educated individuals deceived? His answer was not that they weren't smart enough, but that they were too smart. The core mechanism is blind spot bias—the tendency for people to see bias in others more easily than in themselves. Carlson argues that smart people suffer from this more severely than anyone else because they possess stronger self-deception capabilities. Once a person has achieved sufficient success, they tend to attribute it entirely to their own abilities rather than opportunity, timing, or luck. This psychological tendency to "personalize success" leads them to believe they won't make mistakes in unfamiliar fields, while those around them, respecting their intellectual status, do not question their judgment.