Magic and Money Already Spent
When the Neapolitan boss Vincenzo Lubrano was acquitted in court, Saviano writes, he and his men went on a pilgrimage in several coaches to San Giovanni Rotondo to thank Padre Pio, the holy friar revered all over southern Italy. Lubrano sincerely believed the acquittal was the saint’s doing. Not the lawyers’. Not the weakness of the evidence. Not the intimidated witnesses. The saint.
Saviano describes other signs too. Many Camorra bosses put life-size statues of Padre Pio in their villas. In the clandestine labs of Scampia, the workers often press thirty-three “bricks” of hashish at a go, one for each year of Christ’s life, then take a thirty-three-minute break, cross themselves and get back to work. And a lieutenant will sometimes sprinkle the bags of cocaine with holy water from Lourdes before handing them to the street dealers, in the hope that it will all go off without bloodshed.
I don’t laugh at faith. I laugh at trading with heaven: thirty-three bricks in exchange for a good profit. That isn’t faith. It’s bookkeeping, only you can’t vet the counterparty.
Magic Among Sober People
You think it’s only superstitious Neapolitans? In 1975 the psychologist Ellen Langer ran an experiment with one-dollar lottery tickets. Some participants were allowed to pick their own ticket; others were simply handed one. Then each was asked to sell his ticket. Those who had picked their own wanted on average eight dollars sixty-seven cents for it. Those who had been handed one, a dollar ninety-six. The tickets were identical. The odds were identical. But the person who had picked his own felt his ticket was “luckier”.
Langer called this the illusion of control. We’re sure we influence things we don’t: if we roll the dice ourselves, if we pick the share ourselves, if we wear a lucky tie to an important negotiation. An investor who bought a share that went up almost always thinks he called it. Almost never that he got lucky. And next time he bets more.
Winning Back What You Paid
And now for the most expensive trap in the world of money.
Remember Antonio Cecala, the arsonist from the Morello gang? Dash describes how he explained the essence of his trade to a newcomer. The pitch went roughly like this. You’ve got a shop. You’ve insured it against fire. Every so often you pay the insurance, and you don’t want to pay any more. Now, to win back the money you’ve paid, you have to burn the lot. You don’t want to do it yourself, it’s too risky. So you call me. I’ll fix it so nobody asks any questions. The insurance company pays, and you give me a percentage.
“Win back the money you’ve paid.” Think about that. The premiums the shopkeeper paid for years are already spent. You won’t get them back, whatever you do. They were the price of the peace of mind he’s already had. But the thought “I’ve paid so much and got nothing” is so painful that a man is ready to burn down his own shop just to “win it back”. Cecala was selling shopkeepers their own mistake.
Economists call this the sunk cost fallacy. The money, time and effort you’ve already spent shouldn’t decide what you do next. Only what lies ahead matters. But we can’t come to terms with that. We sit through a bad film because we paid for the ticket. We hold on to a falling share because “we’ve lost so much already, we have to wait for it to come back”. We put more into a project that isn’t working because “we’ve put so much in already”. We chase our losses at the casino.
One Loss, Two Frames
And the last trap—the frame in which you see a loss.
In 1981 Tversky and Kahneman set people a problem. An epidemic is coming that will kill six hundred people. There are two programmes. The first will save two hundred people for certain. The second has a one-in-three chance of saving everyone and a two-in-three chance of saving no one. Seventy-two per cent chose the first.
Another group was given the same problem, but put differently. Under the first programme four hundred people will die for certain. Under the second there’s a one-in-three chance that nobody will die and a two-in-three chance that everyone will. Now seventy-eight per cent chose the second. The numbers are exactly the same. Only the word changed: “save” or “die”. When we think about gains, most of us play it safe. When we think about losses, we gamble, just to avoid them.
That’s why people who sell financial products love to say “you’re missing out on a gain” rather than “you could lose”. And that’s why a gambler who has already lost bets more: he doesn’t see a new bet, he sees a chance to win back what he lost.
The Nephew’s Trattoria
Don Vincenzo had a nephew who opened a trattoria with his uncle’s money and a year later found himself in debt. He came to the Don to ask for more money to keep going another six months: “I’ve put so much in already, Uncle, I can’t just drop it all now, when it’s nearly working.”
The Don said no, though he loved that nephew more than the rest of his relatives put together. I asked him why: after all, the first lot of money would be lost. “The first lot of money is already lost,” said the Don. “I can’t save it. All I can do is decide whether to throw a second lot after it. And the second lot hasn’t made the trattoria any better. It’s only made it dearer.”
The nephew closed the trattoria, paid off his debts and a few years later opened a little pastry shop with his own money. It’s still going.
The Bottom Line
When someone is selling you something, listen for the frame: “you’ll miss out on a gain” or “you could lose”. Translate it into the other one and see whether you still want it.