In the after­math of the Mad­off Ponzi scheme, psy­chol­o­gist Stephen Greenspan writes in The Wall Street Jour­nal on why we con­tin­u­ously fall for finan­cial scams—and in the process describes the ‘anatomy’ of gulli­bil­ity.

Gulli­bil­ity is a sub-type of fool­ish action, which might be termed “induced-social.” It is induced because it always occurs in the pres­ence of pres­sure or decep­tion by one or more other peo­ple. Social fool­ish­ness can also take a non-induced form, as when some­one tells a very inap­pro­pri­ate joke that causes a job inter­view or sales meet­ing to end unsuc­cess­fully. Fool­ish­ness can also take a “prac­ti­cal” (phys­i­cal) form, as when some­one lights up a cig­a­rette in a closed car with a gas can in the back seat and ends up incin­er­at­ing him­self. As noted, the same four fac­tors can be used to explain all fool­ish acts, but in the remain­der of this paper I shall use them to explain Ponzi schemes, par­tic­u­larly the Mad­off debacle.

Greenspan’s four fac­tors of gulli­bil­ity are sit­u­a­tion, cog­ni­tion, per­son­al­ity and emo­tion.

Toward the begin­ning of this arti­cle Greenspan men­tions the book Extra­or­di­nary Pop­u­lar Delu­sions and the Mad­ness of Crowds by Charles Mackay, a book that Jonah Lehrer—editor at large of Seed Mag­a­zine—classes as one of the top five books on irra­tional decision-making. The book was first pub­lished in 1841 and is in the pub­lic domain (avail­able from: The Guten­berg Project, The Library of Eco­nom­ics and Lib­erty).