The implosion of FTX is full of shocking details. SBF is literally a character from a Michael Lewis book, and so many things about his company are just staggeringly unusual. We know this thanks to intrepid reporting by journalists, who are paid to establish the facts of what happened. The result of this process is typically a reliable account of the who, what, when, and where of a news event—four of the “five W’s” of journalism. But the fifth W is why, and it’s another thing entirely.
There has been speculation that maybe SBF did whatever he did because he’s a utilitarian or because he has some unusual opinions about expected value theory. Anything is possible, but this line of reasoning risks falling into a common cognitive trap.
The human mind overweights “recent, vivid, or memorable events,” as Don Moore and Max Bazerman summarize in their recent book Decision Leadership. We worry more about terrorist attacks than heart disease. That bias can cause us to dwell on the most outrageous parts of a news event—and the FTX story has too many of those to count. Vox’s interview with SBF alone has a dozen mind-bending moments; it’s hard to look away. But these details are not always the most reliable guide to why the thing happened.
To counter our bias toward the vivid and memorable, psychologists advise adopting what Nobel-winner Daniel Kahneman dubbed “the outside view.” Before focusing too much on the specifics of a case, simply ask: What usually happens? That starting point, sometimes aided by quantitative data, has proven to be one of the most valuable tools among seasoned forecasters.
What’s the outside view of FTX? In his book, Why They Do It, Harvard Business School professor Eugene Soltes concludes that white collar criminals “expended surprisingly little effort deliberating the consequences of their actions.” And “in many cases, it was difficult to say that they had ever really ‘decided’ at all.” Instead, they act based on intuition, fueled by the fact that the people they’re harming are distant. Most white collar crime is the story of “people just following their intuitions and primitive gut feelings.”
Then there’s the fact that people are more self-confident and self-focused when they have unconstrained power, as Julie Battilana and Tiziana Casciaro explain in Power for All. Not having to answer to a board of directors turns out to be a hell of a drug. I’ve been thinking about something the political scientist Gautum Mukunda said to me in March when I asked him about Putin’s decision to invade Ukraine. “Power changes who people are,” Mukunda told me. “It makes them more aggressive, more Machiavellian, more manipulative. For most people, it makes them worse.”
Maybe we’ll come to learn that SBF was deliberately operating based on some unusual philosophical perspective. But it’s also very possible that the why of his story isn’t that unusual. Someone experiences rapid success, gets in over their head, has very few external constraints on their decision making, and then makes some really bad choices in the hopes of covering it up. That’s not the end of an explanation, but it’s a start.