The Behavioral Experiment That Explains Elizabeth Holmes's Demise

Elizabeth Holmes is not a despotic dictator. Her incapacity to recognize reality around her, on the other hand, helps us comprehend how tyrants are created.

The story of Elizabeth Holmes, the creator of Theranos, came to a close on Monday. The tech titan was found guilty of conspiracy to deceive investors as well as three charges of wire fraud by a jury.

Few people in history have risen—or fallen—as quickly as the 37-year-old businesswoman who founded her multibillion-dollar firm after dropping out of Stanford University at the age of 19 in 2003.

Holmes, who was once heralded as the next Thomas Edison or Steve Jobs, was found not guilty on numerous related crimes by a jury that could not make a decision on some of the accusations, and now faces the real possibility of serving time in prison.

CNN reports that Holmes, whose trial had dragged on for months, faces 20 years in prison for each count, as well as fines and restitution. Holmes’ fate now hangs with US District Judge Edward Davila, who will preside over her sentencing.

A Meteoric Rise

Holmes' ascension was rapid. Despite knowing nothing about engineering and much less about medical, she recruited some of the world's wealthiest investors to her firm, including Rupert Murdoch, Larry Ellison, Tim Draper, and Walgreens, America's second biggest drugstore chain, with the promise of changing blood testing. Theranos had an illustrious board of directors. Two former US Secretaries of State (Henry Kissinger and George Schultz), a four-star general (Jim "Mad Dog" Mattis), and the attorney who defended Al Gore in the Bush v. Gore case were among the attendees (David Boies).

Theranos employed 800 workers and was valued at roughly $10 billion when Holmes relocated the firm to Stanford University's research park in the fall of 2014. Holmes was friends with some of the world's most powerful leaders and has given speeches alongside Joe Biden and Bill Clinton.

Less than five years later, however, Theranos was bankrupt. The company was worth less than $0 and Holmes and Theranos president Sunny Balwani—her lover—were facing federal charges of fraud for allegedly "raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company's technology, business, and financial performance."

Edison, Jobs, and … Beethoven?

During Holmes’ trial, my wife and I watched the HBO documentary The Inventor: Out for Blood in Silicon Valley, which details the stunning story.

There are many takeaways from the film, which I encourage readers to watch. One is struck by how easily Holmes was able to dupe some of the brightest and most successful people on the planet, especially older men. When a journalist asked “Mad Dog” Mattis what first came to mind with Holmes, he didn’t hesitate.

“Integrity,” Mattis answered.

Among the journalists conned by Holmes—and they were legion—was Roger Parloff, a respected writer educated at Harvard and Yale who wrote a glowing cover story of Holmes in Fortune magazine. Little did Parloff know that Holmes, when she couldn’t dodge the questions Parloff asked, simply lied to him. This tactic served her well until she ran up against Wall Street Journal reporter John Carreyrou who had the benefit of a Theranos whistleblower. With a credible source and a powerful newspaper behind him that refused to be intimidated by Holmes’ team of lawyers, Carreyrou quickly blew the Theranos story wide open.

Holmes' self-assurance and physical appearance were key factors in her ability to deceive so many people. Her piercing blue eyes, vivid red lipstick, and mane of blonde hair were all eye-catching, but her Jobsian black turtlenecks, baritone voice (an act), and calm manner gave her a svengali-like aura over many others. For them, Jobs and Edison were inadequate parallels; she was the next Beethoven.

Some people couldn't believe Holmes was telling the truth. George Shultz, the late Secretary of State, trusted Holmes above his own grandson, the Theranos employee who later became Carreyrou's source.

Holmes may have had an additional benefit, however, in how she was able to fool so many people around her. She may not have been aware she was lying.

When the Lie Detector Stops Working

Dan Ariely, an Israeli-American behavioral economist at Duke University who appeared in Out for Blood, was one of several people interviewed who suggested Holmes may have rationalized her actions and convinced herself she was telling the truth. (As George Costanza slyly tells Jerry in a Seinfeld episode, ”It’s not a lie if you believe it.”)

Ariely cited an experiment he and his colleagues conducted involving a six-sided die.

They had participants roll a die for a monetary incentive according to the number on the die in one experiment. Individuals were rewarded $4 if the die fell on the number 4, and $6 if the die landed on the number 6. Participants were instructed to choose which side of the die — bottom or top — would determine the monetary amount they would receive before rolling. Participants were advised not to tell the researchers which option they preferred, but to write it down on a sheet of paper. In essence, participants might get more money by just lying, which is exactly what many of them did.

“When people [rolled] 20 times, we found that they were incredibly lucky,” said Ariely. “Not lucky 100 percent of the time, but maybe 13 or 14 times.”

His experiment, however, did not end there. Ariely repeated the experiment, but this time with participants wearing a lie detector. Is it true that people still cheat? Yes, and the lie detector backs up this claim. (Ariely admits that it isn't always and ideal.) The major surprise comes when researchers repeat the experiment but tell participants that the money they earn will go to a charity of their choice.

So, what happens next?

“People cheat more,” Ariely says. “And the lie detector stops working.”

Blind to Reality

Lie detectors don’t actually detect lies, of course. They detect the tension humans experience when they tell lies. And what Ariel discovered is that the tension humans experience can disappear when they believe they are doing something good.

Watching Out for Blood, it’s clear that Holmes is a pathological liar. Time and again it’s shown her machines can’t do what she claims. The highly-touted “Edison” she guarded with CIA-like secrecy proved to be a diagnostic disaster, which forced Theranos to rely on commercial technology to perform blood testing, something she denied over and over.

What also is clear is that Holmes believed she was doing something extraordinary and something good. Her invention was going to revolutionize medicine and save lives. When asked (prior to her downfall) by an interviewer what she dreamed, Holmes appeared genuine in her response.

“That less people have to say goodbye too soon to people they love,” she answers.

Ken Auletta, a writer who interviewed Holmes in 2014 for a New Yorker article, said he believes Holmes is incapable of seeing herself as a liar or swindler because she rationalized her actions.

“I wish I could say to her, ‘Elizabeth, I’m going to give you a truth serum, and you’re going to tell me what was going through your mind at that time. The question becomes, do we believe she’d say ‘I knowingly lied.’ I have a hard time imagining her saying that,” Auletta said. “She’s a zealot. And a zealot is such a true believer in what they’re doing that they are blind to the reality of what’s happening.”

What Auletta describes is known as cognitive dissonance.

Although everyone can experience cognitive dissonance, some people are more prone to it than others. One example is zealots, and Ariely's study sheds light on why they exist. People who firmly feel their cause is beneficial are more likely to reject reality that contradict their beliefs or obstruct their aims from being realized.

I’ve previously suggested that cognitive dissonance helps explain why socialists can’t accept the idea that socialism doesn’t work. And, once again, Ariely’s dice experiment can perhaps help us understand why.

The tension humans feel over doing something wrong—such as lying—can vanish if we believe what we’re doing is serving a greater good. The action itself might be wrong, even vile; but if it’s being done for a noble enough reason—more equality, health care for all, poverty alleviation, eradication of a dangerous group—humans are less likely to feel tension over an immoral action and are more likely to rationalize it. They’ll also be less likely to see evidence that shows their idea is not working.

The Greater Good: How Tyrants Are Made

As difficult as it may be to believe, the horrors of the 20th century that saw 100 million killed under collectivist regimes did not begin as plans to commit genocide and mass famine; they began as plans to build a better world. The same can be said of places like North Korea and Venezuela today. The mistake was believing that the noble ends pursued justified the vile means used.

Millions died under the murderous Khmer Rouge regime, but in a 1979 interview its leader Pol Pot explained their goal was simply “to provide an affluent life for the people. There were mistakes made in carrying it out.” Hitler may have been a genocidal maniac, but he died believing his greatest mistake was that he had “been so kind.”

This is the danger of pursuing “the greater good,” and it helps explain why the French philosopher Bertrand De Jouvenel warned that tyranny lurks “in the womb of every Utopia.”

Elizabeth Holmes is not a tyrant. But her inability to see the reality around her helps us understand how tyrants are made.