The Giant Pool of Money
Social proof and the confirmation trap were evident in the actions of many or all of the various players involved in the subprime mortgage crises (or credit crises) of 2008. From the NPR News radio program “The Giant Pool of Money,” the characters on the different rungs of the subprime mortgage value chain explain their actions, showing these two characteristics.
Social proof is a behavior by which we determine correctness of opinions, beliefs, or actions by comparing them to others’ opinions, beliefs or actions. Social proof can promote conformity either by providing information and validation or by creating social pressure to go along. As we saw in class in reviewing the Asch Experiment with the three bars or the Milgram Experiment with the electric shocks, authority plays an important role in strengthening social proof. In the case, we see that Mike Garner of Silver State mortgages had his own suspicions that they were selling bad mortgages, but since the big banks on Wall Street were buying them, he figured it was OK. A lot of the brokers and mortgage pool originators on the ground seemed to believe there was something that the big guys on Wall Street knew that they didn’t. In the class lecture on social proof, it was stated that social proof can be a particularly strong force in cases of ambiguity and uncertainty, like when it is unclear as to what a correct response is. We also discussed in lecture how social proof can occur in little steps, like in the military with the Abu Gharib example. Soldiers spoke of a sliding scale of abuses that gained acceptance before eventually more extreme cases were uncovered at the Iraqi prison. The same thing happened with the types of loans sold – first stated income verified asset was accepted, then not before long, state income stated asset with money in the bank, then the same with only an accountant statement, and soon no income verified asset and NINAs were all taken.
To correct for social proof in this industry,
Social proof is a behavior by which we determine correctness of opinions, beliefs, or actions by comparing them to others’ opinions, beliefs or actions. Social proof can promote conformity either by providing information and validation or by creating social pressure to go along. As we saw in class in reviewing the Asch Experiment with the three bars or the Milgram Experiment with the electric shocks, authority plays an important role in strengthening social proof. In the case, we see that Mike Garner of Silver State mortgages had his own suspicions that they were selling bad mortgages, but since the big banks on Wall Street were buying them, he figured it was OK. A lot of the brokers and mortgage pool originators on the ground seemed to believe there was something that the big guys on Wall Street knew that they didn’t. In the class lecture on social proof, it was stated that social proof can be a particularly strong force in cases of ambiguity and uncertainty, like when it is unclear as to what a correct response is. We also discussed in lecture how social proof can occur in little steps, like in the military with the Abu Gharib example. Soldiers spoke of a sliding scale of abuses that gained acceptance before eventually more extreme cases were uncovered at the Iraqi prison. The same thing happened with the types of loans sold – first stated income verified asset was accepted, then not before long, state income stated asset with money in the bank, then the same with only an accountant statement, and soon no income verified asset and NINAs were all taken.
To correct for social proof in this industry,