How Illusory Superiority Can Threaten Your Fraud Investigations

Similar to the overconfidence bias, illusory superiority is described as when you overestimate your own abilities when compared to others. Confidence is an important trait for fraud examiners, but too much of it can lead to mistakes in investigations — and illusory superiority can contribute to overconfidence in imperceptible ways.

Fraud examiners spend significant amounts of time gathering evidence to prove allegations of fraud, and integrity and objectivity are their guiding principles. Yet just like the suspects you pursue, the unconscious mind can interfere with your ethical decision-making processes despite your best efforts. If a fraud examiner does not take steps to mitigate naturally occurring biases, they run the risk that their ethicality, as well as their objectivity and integrity, can be inadvertently compromised.

I will be exploring the three main unconscious threats to objectivity in my session “The Dark Triad: Three Unconscious Threats to Objectivity for Fraud Examiners” at the 33rd Annual ACFE Global Fraud Conference this June. That triad is composed of illusory superiority, confirmation bias and bounded ethicality. Most anti-fraud professionals are familiar with confirmation bias, but fewer are familiar with illusory superiority and how it can affect their investigations.

Illusory superiority
Similar to the overconfidence bias, illusory superiority is described as when you overestimate your own abilities when compared to others. Confidence is an important trait for fraud examiners, but too much of it can lead to mistakes in investigations — and illusory superiority can contribute to overconfidence in imperceptible ways.

From the moment you receive a fraud allegation, your brain gets to work trying to figure out the validity of the claim, the type of scheme and how you are going to conduct the fraud examination, among other things. The information that forms your initial impression is mixed with your life experiences, which allow you to first come up with your hypothesis of what has occurred. From there, you decide whether there is enough substance to pursue the allegations put forward.

Illusory superiority can impact your assessment without your conscious knowledge. Harry Markopolos sent numerous letters to the Securities and Exchange Commission (SEC) alleging that Bernie Madoff was committing a massive fraud. Erika Cheung and Tyler Schultz consistently alleged that Theranos was a fraud. Despite each allegation turning out to be true, experienced investigators assessed these complaints and either questioned their validity or ignored them completely. Whether you realize it or not, logic and your prior experience lead you to conclusions about what is possible. If the allegations put forward do not match your expectations, illusory superiority can cause you to be overconfident in your assessment of facts and to ignore worthwhile information.

Illusory superiority can also affect your assessment of interviewees. How many times have you interviewed someone and thought that there was no way their version of events could have happened? Part of your training as a fraud examiner included the recommendation of maintaining a healthy dose of professional skepticism. While you should clearly question your interviewee, especially in areas where the story doesn’t seem to make logical sense, you also have to be cautious in order to ensure that your beliefs and assertions do not affect the interviewee’s version of facts.

Consider a study done by Julia Shaw, a forensic psychiatrist at the University of Bedford. In her study, she was able to convince 70% of the participants to not only confess to a crime they didn’t commit, but also to provide detailed memories about the crime. Shaw was able to accomplish this task in three hours by feeding participants tidbits of factual information that she had extracted from them in a previous interview about their past history. She drew conclusions from those details which she used to fabricate a story that the participant had committed a crime. When people are convinced something is true, their imagination takes over and they use past experiences, both personal and from other sources, to visualize the suggested situation. Memory is a patchwork that can stitch together fact and fiction in the right conditions. 

Illusory superiority can also occur when you gather facts and evidence that support your hypothesis, potentially leading you to discount other perspectives. If you start to voice your opinions to colleagues, supervisors or others, you will be less likely to consider alternative explanations for the facts and evidence collected. Dr. Robert Cialdini, Regents Professor Emeritus of psychology and marketing at Arizona State University, refers to this as the consistency principle. In his book “Influence: The Psychology of Persuasion,” he writes, “Once we have made up our minds about an issue, stubborn consistency allows us a very appealing luxury: We really don’t have to think hard about the issue anymore. We don’t have to sift through the blizzard of information we encounter every day to identify relevant facts; we don’t have to expend mental energy to weigh the pros and cons; we don’t have to make any further tough decisions.” Because of the confidence in your abilities as a fraud examiner, illusory superiority could lead you to embrace incorrect conclusions for a much longer period of time than normal, especially after you have publicly aired your opinion.

What can you do?
To overcome unconscious biases, fraud examiners should try to engage conscious thinking to assist in clarifying the ethical landscape more effectively. This is easier said than done, however. That’s because conscious thought requires effort. Much like a cell phone battery, the more you use conscious thinking, the quicker your mind wears down, which then allows unconscious thinking to take charge. One of the ways to put this idea into practice is to question the significant decisions you make in your fraud examination. Ask yourself what would happen if you made the exact opposite decision of the one that you were inclined to make. Doing so can get you to consider alternative perspectives, which can open up new paths of investigation.

Your mindset is also important to overcoming illusory superiority, confirmation bias and bounded ethicality. As a fraud examiner, you are always on the lookout for evidence of guilt, inasmuch as that it is an inherent part of investigation. And while many fraud examiners assert that they will follow wherever the evidence leads, fraud examiners often discount how biases affect their perception of the evidence obtained. Establishing an alternate mindset wherein you actively look for the evidence of innocence as hard as you look for the evidence of guilt can create different investigative paths that might otherwise have been overlooked.

Since all fraud examiners are cognitively limited by the brain’s natural processes, engaging your colleagues, especially those who do not have a similar background as you, can create the perspectives you need to develop new and different investigative hypotheses. Specifically assigning someone the role of devil’s advocate, armed with the authority to challenge your assumptions without fear of retribution, can prevent mistakes before they have an adverse impact on your fraud examination. 

As a human being, you are limited by your natural biology. No fraud examiner wants to make mistakes in their investigations, especially those that are derived from bias and a lack of objectivity. By taking steps to question your opinions and assumptions, you generate the additional perspectives needed to vet your fraud examination more properly, while also consciously considering alternatives that may lead you to a more ethical outcome.

Learn more about unconscious biases and how to prevent them from interfering with investigations in Bret’s session “The Dark Triad: Three Unconscious Threats to Objectivity for Fraud Examiners” at the 33rd Annual ACFE Global Fraud Conference, June 19-24.