Mental Model by Joshua Kennon

Kennon-Green & Co. Fiduciary Financial Advisor, Wealth Management, Global Value Investing

Mental Model: The Thief Among Us


One of the things that has perplexed me for a long time is Charlie Munger’s insistence that a significant minority of humanity is wired in such a way that they will steal if given the opportunity, regardless of whether or not they need the resources they are taking from another person.  Whether this is an adaptive evolutionary trait (which would make sense) or a byproduct of other mental models, he asserted that this known fact makes it important for the people designing society’s systems to build in significant checkpoints and safeguards to prevent immoral behavior by people who cannot, for lack of a better term, help themselves.  I finally called this mental model in my own notes, “The Thief Among Us”, because it helped me remember it.

The Millionaire Dentist Who Stole a Navy Veteran’s Debit Card to Buy Pizzas

The power of the mental model was driven home in a major way when I began reading a story from earlier this year.

[mainbodyad]A 14-year Navy veteran living paycheck-to-paycheck and going to school full-time went to the store to buy supplies for his 9-year-old son’s birthday party.  He dropped his debit card in the parking lot.  After returning home and realizing the card was gone, he immediately called the debit card company and informed them.  Within eight minutes, the bank realized someone had swiped the plastic at a pizzeria and called police.  The police offers arrived as the thief was purchasing two large pizzas with extra olives.

The police asked the man if he was having money troubles before arresting him.  He laughed.  The thief was a successful dentist, had $250 in cash in his pocket, an estimated net worth of $3 million to $4 million, and was in town to see his son play for Yale’s baseball team.

While dealing with the credit card company, the Navy veteran missed his son’s birthday party.

The Thief Is Never Who You Think

Retail stores have learned a lot of important lessons about this mental model.  The most likely thief at a store like Target, for example, is a middle aged, respectable looking white woman with two or three children.  Likewise, as ABC news reported about the findings of a recent study, those who are environmentally conscious are more likely to steal:

Pop quiz: You need $20 for lunch and can only ask one person for a loan.

Do you ask a) the eco-conscious vegetarian who only buys green cleaning products, or b) the Hummer-driving meathead who says Al Gore is overrated.

If you choose person A – assuming she cares as much for fellow human beings as she does for the planet – you could end up hungry.

Green consumers are more likely to steal, lie and hoard their money compared with those who are exposed to environmentally friendly products but don’t buy them, according a new study by University of Toronto researchers to be published in the journal Psychological Science.

Another study showed that in the general population, there are certain personality types prone to shoplifting with anti-social, aggressive men being the most common.  Often, the theft has nothing to do with money at all.

The Importance of Internal Audit

My senior year of college, when I had the honor and privilege of interning for one of the biggest insurance companies on the East Coast, I asked the CEO what he thought the single, most important thing I should learn from my experience should be.  He responded, “Internal Audit”, then went on to explain that internal audit was the most important function of a company like a property and casualty insurance group.

Thief Among Us Mental Model

A significant portion of the population is wired to steal regardless of whether they need to for survival. This is why it is vital for those designing systems to create enterprises that can catch this type of behavior and withstand a good deal of ‘sin and folly’ to paraphrase Charlie Munger. Image © Thinkstock

That answer surprised me.  He had learned something that my relative youth and inexperience had not yet taught me: You have to create systems that encourage and demand honesty.  Otherwise, you can go broke.  That means you violate your duty to policyholders, owners (shareholders in the case of stock companies or policyholders in the case of mutual companies), and society.

This was hard for me to understand.  It took me some time because I grew up in a family where there was essentially only one rule: You didn’t lie.  We might get in trouble for something, but the only time we’d be in hell-hath-no-fury territory was when we lied about our actions.  This was so ingrained that years after graduating from college, I came across some books that I had borrowed from a professor and forgot to return in the bustle of two internships, graduation, a book deal, and starting my first business.  I tried to return them to him, only to find out he is now off the grid living in Thailand.  A few times a year, I try to figure out how to track him down and get the materials back in his hands because I had promised to do so.

The takeaway lesson is that, when building your business, internal audit procedures are vital.  You need systems that can protect your stakeholders.  People will try to steal from you.  Vendors will try to rip you off.  It is your moral duty to attempt to stop this “sin and folly” to borrow another Munger phrase.  It’s a lesson that it took me too long to learn because my own internal value system made it hard for me to accept despite the contrary evidence that the behavior was part of mankind’s makeup.  Save yourself the time and come to peace with it.  A significant percentage of people will steal given the opportunity to do so, whether or not they need to steal, whether or not there is a reason for them to steal, or even if there are personal risks to them stealing.  Your job is to make sure they are caught and the system can endure a lot of abuse.