See how Derren Brown used the Wisdom of Crowds to predict the six winning numbers in the National Lottery.
Starts from 7:00 here with Francis Galton and the weight of an ox getting another airing:
When he opened the Guardian Bank and Trust Company in the Cayman Islands in 1986, John Mathewson had no experience, not many clients, and only a cursory knowledge of how banks really worked. But, in his own peculiar way, he was a visionary. What Mathewson understood was that there were many American citizens with lots of money that they did not want the Internal Revenue Service to know anything about, and that these Americans would pay hefty sums if Mathewson could keep their money safe from the prying eyes of the IRS.
So Mathewson obliged them. He showed his clients how to set up shell corporations. He never reported any of the deposits he received to the IRS. And he gave his clients debit cards that allowed them to access their Guardian accounts from anywhere in the United States. Mathewson charged hefty fees for his services— $8,000 to set up an account, $100 for each transaction—but no one seemed to mind. At its peak, Guardian had $150 million in deposits and two thousand clients.
In 1995, Mathewson left the Caymans after a dispute with a government official, and moved to San Antonio to enjoy his retirement. It didn’t last long. Within a few months, he was arrested for money laundering. Mathewson was an old man. He did not want to go to prison. And he had something valuable to trade for his freedom: the encrypted records of all the depositors who had put money into Guardian Trust. So he cut a deal. He pled guilty (and was sentenced to five years’ probation and five hundred hours of community service). And he told the government everything he knew about tax cheats.
The most interesting information Mathewson had to offer was that offshore banks were no longer catering only to drug dealers and money launderers. Instead, these banks served many Americans who had earned their money honestly but simply didn’t want to pay taxes on it, As Mathewson told a Senate panel in 2000, “Most of [Guardian’s] clients were legitimate business people and professionals.” A typical Mathewson client was someone like Mark Vicini, a New Jersey entrepreneur who ran a computer company called Micro Rental and Sales. Vicini was, by all accounts, a respected member of his community. He put his relatives through college. He gave generously to charities. And, between 1991 and 1994, Vicini sent $9 million to the Caymans, $6 million of which he never mentioned to the IRS. This saved him $2. 1 million in unpaid taxes. (It also eventually earned him a five-month stint in federal prison, where he was sent after pleading guilty to tax evasion.)
Mathewson’s clients were not alone, either. In fact, the nineties saw a boom in tax evasion. By the end of the decade, two million Americans had credit cards from offshore banks. Fifteen years earlier, almost none did. Promoters, who often used the Internet to push their scams, advertised “layered trusts,” “offshore asset protection trusts,” and “constitutional pure trusts.” A small but obstinate (and obtuse) group of tax evaders advised people that they didn’t have to pay their taxes because the income tax had never actually been passed by Congress. And old standbys—keeping two sets of books, incorporating yourself as a charity or a church and then writing off all your expenses as charitable contributions—stayed alive. All these schemes did have an important downside: they were illegal. But rough estimates suggested that they were costing the United States as much as $200 billion a year by the end of the decade.
The vast majority of Americans never experimented with any of these schemes. They continued to pay their taxes honestly, and they continued to tell pollsters that cheating on your taxes was wrong. But there’s little doubt that the proliferation of these schemes—and the perception that many of them were successful—made average Americans more skeptical of the fairness of the tax system. Adding to those doubts was the ever-increasing complexity of the tax system, which made it more difficult to know what your fair share of taxes really was, and the 1990s boom in corporate tax shelters, which was responsible for what the Treasury Department called, in 1999, “an unacceptable and growing level of tax avoidance.” The title of a 2001 Forbes article on the tax system captured what more than a few Americans were wondering about themselves: ARE YOU A CHUMP?
Why did this matter? Because tax paying is a classic example of a cooperation problem. Everyone reaps benefits from the services that taxes fund. You get a military that protects you, schools that educate not only your children but the children of others (whom you need to become productive citizens so that they will grow up to support you in your old age), free roads, police and fire protection, and fundamental research in science and technology You also get a lot of other stuff you perhaps don’t want, too, but for most people the benefits must outweigh the costs, or else taxes would be lower than they are. The problem is that you can reap the benefits of all these things whether or not you actually pay taxes. Most of the goods that the government provides are what economists call nonexcludable goods—meaning, as the name suggests, that it’s not possible to allow some people to enjoy the goods while excluding others. If a national missile defense system is ever built, it will protect your house whether or not you’ve ever paid taxes. Once 1-95 was built, anyone could travel on it. So even if you think government spending is a good thing from a purely self-interested perspective, you have an incentive to avoid chipping in your fair share. Since you get the goods whether or not you personally pay for them, it’s rational for you to free ride. But if most people free ride, then the public goods disappear. It’s Mancur Olson’s theory all over again.
We may not normally think of taxpaying as a matter of cooperation, but at its core that’s what it comes down to. Taxpaying is obviously different from, say, being a member of an interest group in one important sense: not paying your taxes is against the law. But the truth is that if you cheat on your taxes, the chances that you’ll get caught have historically been pretty slim. In 2001, for instance, the IRS audited only 0.5 percent of all returns. In purely economic terms, it may actually be rational to cheat. So a healthy tax system requires something more than law. Ultimately, a healthy tax system requires people to pay their taxes voluntarily (if grudgingly). Paying taxes is individually costly but collectively beneficial. But the collective benefits only materialize if everyone takes part.
Why do people take part? In other words, why, in countries like the United States where the rate of tax compliance is relatively high, do people pay taxes? The answer has something to do with the same principle that we saw at work in the story of Richard Grasso: reciprocity. Most people will participate as long as they believe that everyone else is participating, too. When it comes to taxes, Americans are what historian Margaret Levi calls “contingent consenters.” They’re willing to pay their fair share of taxes, but only as long as they think that others are doing so, too, and only as long as they believe that people who don’t pay their taxes have a good chance of being caught and punished. “When people start to feel that the policeman is asleep, and when they think others are breaking the law and getting away with it, they start to feel like they’re being taken advantage of,” says Michael Graetz, a law professor at Yale. People want to do the right thing, but no one wants to be a sucker.
Consider the results of public-goods experiments that the economists Ernst Fehr and Simon Gächter have run. The experiments work like this. There are four people in a group. Each has twenty tokens, and the game will last four rounds. On each round, a player can either contribute tokens to the public pot, or keep them for himself. If a player invests a token, it costs him money. He invests one token, and he personally earns only 0.4 tokens. But every other member in the group gets 0.4 tokens, too. So the group as a whole gets 1.6 tokens for every one that’s invested. The point is this: if everyone keeps their money and invests nothing, they each walk away with twenty tokens. If everyone invests all their money, they each walk away with thirty-two tokens. The catch, of course, is that the smartest strategy ordinarily will be to invest nothing yourself and simply free ride off everyone else’s contributions. But if everyone does that, there will be no contributions.
As with the ultimatum game, the public-goods games are played in a similar fashion throughout the developed world. Most people do not act selfishly at first, instead, most contribute about half their tokens to the public pot. But as each round passes, and people see that others are free riding, the rate of contribution drops. By the end, 70 to 80 percent of the players arc free riding, and the group as a whole is much poorer than it would otherwise be.
Fehr and Gächter suggest that people in general fall into one of three categories. Twenty-five percent or so are selfish—which is to say they are rational, in the economic sense—and always free ride. (That’s close to the same percentage of people who make lowball offers in the ultimatum game.) A small minority are altruists, who contribute heavily to the public pot from the get-go and continue to do so even as others free ride. The biggest group, though, are the conditional consenters. They start out contributing at least some of their wealth, but watching others free ride makes them far less likely to keep putting money in. By the end of most public- goods games, almost all the conditional consenters are no longer cooperating.
The key to the system, then, is making sure the conditional consenters keep cooperating, and the way to do that is to make sure they don’t feel like suckers. Fehr and Gächter tweaked the public- goods game to demonstrate: this time, at the end of every round, they revealed what each person had or had not contributed to the public pot, which made the free riders visible to everyone else. Then they offered people the opportunity to punish the free riders. For the price of a third of a token, you could take one token away from the free rider. Two things happened as a result. First, people spent money to punish the evildoers—even though, again, it was economically irrational for them to do so. Second, the free riders shaped up and started contributing their fair share. in fact, even during the last rounds of these games, when there was no reason to keep contributing (since no punishment could be inflicted), people continued to chip in.
When it comes to solving the collective problem of how to get people to pay their taxes, then, there are three things that matter. The first is that people have to trust, to some extent, their neighbors, and to believe that they will generally do the right thing and live up to any reasonable obligations. The political science professor John T. Scholz has found that people who are more trusting are more likely to pay their taxes and more likely to say that it’s wrong to cheat on them. Coupled with this, but different from it, is trust in the government, which is to say trust that the government will spend your tax dollars wisely and in the national interest. Not surprisingly, Scholz has found that people who trust the government are happier (or at least less unhappy) about paying taxes.
The third kind of trust is the trust that the state will find and punish the guilty, and avoid punishing the innocent. Law alone cannot induce cooperation, but it can make cooperation more likely to succeed. If people think that free riders—people not paying taxes but still enjoying all the benefits of living in the United States—will be caught, they’ll be happier (or at least less unhappy) about paying taxes. And they’ll also, not coincidentally, be less likely to cheat. So the public image of the IRS can have a profound impact on the way conditional consenters behave. Mark Matthews, head of the agency’s Criminal Investigative Division, was keenly aware that the success of criminal investigations was measured not just by the number of criminals caught but also by the public impact of its work.. “There is a group of people that could be tempted by these scams, a group that could let aggressive tax planning become too aggressive. We need to convince them before that happens that it doesn’t make sense,” Matthews said. “A huge part of the agency’s mission is making sure that people believe the system works.”
Getting people to pay taxes is a collective problem. We know what’ the goal is: everyone should pay their fair share (this says nothing, of course, about what a fair share is). The question, then, is how? The U.S. model—which is, by global standards, successful, since despite Americans’ vehement anti-tax rhetoric they actually evade taxes far less than Europeans do—suggests that while law and regulation have a key role to play in encouraging taxpaying, they work only when there is an underlying willingness to contribute to the public good. Widespread taxpaying amounts to a verdict that the system, in at least a vague sense, works. That kind of verdict can only be reached over time, as people—who perhaps first started paying taxes out of fear of prosecution—recognize the mutual benefits of taxpaying and institute it as a norm.
Another way of putting this is to say that successful taxpaying breeds successful taxpaying. And that positive-feedback loop is at work, I’d argue, in most successful cooperative endeavors. The mystery of cooperation, after all, is that Olson was right: it is rational to free ride. And yet cooperation, on both a small and a large scale, permeates any healthy society. It’s not simply the obvious examples, like contributing to charities or voting or marching on picket lines, all of which are examples of collective action that people participate in. It’s also the subtler examples, like those workers who, by all rights, could shirk their responsibilities without being punished (because the costs of monitoring them are too high) and yet do not, or those customers who leave tips for waitresses in restaurants in distant cities. We can anatomize these acts and explain what gives rise to them. But there is something irreducible at their heart, and it marks the difference between society on the one hand and just a bunch of people living together on the other.
In five thousand American homes, there are television sets that are rather different from your standard Sony. These sets have been wired by Nielsen Media Research with electronic monitoring devices called “people meters.” The people meters are designed to track, in real time, two things: what TV shows are being watched and, just as important, who is watching them. Every person in a “people-meter family” is given a unique code, which they’re supposed to use to log in each time they sit down to watch television. That way, Nielsen—which downloads the data from the people meters every night—is able to know that Mom and Dad like CSI, while their college-age daughter prefers Alias.
Nielsen, of course, wants that information because advertisers crave demographic data. Pepsi may be interested to hear that 22 million people watched a particular episode of Friends. But what it really cares about is how many people aged eighteen to twenty- four watched the episode. The people meter is the only technology that can tell Pepsi what it wants to know. So, when the major TV networks sell national advertising, it’s the people-meter data that they rely on. Five thousand families determine what ads Americans see and, indirectly, what programs they watch.
There is, of course, something inherently troubling about this. Can five thousand really speak for 120 million? But Nielsen works hard to ensure that its families are a reasonable match, in demographic terms, for the country as a whole. And while the people meters are hardly flawless—over time, people become less religious about logging in—they have one great advantage over most ways of gathering information: they track what people actually did watch, not what they remember watching or say they watched. All in all, Nielsen’s numbers are probably more accurate than your average public-opinion poll.
The trouble with people meters is that there are only five thousand of them, and they are scattered across the country. So while Nielsen’s daily ratings provide a relatively accurate picture of what the country as a whole is watching, they can’t tell you anything about what people in any particular city are watching.
That matters because not all the ads you see on prime-time television are national ads. In fact, a sizable percentage of them are local. And local advertisers like demographic information as much as national advertisers do. If you own a health club in Fort Wayne, Indiana, you’d like to know what Tuesday prime-time show eighteen- to thirty-four-year-olds in Fort Wayne watch. But the people meters can’t tell you.
The major networks have tried to solve this problem with what’s known as “sweeps.” Four times a year—in February, May, July, and November—Nielsen sends out 2.5 million paper diaries to randomly selected people in almost every TV market in the country and asks them to record, for a week, what programs they watch. Nielsen also collects information on all the people who fill out diaries, so that at the end of each sweeps month it’s able to produce demographic portraits of the country’s TV markets. The networks’ local stations—the affiliates—and local advertisers then use the information from those diaries to negotiate ad rates for the months ahead.
What’s curious about this system is that it’s lasted so long— sweeps have been around since the early days of television—even though its flaws are so obvious and so profound. To begin with, there’s no guarantee sweeps ratings are accurate. The lower the response rate to a random survey, the greater the chance of error, and the sweeps system has a remarkably low response rate—only 30 percent or so of the diaries that Nielsen distributes are filled out. That helps create what’s called “cooperator bias,” which means that the people who cooperate with the survey may not watch the same programs as people who don’t. (In fact, they almost certainly don’t.) And the low-tech nature of the diaries creates problems, too. People don’t fill out the diaries as they’re actually watching TV Like most of us, they procrastinate and fill out the diaries at the end of the week. So what people record will be what they remember watching, which may not match what they did watch. People are more likely to remember high-profile shows, so the diary system inflates network ratings while deflating the ratings of smaller cable networks. The diaries are also no good at chronicling the restless viewing habits of channel surfers.
Even if the diaries were accurate, though, they wouldn’t be able to tell advertisers or the networks what people are really watching most of the time. That’s because network programming during sweeps months has almost nothing in common with network programming during the other eight months of the year. Be cause sweeps matter so much to local stations, the networks are forced into what’s called “stunt” programming. They pack sweeps months with onetime specials, expensive movies, and high-profile guest appearances. February 2003, for instance, became the month of Michael Jackson on network television, with ABC, NBC, and Fox all spending millions of dollars on shows about the bizarre pop singer. And that same month saw the long-awaited (at least by a few) climaxes to the unreality-TV sagas The Backelorette and Joe Millionaire. The networks also have to air only new episodes of their best shows. During sweeps months, no reruns are allowed.
Stunt programming is bad for almost everyone: the advertisers, the networks, and the viewers. Advertisers, after all, are paying prices based on ratings that reflect stunt programming. Allen Banks, executive media director at Saatchi and Saatchi, North America, has called sweeps “a sham, a subterfuge.” The picture they give you is anything but typical of what’s going on the rest of the year,” he has said. Some advertisers do try to account for the impact of sweeps when buying ad time, but since in most local markets sweeps represent the only hard data they have, the numbers still end up being disproportionately important.
For the networks, meanwhile, sweeps months mean that much of their best—in the loose sense of the word—programming will be wasted in head-to-head competition. During sweeps month, in any given hour there may be two or three shows worth watching (if you really like television). But viewers can only watch one of those shows. Had the networks been able to air those shows at different times instead of against each other, the total number of people who watched them would have been much higher. By pitting their best shows against each other, the networks actually shrink their total viewership. In the same vein, sweeps are bad for TV viewers because they guarantee a paucity of new and interesting programming in non-sweeps months. If you’re a connoisseur of lurid spectacle, your cup runneth over in November. But in January, you will be drowning in a sea of reruns.
Sweeps, then, are not very good at measuring who’s watching what; they force advertisers to pay for unreliable and unrepresentative data; and they limit the number of viewers the networks can reach over the course of a year. Everyone in television knows this, and believes that the industry would be much better off with a different way of measuring local viewership. But even though there is a better alternative available__namely Nielsen’s people meters— everyone in television continues to participate in the sweeps system and play by its rules. This raises an obvious question: Why would so many people acquiesce in such a dumb system?
The immediate answer is that it’s too expensive to change. People meters are costly to install and even more costly to keep running, since they’re always on. Wiring every local market with people meters would cost . . . well, it’s not exactly clear since Nielsen refuses to release any data on how expensive the people meters are. But at the very least, if you wanted to wire thousands of homes in each of the country’s 210 TV markets, you’d likely be talking at least nine figures. That’s a lot more than the paper diaries—which people fill out for free—cost, even with the postage included.
Still, even $1 billion isn’t that much money in the context of the TV and advertising industries as a whole. Every year something like $25 billion in ad money is spent on the basis of sweeps data, which means that $25 billion is almost certainly being misspent. The networks, meanwhile, spend hundreds of millions of dollars every year during sweeps that could certainly be better spent elsewhere, while they also pay a price for the suicidal competition that sweeps creates. So it seems likely that investing in people-meter technology__or something like it—would be the collectively intelligent thing to do, and would leave the networks and the advertisers much better off.
The problem is that even though most of the players in the TV business would be better off if they got rid of sweeps, no single player would he better off enough to justify spending the money on an alternative. Local advertisers in Sioux Falls, for instance, would obviously like it if they knew that the ratings of the CBS affiliate in Sioux Falls were really accurate. But local advertisers in Sioux Falls don’t spend enough money to make it worth their while to invest in people meters for the town. And ABC might prefer not to have to stunt program, but it doesn’t get much direct economic benefit from a more accurate local-rating system.
One obvious answer would be for everyone to pitch in and fix the system. But that strategy collides with the stinging critique of the possibility of cooperation that the sociologist Mancur Olson offered in his 1965 book, The Logic of Collective Action. Olson focused his work around the dilemma that interest groups, like the American Medical Association, faced in trying to get individual members to participate. Since all doctors benefited from the AMA’s lobbying efforts, but no one doctor’s effort made much of a difference in the success or failure of those efforts, Olson thought that no doctors would voluntarily participate. The only answer, he argued, was for the groups to offer members other benefits—like health insurance or, in the case of the AMA, its medical journal—--that gave them an incentive to join. Even then, Olson suggested that it would be difficult at best to get people to do things like write a letter to Congress or attend a rally. For the individual, it would always make more sense to let someone else do the work. Similarly, if the group of networks and stations and advertisers were to act, everyone in the business—including those who did nothing— would reap the benefits. So everyone has an incentive to sit on their hands, wait for someone else to do something, and free ride. Since everyone wants to be a free rider, nothing gets done.
As we’ve seen, it’s not clear that Olson’s critique is as universally applicable as it was once thought to be. Groups do cooperate. People do contribute to the common good. But the fact that people will contribute to the common good doesn’t mean that businesses necessarily will. The kind of enlightened self-interest that can lead people to cooperate requires an ability to think about the long term. Corporations are, perhaps because investors encourage them to be, myopic. And in any case, the way the TV industry is organized makes the networks and advertisers more susceptible to the collective-action trap than they otherwise would be.
The way Nielsen ratings are paid for exacerbates the problem. Since sweeps data is valuable to both the affiliates and the advertisers, you might imagine that the cost would be split between them. In fact, though, the affiliates pay 90 percent of the cost of collecting and analyzing the sweeps diaries, and since the one who pays is the one who has the power, the affiliates dictate what happens to sweeps. As it turns out, they’re the only players in television who like sweeps. The diary system, after all, favors recognizable names and networks, which means it inflates the affiliates’ ratings at the expense of smaller stations. The affiliates don’t pay any of the hundreds of millions of dollars the networks spend on sweeps programming. They just reap the benefits. As for the negative effect that sweeps has on viewership in the other eight months of the year, the affiliates don’t really care about those months, since their ratings aren’t being tracked then, It’s only a little bit of an overstatement, in fact, to say that the only shows the affiliates care about are those that air in February, May, July, and November. Far from wanting to use people meters, the affiliates are actively hostile to them. In fact, when Nielsen introduced people meters into Boston in 2002, not a single affiliate signed up for the service. The stations decided that no ratings would be better than the people- meter numbers.
As much as the persistence of sweeps testifies to the problem of collective action, it also demonstrates the perils of allowing a single self-interested faction to dictate a group’s decision. If funding a reliable local-ratings system was something that historically the networks and advertisers had helped pay for, they might actually have had some leverage when it came to revamping the system. Instead, they’re effectively dancing to the affiliates’ tune.
All in all, its a grim picture, even if you leave out Joe Millionaire and Michael Jackson’s face. It is a picture that’s going to change—as cable becomes important, the paper-diary system looks more and more like a relic, and in 2003 Nielsen announced that it would go ahead and roll out people meters in the country’s top-ten television markets. But what remains striking is that a multibillion-dollar industry has been stuck for a long time with a backward, inaccurate technology because the major players could not figure out how to cooperate. If successful solutions to cooperation problems are often, as in the case of the uprising against Richard Grasso, the result of individually irrational acts producing collectively rational results, the failure to solve cooperation problems is often the result of the opposite phenomenon. On their own, all the key players in the TV industry have been smart. But together, they’ve been dumb.
The social benefits of trust and cooperation are, at this point, relatively unquestioned. But they do create a problem: the more people trust, the easier they are for others to exploit. And if trust is the most valuable social product of market interactions, corruption is its most damaging. Over the centuries, market societies have developed mechanisms and institutions that are supposed to limit corruption, including auditors, rating agencies, third-party analysts, and, as we’ve seen, even Wall Street banks. And they have relied, as well, on the idea that companies and individuals will act honestly—if not generously—because doing so is the best way to ensure long-term financial success. In addition, in the twentieth century a relatively elaborate regulatory apparatus emerged that was supposed to protect consumers and investors. These systems work well most of the time. But sometimes they don’t, and when they don’t, things come apart, as they did in the late 1990s.
The stock-market bubble of the late nineties created a perfect breeding ground for corruption. In the first place, it wiped away, almost literally, the shadow of the future for many corporate executives. CEOs who knew that their companies’ future cash flow could never justify their outrageously inflated stock prices also knew that the future was therefore going to be less lucrative than the present. Capitalism is healthiest when people believe that the long-term benefits of fair dealing outweigh the short-term benefits of sharp dealing. In the case of the executives at companies like Enron and Tyco, though, the short-term gains from self-interested and corrupt behavior were so immense—because they had so many stock options, and because their boards of directors paid them no attention—that any long-term considerations paled by comparison. In the case of Dennis Kozlowski, the CEO of Tyco, for instance, it’s hard to see how he could have made $600 million honestly if he had stayed CEO of Tyco. But dishonestly, it was remarkably easy. Investors should have understood that the rules of the game had changed, and that the incentives for CEOs to keep their promises, or to worry about the long-term health of their businesses, had effectively disappeared. But they didn’t, and because they were so intoxicated with their bull-market gains, they also stopped doing the due diligence that even trusting investors are supposed to do.
At the same time, the mechanisms and institutions that were supposed to limit corruption ended up facilitating corruption rather than stopping it, The business of Wall Street and the accounting industry is supposed to be to distinguish between the trustworthy and the trustworthless, just as the Underwriters Laboratory distinguishes between safe and dangerous electrical equipment. If Goldman Sachs underwrites a stock offering for a company, it’s saying that the company has real value, as is Merrill Lynch when one of its analysts issues a buy recommendation. If the New York Stock Exchange lists a company, it’s attesting to the fact that the firm is not a fly-by-night operation. And when Ernst and Young signs off on an audit, it’s telling us that we can trust that company’s numbers.
We are willing to believe Ernst and Young when it says this because its entire business seems to depend on its credibility. If the Underwriters Laboratory started affixing its UL mark to lamps that electrocuted people, pretty soon it wouldn’t have a business. In the same way, if Ernst and Young tells us to trust a company that turns out to be cooking the books, people should stop working with Ernst and Young. As Alan Greenspan has said of accountants, “The market value of their companies rest[s] on the integrity of their operations.” So accountants don’t have to be saints to be useful. In their self-interest alone will compel them to do a good job of separating the white hats from the black. But this theory only works if the firms that don’t do a good job are actually punished for their failure. And in the late nineties, they weren’t. The Nasdaq listed laughable companies. White-shoe firms such as Goldman Sachs underwrote them. The accountants wielded their rubber stamps. (Between 1997 and 2000, seven hundred companies were forced to restate their earnings. In I98 1,just three companies did.) But none of these institutions paid a price in the marketplace for such derelictions of duty. They got more business, not less. In the late nineties, Arthur Andersen was the auditor of record in accounting disasters like Waste Management and Sunbeam. Yet investors chose not to look skeptically at companies, such as WorldCom and Enron, that continued to use Andersen. In effect, investors stopped watching the watchmen, and so the watchmen stopped watching, too. In a world in which not all capitalists are Quakers, trust but verify remains a useful byword.