derek-van-schaik 1 year ago
psychology investigations #Economy and Crypto

What The Top of Mount Stupid Looks Like | FTX's Caroline Ellison

What’s the psychology of why Caroline Ellison is at the peak of Mount Stupid?

Caroline Ellison is the ex-girlfriend of Sam Bankman-Fried, was the former CEO of the now bankrupt Alameda Research, which was the trading arm of the also now bankrupt FTX.

Caroline is now apparently on the run with possibly a few hundred mil of customer money. There are many clips going around of her speaking about crypto-trading on podcasts where it sounds like she’s on Mount Stupid, but what’s going on with her.

In psychology, there’s something call the Dunning-Kruger Effect. Naturally, when someone begins learning something new their confidence begins to rise extremely high because they don’t fully understand the complexity of the topic, which leads them to the peak of what’s actually called Mount Stupid.

Have you ever taught a friend or new employee your field and all of a sudden they get very arrogant, acting like it’s easy, behaving like they know it just as well as you do, which may cause you to feel insulted? This happens because they’re starting to climb Mount Stupid overestimating their competence and don’t even realize they are on Mount Stupid, while you’ve been through the process with real experience and expertise, and you know the complexity of the topic and all that’s involved.

There’s a saying I like that’s very fitting here, “The more you know - the more you know you don’t know.” An easy way to spot a novice within a field is when they claim to know everything within that field.

A true expert knows the vastness of the field and how little they know within the field.Ever hear someone say, “I know just enough to be dangerous?” That’s typically said by someone who is starting to come down from the peak of Mount Stupid and begins to acknowledge how little they know on the topic.

However, there are some people who work in a field who stay at the top of Mount Stupid by subconsciously shielding themselves from learning anything further because learning can be intimidating, humbling, and causes insecurity since it reveals how little they know. Therefore, they consistently try to avoid this necessary valley of despair by perpetually living in their manufactured bubble atop Mount Stupid. Therefore, they maintain the belief that they know everything about a field but actually know very little. Since they never experienced the valley of despair, they don’t get to reach this incline slope of enlightenment to gain real competence and expertise, which builds authentic confidence.

Going back to Caroline, she was a math major and worked as a researcher at a trading firm out of college for a year and a half but lacked real world trading experience and the application of mathematical concepts with finance, business, and trading. This caused her to do and say stupid things like this.

The crypto market was surging through most of the time she was involved with Alameda Research and FTX. It’s easy to be successful trading in a bull market when everything is going up, but a lot more difficult to be successful when the market begins to transition from bull to bear where everything begins to go down. Her initial successful trading in the easy bull market built false confidence reinforcing her false belief that she’s a great trader, but in reality, a bull market makes everyone feel like a great trader.

Additionally, she apparently had little direction from truly experienced traders to guide, ground, and humble her, which resulted in her sitting in a bubble atop Mount Stupid for a very long-time saying and doing stupid things, causing her to poorly gambling away billions of dollars in customer funds unbeknownst to the customers.Or maybe it was all just a Ponzi scheme from the beginning where the plan was to steal billions from customers, run away, and hang out on a yacht in the middle of the Mediterranean.

Derek Van Schaik
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