The Indictment of the hedge fund SAC

  Last month, federal prosecutors indicted the large and profitable hedge fund SAC, labeling it a criminal enterprise. The indictment charges that the firm and its portfolio managers, under the direction of its owner, Steven A Cohen, engaged in substantial insider trading; that is, soliciting and trading on material information about companies that was not in the public domain. As the indictment reads, “This insider trading was substantial, pervasive and on a scale without known precedent in the hedge fund industry.”

While the charge is severe, it actually reflects the prosecutor’s failure to indict Steven Cohen directly as someone who solicited and or paid for inside tips. This, despite the fact that the prosecutors wiretapped his home phone for two weeks and the Securities and Exchange Commission combed through all of the firm’s trades and emails. Instead, they took the unusual step of arguing that the firm’s purposes were criminal and that its ill-gotten gains, when mixed with legitimately acquired profits, was evidence that it was laundering dirty money. The last time prosecutors charged an enterprise, rather its officers or employees, was when the accounting firm Arthur Anderson was charged with helping executives from Enron, the energy company, to cook its books. Anderson collapsed shortly afterwards, as its clients took back their business. Thousands of people lost their jobs. As a result, prosecutors have been very reluctant to charge enterprises rather than individuals. However, had they not filed these charges in July, the statute of limitations against the firm and against Steven Cohen would have expired this summer.

The indictment notes that four one-time SAC employees pleaded guilty to insider trading while at the fund, while five others have been implicated in such conduct. In the most damming instance, a portfolio manager, Matthew Martoma, got information from a physician, who was privy to the results of a trial of an Alzheimer’s drug. The physician has admitted giving Martoma this information. Believing at first that the drug would prove to be effective, Martoma had urged Cohen to buy shares of the two drug companies sponsoring the trials.  But when the physician tipped Martoma off that the drug trial had failed, Martoma, the prosecutors charge, told Cohen, during a twenty-minute phone call, to sell his shares; this only days before the trial results were to be presented for the first time publicly at a scientific conference. (Prosecutors know the timing of the phone call, not its contents.) As one journalist notes, “The indictment describes a sudden, massive, and highly confident change in sentiment on the part of SAC. The hedge fund didn’t just sell off its large position in the two companies, it put new money at risk by shorting them.” As the journalist notes, when an investor shorts a stock, “it exposes itself to potentially unlimited losses,” since it is borrowing shares and then selling them, betting that its price will fall, when it fact its price could rise without limit. It takes considerable conviction to short a stock. SAC avoided losses of $194 million by selling its shares, and made $82 million on the short sale. Prosecutors charge that Martoma’s conviction was not based on good detective work but on inside information. Few observers doubt Martoma’s guilt, though he is pleading not-guilty. But no one but Martoma and Cohen know what they said to each other during that twenty-minute phone call. 

Prosecutors have taken the risk of charging SAC with being a criminal enterprise in part because SAC, under Cohen’s direction, has earned extraordinary returns over its lifetime. For example, SAC earned 70% returns, “riding the high tech wave of 1998-99 and then even a more mind boggling 70%, betting against the very same stocks in 2000.” In 2006 his fund returned 32%, and in 2007, 14%, while the S&P index earned only 16% and 5% in those same years. The fund has had only one down year, 2008, in the midst of the financial crisis, and since 1996 has averaged annual returns of 25%. This compares favorably with Warren Buffet’s earnings of 8.5%. If, as many academicians argue, stock prices move for the most part randomly, SAC, prosecutors concluded, must be getting inside information.

Yet few people doubt that Cohen is a preternaturally gifted trader. As one person noted, “Let me tell you, as his clearing agent, I’ve seen all his records, hundreds of thousands of trades, all of it, and my conclusion is simply that the guy is an artist. He looks at a stock market in chaos and sees order. He was just right over and over and over. I’ve sat and watched him trade, watched him stare at his terminal in silence, and I can tell you, without a doubt, he is the best that ever was at what he does.” Cohen, like many great traders, was a master poker player in high school and college and became fascinated by stocks when he was 11 years old. When he began trading he was characterized as a superlative “tape reader." He could look at the “ticker-tape” as stock names, volume traded,  prices and price changes moved across the screen, and discern organized patterns of buying and selling. As he once described it, “I’m not looking at anything. Just the numbers on the screen. I couldn’t even tell you what the company did, and I don’t care. I’ve always been intuitive like that. It was always seat-of-the-pants.” In his early years he developed a day-trading style, moving in and out of particular stocks, cutting his losses quickly and speculating on movement and catalysts. As he once noted, “We trade fast. It’s not growth investing. Its short term catalyst investing.” Similarly a colleague describing his trading style, said that, “He is fundamentally a speculator. He does not care if a stock is worth 10 or 100, he wants to know if it going from 10 to 11 or from 10 to zero.”

His skill may appear less magical if we think of its as a feat of abstraction, seeing in numbers themselves, without reference to their substantive meaning, the signatures of emotions that drive trading. In some degree this is what “chartists, (people who look at charts of stock movements without reference to the underlying value of stocks) try to do. But it appears that Cohen can do this close to instantaneously. Certainly, there have been famous mathematicians, such as Benoit Mandlebrot, who had a preternatural ability to see patterns in pure numbers. It is also plausible that his poker playing skills, the ability to control impulses and play purely based on probabilities, helped him regulate his feelings as he watched the tape.

Yet, if we believe that his artistry was the precondition for his early success, it also seems reasonable to conclude that he could not grow a firm based on his talent alone. It would be impossible to train others to trade as he did, so his profits would be limited by his own available time and attention. Interestingly, it appears that he tried. He hired a psychiatrist and performance coach, Arie Kiev, to help his traders regulate their feelings as they bought and sold stocks. But sometime in the early nineties, he developed a new conception of his firm as an “information gathering machine,” and described his trading as “information arbitrage.” According to a marketing document SAC circulated to investors, SAC by 2009 had more than 90 research analysts covering two-dozen industry sectors.” The firm's “edge," the brochure added, included, "over 60 portfolio management teams with deep industry networks."

In addition, by paying investment banks and brokers good money for their trading services, Cohen got good market information from them. As one journalist writes, “SAC is different because it is of the Wall Street system. The firm reportedly pays more total brokerage commissions every year than any other group on earth…brokerages and analysts bombard SAC with ideas, edges, speedy fills and every other micro-advantage that comes with being a target customer.”

Similarly, another journalist writes, “SAC was able to demand preferential treatment from its friends on Wall Street. These were not even illegal confidential tips but the stuff the average investor can’t get at home, such as market chatter about large trades and other bits of trading intelligence available only to the big Wall Street firms and shared with only their best customers.” In addition, “Former traders and rivals say one way Cohen built his business and relationships with brokers was by buying secondary offerings, when public companies decide to bring more shares to market, on which brokers receive around 40 cents to $2 a share on a built-in sales commission. ‘If you take down a million shares of a secondary, you've just paid your broker $1.5 million,’ says a fund manager. That's how Stevie started off paying the Street." Finally, “former SAC employees have started at least 31 other funds, in which Cohen often invests, and the expectation is that the former traders will continue to feed SAC information, which is why one SAC alumnus calls Cohen 'the Godfather.'”

We can consider this business model the outgrowth of Cohen’s instinctive game playing ability; the willingness and ability to use inducements, and the threat of withdrawing them, to stimulate cooperation and reciprocity. Combined with his capacity to absorb information and see patterns in numbers, one can see how he was able to build an information arbitrage machine.  

But in 2000, the context for gathering information on Wall-Street changed significantly. In that year the Securities and Exchange Commission, released a regulation that forbad companies, investment bankers, Wall Street analysts, company employees or a company’s lawyers from releasing material information selectively to some investors or traders before informing all potential investors. For example, if they held a conference call on their earnings, everyone had the right to dial in.

But yet, to gain an edge, traders need to acquire non-public information. The question then becomes whether that information is “material enough” to give a trader an unfair advantage. Many traders advanced what became known as the “mosaic theory,” which holds that traders could obtain non-public information, for example that a company’s shipments by rail have slowed down, which becomes material only when added to other pieces of information. The SEC did not intend to quash traders' and analysts' everyday activity, such as attending conferences, tracking companies and speaking to experts, Indeed, as the following chart shows, after the regulation was passed there was a significant increase in the number of firms, called “expert firms” that hired experts, often employees of fortune 500 companies, to consult with analysts and traders on industry and company trends. Indeed, the physician who tipped Martoma was in the employ of an expert firm. 

 

It is a common phenomena that when rules and injunctions are unclear, it falls upon individuals to do the work and take the risk of interpreting them as best as they can. But if my colleague Ben Hunt is right, the SEC has also, and perhaps unwittingly, criminalized the process of obtaining any private information on public companies. As Hunt notes, “Obtaining private information on public companies has been largely criminalized today. Since the SEC's adoption of Reg FD in August 2000, any investment perspective based on 'getting to know management really well' has skirted the borders of legality…” (http://epsilontheory.com/schrodingers-portfolio/).  But we know what happens when typical behavior is criminalized, such as pot smoking or prostitution. It creates either contempt for the rules and/or moral quandaries and psychological conflicts for individuals. 

Contempt may account in part for why SAC’s compliance department, despite its size and the reputation of its head, had limited impact on trader’s practices. A former employee, Noah Freeman, who gave testimony in another insider trading case “suggested that some SAC employees were adept at evading compliance efforts. They seem to have routinely used private e-mails and kept notes on encrypted drives ‘so that in the event of a subpoena or government investigation, there wouldn’t be notes on the central corporate servers that the government could get their hold of,’ Mr. Freeman testified.” This may be one reason why, despite the number of SAC portfolio managers and research analysts who have pled guilty to insider trading, “SAC’s compliance department contemporaneously identified only a single instance of suspected insider trading by its employees in its history.”

One question is how did Steven Cohen respond to this change in the legal context for acquiring information. What did he think of the day-to-day dilemmas now facing his own portfolio managers and research analysts? The prosecution’s theory, is that as the head of a criminal enterprise he organized the firm and its flow of information so that he could deny knowing that traders’ and analysts’ ideas came from insiders. This enabled him to keep the pressure on his portfolio managers to supply with him good trading ideas without risking his own legal standing. One fact supporting this theory is that, as one author writes, “Sometime around 2002 SAC began decentralizing the information flow among the various specialized groups at the fund, moving Cohen, who would directly manage just a portion of the SACs money, away from the center of information flow.” (Charles Gasparino, Circle of Friends) In addition, Cohen pushed his managers to specify with what level of conviction, on a scale of 1 to 10, they believed in a particular trading idea. From the prosecutor’s point of view this was a veiled way for a trader, who answered with a  “9” or “10,” to communicate that his idea was based on private information obtained from trusted insiders.

I want to propose an alternative to the prosecutor’s theory, based not on Cohen’s presumably criminal impulses, but rather on this character and psychology. As a master poker player, committed to winning, Cohen’s relationships with others were transactional, based simply on whether a person could help him win. In this setting one employee noted, “The rules here are simple, “win and you get rich and lose and you get fired.” Matthew Martoma who helped Cohen make the $82 million on the pharmaceutical short sale, got a $9.5 million bonus, but was promptly fired the next year when he failed to come up with a new winning idea. As the journalist notes, “Mr. Cohen, a mercurial master, has been known to fire money managers for making one bad trade even if they had made him billions before.” Cohen as I have suggested, learned to see his corner of the world through numbers, without considering their link to substantive truths, He could translate the emotional drama that underlies investing -- the cycles of hope, greed, fear, elation and panic-- in a manner that could not touch him emotionally. Indeed, his trading room is famous for the fact that phones never ring, they flash, and that the temperature is kept cool to keep people alert.

In addition, as a reporter who interviewed Cohen notes, “(in this early years) Cohen quickly became known for the volcanic temper he displayed when anything went wrong. ‘People say they’ve never been spoken to the way I spoke to them on the phone,’ he says with a shrug.” In other words, he is not burdened by concerns for other people’s feelings, at least not when they are willing players in the trading game and become obstacles to his winning.

It would be too rash to conclude that he is in general indifferent. He has four children with his second wife to whom he has been married for 21 years. Rather, if you are in the game, you’re meaning is assessed along only one dimension; are you a winner or a loser.  Thomas Conheeney, SAC’s president, once remarked that “Steve doesn’t really understand his own persona, this iconic status he has. We try to get him to go talk to these business groups, and he goes, ‘Why would they want to hear anything I have to say?’” I don’t think this is a matter of modesty. Rather I suggest it reflects his disinterest in what most people think and feel about him.

So consider my psychological hypothesis. If I am right about this character, Cohen would have limited or no interest in the complexities and challenges his traders, analysts and portfolio managers faced in threading the needle between material and non-material information. He was not tuned to their experiences, only toward their utility. This enabled him to sidestep the meaning of the new regulation while continuing to pressure his employees to give him “high conviction” trading ideas. Or let me put it this way. A different hedge fund owner, an alternate Steven Cohen, may have had the same impulse -- to deny the substantive impact of the regulation on his traders’ everyday experiences, -- but his psychological connection to his traders and analysts would have quashed that impulse. Empathy would link him to their quandary, so that should he benefit from their misconduct ,he would feel guilty and burdened. This alternate Steven Cohen would have had to have faced the implications of the new regulations and take some responsibility for his subsequent stance.

This hypothesis helps account for Cohen’s disinterest in the issue of insider trading and in his fund’s policies on compliance. Giving testimony in a deposition on a different case in 2011, Cohen said, “The way I understand the rules on trading on inside information, its very vague.” When asked about his firm’s compliance manual he answered, “..when you’re trading securities it’s a judgment call. Whatever the compliance manual says, it probably doesn't take into account every potential situation.” There is of course a sense in which these answers are correct. But they reflect I suggest a lack of interest in the rule’s impact on decision making and behavior.

Frequently, people benefit from the misconduct of others while feeling no direct responsibility for the misconduct itself.  For example, employees of Apple benefited when Apple executives conspired to fix the price of e-books with publishers. After all, Apple’s higher profits created more resources and rewards for its employees. But I imagine that very few Apple employees quit rather than benefit from the company’s unlawful conduct. They felt far too removed from the decision to fix prices. Many of us benefit from the unethical conduct of clothing manufacturers who give business to factories in Bangladesh, where costs are low because factory conditions are unsafe. Yet many of us continue to buy this clothing on the presumption that we are bystanders.

I hypothesize that Cohen, rather than being the mastermind, as prosecutors saw him, acted as if he were a bystander, failing to connect the pressure he put on his employees with the constraints they faced in navigating a messy ethical terrain. This failure I suggest was motivated by his emotional detachment from people who like him were “playing the game” though it also advanced, at least in the short run, his self interest. If my hypothesis has merit, it was Cohen’s character flaw to be so close to the action, yet experience himself as a bystander. It is striking in this regard that when the investigators tapped his home phone they discovered to their surprise that he had few friends. They expected a mastermind to have a wide network of friends and acquaintances. This had been true of
Raj Rajaratnam,  a hedge fund owner who, with the aid of wiretaps, was successfully convicted of insider trading. Rajaratnam had in fact a keen interest in other people's psychology, if only to assess their weak points and seduce them into conspiring with him. This is how he ensnared Rajat Gupta, the one time head of Mckinsey, the consulting firm, and a person of high repute. 

It is useful to ask why we should consider the psychological hypothesis at all, when an explanation from self-interest, call it the politics hypothesis, is sufficient. Moreover, the politics hypothesis often has the merit of being simple, whereas the psychological hypothesis is not. Cohen, the prosecutor argues, benefited from insider trading and so he developed a system of extracting it from his traders while maintaining his “plausible deniability.”

But the merit of the psychological hypothesis is that it stimulates our  empathy and identification and helps create a more human understanding of someone else’s decisions and motives. For example, following my hypothesis we can come into touch with how at times we are all bystanders who benefit from the misconduct of others. Ironically, the prosecutor’s theory shares the same limited or “transactional” view of human behavior that Cohen brought to his experience of trading. In this view, a person’s self interest is the best guide to understanding his behavior. A person has either broken the law or has not. Perhaps this simplified understanding of human motivation explains why, to their frustration, the prosecutors could not find direct evidence of Cohen’s culpability despite the wiretap, and at least five years of investigating him and his firm.  It was just not that simple.

Nik Wallenda and the psychology of danger

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On June 23, Nik Wallenda, the aerialist, walked a distance of 1400 feet across a gorge in the Grand Canyon on a cable suspended 1500 feet above the ground, without a tether or safety net. He stopped and crouched twice in his twenty-minute journey to cope with the wind and the unsettling rhythm of the cable. “The Hollywood Reporter said that the response to Wallenda’s death-defying stunt was simply overwhelming, with almost 13 million viewers tuning into the Discovery Channel at the peak of the walk.”

One question is why does a death-defying act compel attention? A simple answer is that it arouses us emotionally, opening us up to range of intense feelings, as long of course as we remain spectators. These feelings -- fear, suspense, thrill, the cycle of tension and release, even pain-- help us feel more alive. These feelings also throw into relief what we too often experience as the tedium of our daily lives, what Thoreau once famously called our “lives of quiet desperation.” Action and horror films, with their counterpoint of the heroes we identify with and the dangers they face, milk this contrast, allowing us in fantasy to escape the obligations and enmeshments that make real risk-taking seem foolhardy. Wallenda’s wire walking does us one better, he is walking on a real cable in real time.

One hypothesis is that extreme sports -- base-jumping, sky-dividing, hang-gliding, soloing,  mountaineering-- have become increasingly popular because they bring us close to danger under controlled conditions, that is, as long as we are disciplined, undergo training, and use good equipment. Moreover, we are attracted to the cultures of deviance they sustain. Skate boarding, extreme biking, and windsurfing have offered participants alternative worlds in which social obligations -- to hold a job, go to school, marry, listen to one’s teachers, and raise children -- seem unimportant. The famous aerialist, Philippe Petit, who walked between the two Twin Towers in New York City’s financial district, saw himself as a rebel and artist. He did not seek permission to walk, but instead trained for the event on the sly by avoiding guards, reaching the top disguised in a work-shirt and helmet, and hiding his equipment in a trolley. In his autobiographical account of his escapade he writes, “By the time I turn eighteen I’ve been expelled from five schools for practicing the art of the pickpocket on my teachers and the art of card manipulation under my desk. I refuse to take the basic exam to prove I can read, write and count, and thereby jeopardize my chances of landing a job picking up garbage or operating a cash register.” This link between risk and deviance, is a common one. Abraham Zaleznik, a theorist of leadership, once proposed that the entrepreneur and the juvenile delinquent share the same psychology. Similarly, when hedge fund traders cut corners by trading on inside information we presume that they are simply motivated by greed or fear. But as risk takers they are already deviants and feel further aroused by breaking the law. Much of popular culture, represented in films, television and novels, is based on the premise that the life of an outlaw is exciting.

Wallenda, however is not readily categorized. In interviews he presents as a very responsible person, motivated partly by his family heritage-- he comes from a long line of tightrope walkers—and grateful to God for his talent. He is anything but reckless. Asked before his walk if he was taking too big a risk, he noted that, “I’ve got three children and a wife. And if I thought there was even a small chance of me losing my life Sunday, I wouldn't be doing it." Should the wind buffet him, or the cable oscillate, he would simply, “lower myself to the wire and cling to it, waiting to be rescued.”

While walking across the gorge he said, “Thank you Jesus,” many times, but he does not believe that “God keeps me on the wire.” “I believe God gives me a unique ability to walk the wire, but it's up to me whether I train properly. There are a lot of people that have amazing relationships with Christ that lose their lives in a car accident. Does that mean they didn't have a good enough relationship with Jesus? No. Life happens and God created us all in his image, but we're all our own people. We're not robots. We make decisions. So I don't think that I'm testing God.” This statement points to a thoughtful and generous humility. Even as he can speak to God, God does not watch over him. Moreover, he is no deviant. The Federal government did not give him permission to walk across the land inside the boundary of the Grand Canyon national park, so he sought and got permission to walk over land that was part of a Navajo reservation. 

But Wallenda thanking Jesus does point to an important dimension of courting danger and taking risks. Sports psychologists note that extreme sports participants often experience a moment of “sublime awareness” in which they experience the world’s majesty and their small place in it. A hang glider writes in a blog that, “for me hang gliding is the ultimate in achieving union with the forces of nature, immersion within them. Gravity, wind, lift, sink, these are all invisible and exploiting them to savor for a few minutes requires understanding of physics, sensory acuity, and various types of reasoning….Unfettered movement in three dimension with only the sound of wind in the ears is fantastic. Flying close to hawks and eagles, flying with them, is beyond description. (http://www.hanggliding.org/viewtopic.php?t=15838)

One hypothesis is that such sublime experiences result from the sports person’s calm or low arousal state while in the moment of performance. A skilled participant is highly aroused, feeling a mix up of both anxiety and excitement, both before and after his performance, but remains supremely calm and focused during it. We can understand this by drawing on Freud's concept of "sublimation,"  the way in which sexual feelings are “sublimated” through the process of creating a beautiful poem or painting. He meant that when the artist creates something beautiful, he invests it with her love, and hopes that her audience will love it in turn. That is why artists often refer to their creations, at the moment they let them go, as their “babies.” In this same way of thinking we can say that the extreme-sports participant sublimates his excitement and anxiety, transforming these feelings into a sense of awe. This experience of awe, while at first arousing, is then calming; arousing because he experiences the majesty of his surrounding or setting, calming because he realizes what a small and limited part he can possibly play in shaping it. One has  no choice” but to “go with the flow.” The resulting focus on the present moment enables the participant to attend to the tasks of navigating obstacles without distraction.

A recently published study of 370 adults aged 19 to 103 found what wise people have known for a long time, that our biggest regrets are for risks not taken. One researcher on the study notes that, “as people rise higher in our culture, there is a perception of greater opportunities. Paradoxically, the more opportunities you have, the more ways you can see how you could have gotten more . . . Opportunity fuels the regret experience." (http://health.usnews.com/health-news/family-health/brain-and-behavior/articles/2011/06/29/when-americans-think-of-regrets-love-tops-list). Yet much of the academic and popular discourse about risk today, is about threats; from nature, technologies, and our own irresponsible behavior, for example in global warming discourse. One school of academic thought even elevates the experience of “dread” as central to our experience of risk. Yet Steven Pinker, the MIT psychologist and linguist, argues strikingly in, The Better Angels of our Nature, that the level of interpersonal violence throughout the world had declined across the centuries, decades and years. In the United States the homicide rate today is as low as it was in the peaceful 1950’s. The question is why this discrepancy between discourse and experience? Why the focus on risks imposed rather than risks not taken?

Freud's famous essay, Civilization and its Discontents provides a clue.  Freud suggested that we accept our obligations, and the guilt we feel when we are tempted to violate them, because in the end civilization offers us security in return. His pessimism was based on the idea that as civilization advances, it enmeshes us even more, intensifying the guilt we feel for simply dreaming of escape. Perhaps the conviction that each person’s carbon footprint is destructive is one curious expression of Freud’s prediction. To consume, in others words, to pleasure oneself, is to destroy.

One hypothesis is that we face a new and compelling tension today between the empathy we feel for the lives of others- Pinker believes this is one reason violence has declined – and the individual opportunities we believe are almost within our grasp. How does a culture express this tension, and support our ability to face it rather than evade it? Perhaps Wallenda does provide one model. He is man who takes significant risks, but does so within a matrix of attachment to his lineage, love for this family and subordination to God. What are some other models? 

P.S.  I recommend looking at the YouTube video of free soloing- rock climbing without ropes, as an emotional doorway into these issues. 

http://www.youtube.com/watch?v=HrX0ohmu1zw

The Boston Marathon Bombers

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The Boston Marathon bombing raises important questions about the evolving nature of terrorist activities. As Mark Sageman suggests in his new book, Leaderless Jihad, social media now play an instrumental role in helping potential jihadists acquire the skill, motivation and materials to become terrorists. But the bombing also poses some interesting questions for psychology. People who knew the younger brother, Dzhokhar Tsarnaev, are mystified by his transformation from an ordinary person into a terrorist who would kill innocents. As Dzhokahr’s one time roommate said, “I have had almost two weeks to think about it (Dzhokhar’s involvement) and it still makes no more sense than the day I found out it was him.”   Similarly, his high school wrestling coach said,  “Everyone is completely bewildered. Not one person -- not one -- said, 'Oh yeah, I knew this. I knew he used to shoot puppies in the backyard.'" 

Bewilderment is sensible. Dzhokhar’s wrestling teammates in high school had voted him captain. He displayed good sportsmanship and supported his teammates’ development as wrestlers. As his coach noted, “After a match, there’s a prime opportunity to be mad, to say the ref robbed you. He just accepted what was done. If he lost a match, he’d put his arms out; ‘Well, I tried my best.’ And when he won, he’d pump his fist, both fists at head level: ‘Yeah, I won!’ But it was never anything excessive.” Similarly, his teammates say they looked up to him as a teacher and motivator. “We’d be running stairs for hours,” said Zeaed Abu-Rubieh. “Every time I’d stop, when I was thinking about leaving, he’d push me forward, physically push me. And he was strong. He’d say; ‘Go on. Run. You can do it.’ He believed in people.”

One frame of reference for understanding Dzhokhar’s transformation is to de-emphasize the role of character in shaping behavior, and to highlight instead situational forces. We focus on “states” not “traits.” The famous Milgram obedience experiment at Yale University, in which naive subjects gave electric shocks to a supposed peer (in fact an actor) for answering memory questions incorrectly, is suggestive here. The scientist in a white coat who conducts the supposed memory experiment, convinced 2/3 of his subjects to administer supposedly painful shocks despite verbal protestations from the peer/actor (In fact no shocks were administered. The shocking machine was fake).  

Milgram said his experiment showed how people would obey authority figures, in this case a scientist, even it meant violating their own ethical standards or suppressing their compassionate responses. But the experiment also shows that character is labile, vulnerable to influences exercised within a situation. Ordinary people who for the most part would help people in distress, were willing to inflict pain on a peer. In studying group psychology, Freud argued that group members readily internalize the group’s leader as representing each member’s conception of what it means to be an ideal person. The leader becomes the members’ “ego ideal.” This is what binds the group together and makes the leader legitimate. This suggests that what seems to lie within a person, for example, his conscience, is actually shaped by what surrounds a person. Some psychoanalysts describe this as a process of “introjection” through which social facts readily become constituents of our individual minds. Environmental psychology depends on such an assumption. If we live in a dirty or disorderly setting, we are likely to feel dirty and disorderly within. Indeed, Milgram varied his experiment to demonstrate the impact of situational factors. For example, when subjects were physically close to the peer/actor they were less likely to obey the scientist. 

We can see a situation’s impact on character in more benign settings as well. Consider for example, the “shipboard romance,” in which a woman and man who might not normally find romance together, are freed by the ships’ isolation- it is a social island- to overcome personal or social inhibitions and thus have an affair. The ship’s isolation, its psychological and physical distance from home, makes ongoing relationships appears less consequential, and as a result the romantic partners experience more personal freedom. Isolation plays the same role in the shipboard romance as authority does in the Milgram experiment. It opens up the mind to influence. 

Some journalists have reasonably supposed that Dzhokhar experienced his older brother, Tamerlan, as a familial authority. As one journalist writes, “By (Chechen) tradition it is up to the family’s eldest son to enforce the rules for his siblings.” The journalist reports that when their sister Bella was seen “in the company of a boy during her junior year of high school... father dispatched Tamerlan, “to teach his sister’s would be wooer a lesson: Tamerlan found the boy and beat him up.” Moreover, one of Dzhokhar’s friends “recalls that Tamerlan exercised a similarly domineering influence over his younger brother especially after their father decided to return to Russia about a year ago, leaving them behind.” This is why many journalists have assumed reasonably, that Tamerlan influenced his brother’s thinking about Islam and the west. Indeed, Dzhokhar told his friend, “ My brother is telling me to be more Islamic.” As a result, Dzhokhar started praying, and watching “online sermons by the radical cleric and al-Qaeda sympathizer Anwar al-Awlaki. “ 

Tamerlan’s own turn to a conservative vision of Islam was in fact quite sudden. After he abandoned a promising boxing career, he grew a beard, insisted that his American born wife wear a black scarf to cover her head, posted videos on his YouTube channel “in support of fundamentalism and violent jihad,” and “interrupted prayers at his mosque on two occasions with outbursts denouncing the idea that Muslims should observe American secular holidays.” Tamerlan also appeared comfortable with personal violence. As we have seen, he beat up his sister’s wooer, while a girl friend once complained to the police that he had beat her. Indeed this is one reason the authorities held up his application for citizenship.
So one hypothesis is that Tamerlan played the same role with his brother that the scientist in Milgram’s experiment played with his subjects. Dzokhar turned over his ethical compass to this brother in a gesture of obedience. 

But having stated this hypothesis, I don’t find it entirely convincing. It is interesting in this regard that when subjects in Milgram’s experiment resisted shocking their supposed peer, the scientist, in addition to telling them that they “must go on,” also told them that the shocks while painful, were not dangerous.” Killing innocent runners and observers at a marathon appears to be act quite distinct from, and discontinuous with, railing against the west, watching dramatic videos of Jihad, and even beating up people. 

Consider the following. Dzhokhar had a close relationship with his high school wrestling coach, Peter Payack. The latter had run in twelve marathons, and “his love of the race is a given among his wrestlers.” Early in 2013  Dzhokhar “unexpectedly returned to his high school, wrestling shoes in hand, to grapple with the team.  ‘We’re all laughing. Everyone’s pulling his hair and saying you ought to do cornrows,’ Mr. Payack said. ‘Eight weeks later, he blows up the marathon. Why would he embrace us if he wants to blow us up?’” Indeed, on the day of the marathon, “Mr. Payack was more than a block from the finish line, hurrying to watch his son complete the race when the first bomb went off. He still has difficulty hearing in one ear.” Trying to make sense of Dzhokhar’s behavior, Payack as we saw, told a reporter, "Everyone is completely bewildered.” I think we should take this bewilderment seriously. 

I am drawn here to the fact that the story of how Tamerlan died and Dzokhar was arrested suggests strongly that the brothers were quite amateurish. After the bombing they made no plans to escape, discounting it seems the likelihood that surveillance cameras, and smart phone cameras would eventually identify them. Instead, “the two suspects had gone about their lives as if nothing had happened in the three days following the bombings. Dzhokhar had returned to classes at the University of Massachusetts-Dartmouth where he was a student, slept every night in his dorm room, worked out at his gym, gone to a party with friends on Wednesday night and posted frequent comments on his Twitter account.”

When their photographs were published the brothers finally realized they were in danger. They stopped a campus policeman in his car apparently to get his gun, but as one police official notes, “He had a triple-lock holster, and they could not figure it out.” They shot and killed the officer and then hijacked an SUV and its driver, and “drove through Cambridge to nearby Watertown, a middle-class suburb of 30,000 where they searched for bank machines. They told the driver that they were the marathon bombers and after using his bankcard to withdraw money from an ATM, photographed of course by an ATM surveillance camera, they inexplicably released him at a gas station. The driver left his cell phone in the car and the police, notified of his kidnapping and release, pinged his phone to track and locate the stolen car. In the ensuing shoot out the elder brother, Tamerlan, “walked toward the officers, firing his gun until he appeared to run out of bullets. Officers tackled him and were trying to get handcuffs on him, when the stolen SUV came roaring at them, the younger brother at the wheel. The officers scattered and the SUV plowed over Tamerlan, who was dragged briefly under the car and killed.” In short, Dzhokhar killed his brother. If the situation were not so tragic, one could almost write this story as keystone-cops farce. The question is, why were the brothers’ so unprepared and so clumsy?

Michael Apter in his provocative book, The Dangerous Edge: The Psychology of Excitement, argues that people are excited by danger when they experience a “protective frame.” Sometimes, the protective frame is based on a person’s confidence in her skills, for example when she goes rock climbing without tools or equipment (called, “soloing”). In war, the presence of buddies, “a band of brothers,” provides a protective frame, enabling soldiers to feel excited by war as an occasion to express deep friendship. In a recent documentary of a war photographer who was killed in Libya, Sebastian Junger describes dangerous war zones as the occasions to experience “a male Eden.” 

Consider as well Apter’s quote of  a Vietnam veteran. “As is frequently the case before an operation, we are filled with a ‘happy warrior spirit’ and tend to dramatize ourselves. With our helmets cocked to one side and cigarettes hanging out of our mouths we pose as hard-bitten veterans for the headquarters Marines. We are starring in our very own war movie and the howitzer battery nearby provides some noisy background music.” He goes on to write, “I had enjoyed the killing of the Viet Cong who had run out of the tree line. Strangest of all had been that sensation of watching myself in a movie. One part of me was doing something while the other part watched from a distance, shocked by the things it saw, yet powerless to stop them from happening.” (p. 170) 

As this quote suggests, a theatrical or dramatic conception of one’s experience can also provide a protective frame. One’s performance is not in fact “real” but is instead a fictional version of real events. Under these conditions one is both an actor but also a spectator. Consequently, the danger is exciting rather than anxiety producing, in the same way that a ferocious tiger in a cage is exciting rather than threatening. One hypothesis is that the brothers’ amateurish “performance” and their fantasy that they could in fact return to their normal lives after the bombing, meant that they had not in fact actually killed people. They had only acted as if they had. Moreover, and this is important, once danger, along with belief is suspended, actions that would typically promote anxiety and perhaps witdrawal, stimulate excitement and high arousal instead. The arousal in turn further drives out caution. 

This speculative hypothesis fits as well with Tamerlan’s own propensity to dramatize his actions. As several journalists reported, Tamerlan was a flamboyant dresser “partial to white fur and snakeskin.” “During registration for a boxing tournament in Lowell (Mass) he sat down at a piano and lost himself for 20 minutes in a piece of classical music. The impromptu performance, so out of place in that world, finished to a burst of applause from surprised onlookers.  “He just walked over from the line and started playing like he was in the Boston Pops,” his trainer at the time, Gene McCarthy, 77, recalled… He also incorporated showy gymnastics into his training and fighting, walking on his hands, falling into splits, tumbling into corners.”

 

This hypothesis of drama or theater as a protective frame also fits with our growing understanding of social media and the virtual world.  If young people can become jihadists in the absence of leaders, one powerful force is the way in which social media create an alternative universe.  A young man can immerse himself in an assemblage of videos, manuals, chat-rooms and podcasts without ever leaving his home. The battlefront is in his bedroom. It is common of course to note that we can readily conflate the virtual and the real. Indeed, this is why we find violent movies and video games exciting. In effect the movie “cages” the tiger. But if we can mistake the virtual for the real, why can’t we mistake the real for the virtual? 

In short, I am suggesting that Dzhokhar faced two reinforcing situational forces. First he gave over his conscience to his brother, but second, and I am suggesting  more importantly, he suspended belief in the reality of his actions. Instead, aroused by his brother’s plans and social media’s dramatization of jihad, he became an actor in Jihadi Theater. This is what allowed him to kill innocent people. 

If Mark Sageman is right, that we now face a “leaderless Jihad,” it also suggests that we will face increasingly an “irrational Jihad.’ Instead of cells planning action with care and precision, the prototype of this is the cell of the 9/11 attackers, we will have singletons or pairs acting out roles in a Jihadi “theater of the mind.”