Motley Fool Hidden Gems Investing - Malcolm Gladwell, Social Engineering and The Magic Third

Episode Date: February 22, 2025

If you haven’t changed your mind on anything in the past two decades, you should reconsider your beliefs. Malcolm Gladwell’s latest book is Revenge of the Tipping Point: Overstories, Superspreaders, and the Rise of Social Engineering and he is the host of the podcast Revisionist History. Dylan Lewis caught up with Gladwell for a conversation about: - How social engineering effects your life. - Why real diversity can prevent leaders from doing stupid things. - The demand to return to more in-person experiences. Host: Dylan Lewis Guest: Malcolm Gladwell Producer:Ricky Mulvey Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

There's some great work done in military decision-making, like the famous study of the Bay of Pigs. Why did Kennedy do something so unbelievably stupid in the Bay of Pigs invasion in 1962, I guess it was, 61? And the answer is that he had no diversity whatsoever in his group of advisors. Not ethnic or gender diversity, that was the 60s, there were always going to be white men. But, like, everybody thought the same. I'm Ricky Mulvey, and that's Malcolm Gladwell. He's the bestselling author of Outliers and Blink and host of the podcast Revisionist History. His latest book is Revenge of the Tipping Point, Overstories, Superspreaders, and the Rise of Social Engineering. My co-host Dylan Lewis caught

up with Gladwell for a conversation about the book, why the 1990s were a more optimistic time than today, how entrepreneurs could rethink insurance, and why Gladwell only checks his investments once a year. I think when I originally read The Tipping Point and when I went back to it in prep for this conversation, I was struck by this idea that the book is very optimistic in its outlook and it's very much about small ways to create larger change. And revenge in the title here has a bit of a different connotation to it. And on the one hand, I mean, I think it's a little bit of the era we're in.

We have so many reasons to be very optimistic. We have AI as this kind of magic type technology. We have just addressed a worldwide pandemic in record time. That's incredible. But it feels like even underneath some of those more reasons to be optimistic, there's a lot of distrust. There's a lot of differing public opinions. You get into this idea of the overstory in the book. It's kind of meta narrative.

What do you feel like that is right now? And what do you think is versus what it was when you wrote The Tipping Point originally? Well, I think when I wrote The Tipping Point originally, which was in the late 90s, we were in an unusually optimistic moment. Every major social problem was in steep decline. You know, when the 90s began, if you asked Americans what the biggest problems in the country would have been, they would have said crime, teenage pregnancy, youth smoking. By the end of the 90s, those are all vanishing from, I mean, teen pregnancy drops precipitously. Teenage smoking used to be this thing that everyone was like fretting about. teens just stopped smoking. And then crime in New York City was a tiny fraction by the early

aughts of what it had been in the early 90s. And then you had the end of the Cold War. You had the Clinton presidency in retrospect was in America a kind of unbelievably calm, unruffled moment where the single biggest scandal was the president fooled around with one of his interns. I mean, that was it. Like today, like that just seems ridiculous. I don't even know whether that would even get a headline today. So, you know, that was the context in which I was writing the book and I couldn't help to have been swept up in that kind of euphoria about the future. What do you think that outlook is now? well i think simply that there is an absence if if in the 90s we were all agreed on the fact that

things were going well i think today we're not agreed on anything you know that you can as you as you just said as plausibly make a case that things are going well as you can make a case that things are going disastrously either ai is going to save us or it'll doom us either trump is going to fix the federal government or he's going to destroy it. I mean, I could just go on. It seems like we're either on the verge of a golden age of medicine or we're going to get swamped by another virus coming down the pike. I mean, it's just really hard to get a handle. There's so much uncertainty, I guess. It's hard to get a handle on what happens next. I read the book and I also listened to the audio book for portions. And when I was listening to the audio book, there was a

line I heard you deliver, I paused and I kind of went back and really sat with it for a second. It was, if you don't think social engineering has quietly become one of the central activities of the American establishment, you haven't been paying attention. And I think that line was talking about the Ivy League admissions, but I can't help but sit with that line and that feeling of unease that we were just talking about and wondering if those are related, if that's part of it. I think it has occurred to a sector of American society that they have more power than they realized, or at least more ability to shape their own destinies. So if you're a super rich person, you actually can go to Washington and just get everyone to do what you want them to do by

doling out large sums of money. Or if you're an elite school and you, you know, would like to protect the interests of a certain cultural group, you can actually do that, you know, and, you know, you can sort of work the system in a way.

Or if you're Purdue Pharmaceutical and you would like to peddle a very dangerous drug, you can actually, by a clever use of, you know, databases of doctors prescribing behavior and clever deployment of your sales staff, you can do that and create a monster bestseller and become billionaires. And even after you've got caught, not go to jail.

I think what the last generation has done is has emboldened those at the top that they can get what they want. And that seems to me, it seems to me there was a little more modesty in the top frontier a generation before. Maybe it didn't occur to them they could spread their wings in this way. And that goes hand in glove with the kind of money those at the top have been able to accumulate in the last 10 years, which has been kind of extraordinary, right? Staggering. Yeah. The key term, I guess, in that line was social engineering. It's part of the book, and it feels like that social engineering in 2000, more positive view, social engineering now, you mentioned the Purdue Pharma example, that's a very large part of the book, that

is McKinsey consultants going out and trying to inflect for a very specific reason, is it that social engineering is not necessarily good or bad, it's just a means at this point, and it's kind of whoever can grasp it and seize it? Yeah, I mean, it is simply the understanding that through intentional and deliberate means you can affect a broad social outcome. And we always hold that that happens unintentionally, accidentally, coincidentally,

in a side effect of some other thing. But social engineering is where you think, oh, I can pull the strings myself. When we talk about social engineering historically, we have to talk about failed attempts, the failure of eugenics in the 20s. It's an idea that gets bandied about. It doesn't actually go anywhere.

They run up against all, and then Hitler comes, and the whole enterprise gets fatally compromised. But now I sort of feel like, to the point I was making earlier, there is a feeling that you can. manipulate. I mean, look at the kind of, if you look at the way that the social media algorithms have been built, they've been astonishingly successful. And they've been built deliberately

that people thought, oh, can I engineer people's attention on things like Facebook or what have you, TikTok or what have you? And the initial internal answer was absolutely. Here's how you do it. It's like, oh, okay. There's no veil here, right? That's not like Lifetime magazine in 1965 sending out a little card that fell out of your magazine that told you to subscribe, right? We're talking about a whole different level of intentionality. Yeah. I wanted to ask you about the digital element of things because a lot of the examples you go through in the book are rooted in a physical space. There's a look at cities, there's a look at specific states, the way that medical treatment differs or local attitudes kind of shape the way that people act. In what ways are

the rules similar or different when we start going to these kind of borderless online spaces? Yeah. I'm not sure I know the answer to that question. You know, I'm not terribly interested in the book in borderless online spaces. In fact, I spend no time on them whatsoever. Partly because I feel like that's all we talk about these days. And so we're in this weird situation where we've come to kind of venerate the digital world and forget about the physical world. Whereas I think the physical world still is an extraordinarily powerful mediator of who we are and how we behave. And that maybe what we're doing with our digital worlds is simply reconstructing versions of our physical world. You know, so I don't, I don't know.

Like when I look at my Twitter feed, my Twitter feed is made up of people who I would have wanted to be, would have been interested in in the absence of Twitter, right? I would have, in a previous role, I would have checked the books of those people I follow out of a library or read articles that they had written in magazines. Now I get a Twitter post alerting me to their substack. Like, I'm replicating my experience, not challenging it. I'm not following tons of people who live in Egypt or South Africa or Venezuela, right? I mean, I am following a few people who live in Ukraine, but that's about it, right? But there happens to be a war going on there, which I would have been doing, you know, regardless. So it's like, I don't know.

Am I typical? I don't know. I'm struck by how little my—I can see how my intellectual life has been rendered more efficient in the digital age, but I'm not convinced it has been qualitatively changed. I think there are a lot of people who are excited to get back to a more in-person life that are happy to hear you say that. Yeah. I was reading someone writing an article about AI's impact on education, and the article said, if you're in education, you need to justify immediately or prove immediately whether what you do cannot be done better by an AI. And if you can't prove that, then you're going to be out of a job soon. And nowhere in this entire article did it mention the fact that someone might prefer to learn from another human being or that there might be some value in that.

I'm not being a Luddite when I say that because I do believe there's many opportunities where you don't need another human being to learn. But what struck me was the absence of the idea that there was anything particularly important about face-to-face interaction when it comes to learning. So if the AI can give me a more comprehensive and up-to-date and thoughtful history of Germany between the world wars, does that mean I should always rather value the AI version of it over going to a lecture or a seminar with a professor who talks to me about Germany between the two worlds? I find it weird that we would, that you would judge the in-person interaction purely on the basis of the kind of intellectual weight of the content and not on the importance of the social interaction that takes place underneath that learning, right? Like, do I, no one talked about, do I retain ideas more when they're attached to a person? You know, maybe I do. Retention's a huge issue, right? If the value of any learning experience

is hugely wound up in how long that experience persists with you, if it goes away the next day, well, what's the point? I don't care how good it was. But if you remember, and when I think back on my college experience, what I remember is learning in its social context. And then my professor said this,

and then the TA rebuked me and said this, right? That's what I remember. Now, will I remember that if I was taught by an AI? I'm not sure. There's a sense of community and, you know, campus life to that too. And I'm curious, did the loneliness epidemic, was that something that you would have wanted to dive into more with this book or thought about bringing into the conversation? Because it's, I mean, it's not surprising that it's such a large topic with COVID. I think 2020 to 2022, no one's surprised to be hearing that that's something that a lot of people were really struggling with.

but I don't know how much progress we've really made in helping write that for people in the years where we've been a little bit more back. Yeah. When I was starting to write this book at the tail end of COVID, I wasn't sure I understood entirely what that meant. It seemed to me very specific. The experiences of people during COVID seemed to me to be highly idiosyncratic and specific to their position in the world and that the experience of a 14-year-old who couldn't go to high school or a 20-year-old who lost their sophomore year in college was profoundly different from the experience of a 60-year-old who got to stay home, work out of their home office for a year and a half and was insanely productive and saw a lot of their wife and

was very happy, right? Like, so I just didn't know. I think I resisted the temptation to generalize. When I hear the phrase loneliness epidemic, I feel there's a generalization lurking in there. And I wasn't sure the generalization was warranted. I think you're probably one of the first people to reflect on COVID in a book where people really felt like there was enough time and distance for it to make sense. You know, five years since early cases, I think is a healthy enough distance that people are ready for that message again. We're going to be seeing a ton of stories, articles, coverage as we pass all these anniversaries. And I'm sure for the next five, 10, 100 years, it'll probably be something that

people spend a lot of time studying. Where would you like to see more of that discussion and more of that focus as we look back and kind of do these retrospectives on this crazy kind of unprecedented period in a lot of ways? Well, understanding, you know, the key to a lot of policy, I think, is understanding the diversity of human responses to COVID. So I touch on one piece of that in my chapter on COVID in the book, where I talk about the fact that the assumption we had that everybody was bearing an equal risk of passing on the virus to others is completely false. And that a tiny portion of people are really the ones who do all the job of spreading. And if you know who that tiny portion is, then you simplify your attack on COVID. But I would

generalize from that and say that an enormous amount of the political and social dislocation from the epidemic was caused by the assumption that children were at risk or equally at risk for the virus. And that's why so many schools were shut down in so many places. And it was the shutting down of the schools that was so incredibly divisive. And if we better understood how at-risk children were for a viral epidemic like this, we could have had a lot smarter policy on school. And if we kept schools open far more, I think the kind of fallout from the political reaction to the virus would have been a lot less. And so like that's sort of one area where I feel like if we can sort that out for next time, we'll be doing well. So this language we had that we are

all equally at risk, we are all equally to blame, we all need to equally take precautions, it just doesn't work. It's not, it doesn't ring true to people and correctly doesn't ring, because that's not, it isn't true. And I don't think you will be able to pull that off a second time. You touched on the idea of like the law of the few and the super spreader concepts that come up in the book. I felt personally seen by a line that you had in there. You said, moving from a position that a problem belongs to all of us to the position that a problem is caused by a few, it's a very difficult thing to do. And this is going to sound like a non sequitur, but I promise I'm going to bring it around. I have a rat problem on my block in Washington, D.C., and the city has

a program where if you petition your neighbors, you can get the city to come out and do treatment if people sign on for the block. That happened recently. And everyone's complaining about this rat problem on the block. The city comes, they check for boroughs. The five properties that have the most boroughs account for 90% of the boroughs on this block that has 40 or 50 houses on it. They are driving, or they're hosting a lot of the rat activity on this block. I know this, and I now know the hotspots on our block, and I am left with this quandary here of, do I tell my neighbors that it's these five addresses, or does it continue

to be this block-wide problem? And I don't have the answer. I'm trying to work through it a little bit. Tell your neighbors. Why do those five houses have so many rat burrows? I think it's a variety of things. I think some of it is unfortunate luck because some of them are near these places that don't have a lot of activity and are very welcoming to rats. I think some of them are because they've left some things that rats enjoy hanging out with out in their backyard.

Or they don't move a car very often. There's a shed for them to hide under, things like that. And I'm left with that. What block is this? It's in Columbia Heights in D.C. I used to live 10 years in D.C., so this is all. Not far from Columbia Heights. I lived in Mount Pleasant and Adams Morgan.

I was just in Adams Morgan earlier today. I have to avoid this block. I want to avoid this block. Yeah, don't park your car over near me. You'll wind up with rats in your engine bay. But yeah, I'm left with this uncomfortable tension of, you know, what we all want here is for the rats to go away. And we can be aware of that on some level by everyone trying to do the best they can. But we know at this point that there are five properties where most of them are hanging out.

And that's really where we need to zero in on treatment for this thing. The city, the burden shouldn't be on you. The city should say the rat problem is centered on five properties. You guys got to clean it up. Like someone else, the problem is that if you make that statement, then you're fraying the social fabric of the block. So this is a crucial part of the kind of why it's so hard for us to identify these kind of bad apple problems. Because if the wrong person is left with the responsibility of labeling the bad apple, then it backfires, right? You're the bad guy.

You have to have the – you've got to pick the right bad guy to share the news that it's 176. I'm going to reach out to Washington, D.C. and tell them Malcolm Gladwell told me that they need to be the bad guy for this one. No, the city should be the bad guy. That's, like, it's obvious. Like, you can't be left to the neighbor to say, you guys got a rat problem. That's the role of government, right, is to step in and intervene. I mean, there are some other concepts that pop up that I want to touch on because I think they're very relevant to our audience. The magic third is one of them.

And this need for a critical mass for minority groups to exist in order to feel comfortable to be able to participate and to really have input in a group. And, you know, for our audience, you know, we spend a lot of time thinking about things like corporate boards and whether we're getting good independent thought, whether there's pushback for management. What is something like the magic third look like when you're thinking about a group of maybe five or seven or nine people that are working with a management team? Well, the whole point of the idea of the magic third is, as you know, that true diversity requires critical mass. You can't have a group of nine people on a corporate board bring in one woman and expect that woman to be heard and for her perspective to be widely respected and for her to feel comfortable even in, you know, our experience with the kind of integration of boards is that you need two or you need three at least on a board of, say, nine before that group can be themselves. and can really bring their different perspective to bear on the overall perspective of the board. And this has been observed across many different contexts

that there's a huge difference between a token, one different person in a group, and a group of outsiders whose numbers have reached the point where they no longer feel to themselves and to others as outsiders. And I think this is super crucial because what you want is keeping the corporate boards in focus here. Their crucial function is to provide a kind of not necessarily countervailing, but to provide a level of judgment and consideration and counsel

to the company management that the company management would not otherwise be able to access, right? And you defeat the purpose of a corporate board if the breadth of your intellectual diversity is stunted. And what the magic third tells us is how to avoid that kind of token representation of kind of meaningless, meaningless diversity. And I think it's also true, by the way,

if you think about diversity in the context of schools and their admissions. I'm not just talking in racial terms, but broadly speaking, I have a school. I think it would be really useful educationally for the students in my school to be exposed to a wide variety of viewpoints. Well, if you want to do that, you can't just bring in one black kid and one poor kid and one right-wing kid and call it a day.

You have to pay really, really close attention to what the numbers are. And that's something that schools, for example, have been very reluctant to do, I would argue, have deliberately avoided doing because they don't actually want to disrupt the culture in that way. But I think it's hugely necessary. There's some great work done in military decision making, like the famous study of the Bay of Pigs. Why did Kennedy do something so unbelievably stupid in the Bay of Pigs invasion in 1962, I guess it was, 61? And the answer is that he had no diversity whatsoever in his group of advisors, not ethnic or gender diversity. That was the 60s. They're always going to be white men.

But, like, everybody thought the same. And, like, the one guy who didn't think like everybody else was just one guy and couldn't speak up. You know, so it's like, as a result, they march in lockstep off a cliff. And that's not what you want from your National Security Council, right? in the room when you're deciding whether to invade Iran, you would like to have more than one person who raises their hand and says, I want you guys to think about this, this, and this, and this. Right? Yeah. Even if it doesn't change the trajectory of the decision, it changes the way you approach the decision and what you prepare for. It changes the nature, the characteristics

of the decision. Maybe we do this, but we do this later. Maybe we do this other thing first. Maybe we think through this part, you know, blah, blah, blah. In other words, creating an intellectually diverse group requires a degree of deliberate social engineering that I think we are underestimating. We were talking a little about OverStories before, and we're a show focused on business and the stock market. And so I'm curious, I know it's not a place,

but it's a community and it's a space in a way. What do you see as the overstory right now in the financial markets and investing here in the U.S.? Oh, wow, I'm the wrong guy to ask. Or do you see one? I mean, my problem is I wouldn't know, even if one existed. I'm always amused by people who speak about the markets

as if they're a person sitting in an office somewhere who you can call up. Markets declined today on anxiety about General Motors earnings. Really? You know that? Like you asked the market and the market said,

oh, I'm nervous about General Motors. Like, and that always struck me as a kind of, as opposed to saying the markets declined today for reasons we can only guess at. Maybe it was General Motors earnings. That seems like a,

the degree to which the market is over-narrativized has always seemed to be very, very problematic. And I think one of the first characteristics of a good investor is that they understand that those narratives are made up and that leads them to either ignore them

or exploit them, right? There's two things you can do when you realize that something is phony. You could exploit the phoniness or you can ignore it. And I think that's what smart investors do. They understand, oh, okay, so there's this crazy narrative out there that says this, this, this, this.

Well, that means that this must be overpriced or this must be underpriced. The other version is to be Warren Buffett and just say, F it. I'm investing for the next 30 years. Has the way that you invested changed over the last 25 years? Well, for a long time, I had a Schwab account where I would make highly speculative, very small investments for fun. And after almost without exception losing money in those trades for 15 years, I finally gave it up. And now I'm Mr. Index Fund. I have turned my back on that game.

I bet you sleep a little bit better. Well, I also do a thing where I only check my balances once a year. So that's like a system you've put in place knowing yourself? Yeah. It's like, what's the point? I'm not, you know, when I retire, I'll check them. I'm not using the money yet. I'm not retiring.

So why would I bother checking it until I'm retired? It doesn't make any difference. I will only boast about one thing. Oh, I'd love to hear you boast. I have two moments of extraordinary market prescience. I went immediately prior to the 2008 meltdown, I went 100% cash. I sold every single equity I owned. What told you to do that at the time?

I don't know. I just thought things seemed frothy. Yeah. And then in December of 2019, two months before COVID, I bought a very large short on the stock market, which I cashed into great effect several months later. Anything you'd like to tell us about the future? Thank you very much. I can retire on those two things alone. If you make any big moves anytime soon, just give us a heads up, all right?

Well, it's because I knew, because I've been riding it by viruses for years, I knew a bunch of virologists, and I was chatting with one at the end of 2019. I was like, how serious is this SARS thing in China? They're like, oh, it's serious. It's like, oh, okay. And then in, so I bought the short, and then I called them up, and I was like, so now that we know what this thing is, is it a hard target? Like, is it?

They're like, no, it's totally easy. We'll have a vaccine in no time. Like, oh, okay. So then I made sure I cashed it in before. But that's like, that lightning, that's like a stop clock is right once a day. That'll never, it's never happening again. I think that's a great track record to end it on right there. I think if you stay indexed after that, I think you're golden.

I don't spend nearly as much time looking at things like epidemics as you do, obviously. But I've followed, you know, folks like John Oliver and other folks talking a little bit about kind of the next epidemic and the next kind of viral epidemic, a more health-oriented epidemic. And this idea that it's possible, maybe even likely, that they will become more likely because of a lot of the conditions around how humans and animals live a little bit closer together. We're treading into areas that have traditionally been, you know, wildlife areas. What do you think of that? Probably true. Yeah. But I mean, at the same time,

our ability to respond quickly to them has gone up by several orders of magnitude. So, you know, in some ways, I think we'll see a greater frequency of pandemics with smaller impacts. That's how I would characterize it. There's a version of where we get, we really, really, really, really, really get good

at rapid response to these things. When I say rapid response, I mean, everything from identifying the new target to, more importantly, being able to ramp up manufacture of a vaccine that it's possible to conceive of, like, you know, the manufacturing capacity sitting at idle, waiting to be, like, turned on when we find something. I suspect that's where it will end up. In fact, it wouldn't surprise me, a very good business to have would be someone to develop a boutique mRNA vaccine manufacturer where you have that response on idle. Something new comes in, and for an extraordinary sum of money, you crank out the first wave of vaccines. Someone's going to do that. You might have just given away your next best idea.

I don't know. Why would you not do that? So you basically, people invest in you as next pandemic insurance, right? And you say, so you say the premium is a hundred grand. So every billionaire says, oh, for a hundred grand, I can insure myself against the next. You get like a thousand billionaires to give you a hundred grand and you create a factory just sitting there on idle. And like you, every time something pops up, you just crank out a vaccine waiting, right?

And you give your subscription list access to it. And then if the thing's real, then you've prototyped the mass application. So then you license what you developed to some mass manufacturer who makes it for everybody else. That's a great business. Insurance, why is insurance only like paying off money? The idea of insurance is so intellectually impoverished.

These guys have no imagination. No, insurance should be about a whole bunch of things. You should be able to buy vaccine insurance. It's just not that hard. Yeah. So it's risk mitigation, period, not financial risk mitigation. Exactly. It is biological risk mitigation.

You buy a policy and those guys, they're constantly pinging you. We've seen this new variant of avian flu in China. You want a vaccine? We'll FedEx it to you. I love how you went from, we have this boutique product, ultra high net worth individuals to go to market mass market product in a matter of about 60 seconds. And it was a relatively tight business plan. No, but that's the whole idea, right? You're prototyping. If the government is not going to do it and they're systematically gutting every

government capacity, then some bright eyed, because there's a universe of people in the world that's very large who have too much money. So just shake them down for a premium and you could fund the whole operation. They want to live forever, all those Silicon Valley guys. All right, pony up, buddy. I'll help you live forever. So that might be how we get ahead of the next pandemic. We'll worry about that when it hits. But every time I have an author on the show, I have to ask, do you have something in the works? Is there a next book planned or a new topic that you're interested in focusing on? Just a bunch of podcasts. I'm doing a George Floyd retrospective. I'm doing a little thing about RFK Jr., about how crazy he is.

I'm doing a big thing about a capital case, a murder case in Alabama that will be coming out this summer. I can't wait to listen to it. Malcolm Gladwell, thanks for joining me. Thank you, Dylan. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. The Motley Fool only picks products that it would personally

recommend to friends like you. I'm Ricky Mulvey. Thanks for listening. We will be back on Monday. Thank you.