The Popular Policeman and Other Cases

Front matter

Willem Albert Wagenaar

Hans Crombag

The Popular Policeman and Other Cases

Contents

Foreword 7 1 Illegal Gambling or the Victory Travel Club 9 2 On Causal Reasoning or Death in the Warmoesstraat 25 3 Consumer Confusion or Potato Chips and Olive Oil 43

4 Fiction and Reality of ‘the Average Individual’ or the Case of

Old Mr. Lane 57 5 Case Histories and Scientific Proof or the Case of JR 71 6 Nota Good Story or the Disappearance of Maddy and Vicky 93

Foreword

The domain of Psychology and Lawbelongs more to psychology than to law. Typical studies and publications in the field are psychological in nature, as they are applications of psychology within a legal context. Such studies may influence the practice of law and even legislation, but they are based on the research logic and methodology of psychologists. In general, this is the methodology for empirical research into basic psychological faculties such as perception and memory, automatic and controlled behaviour, logical thinking and problem solving, the formation of complex judgements and decision making. Such empirical studies always involve human subjects and are therefore limited by ethical constraints. Although such constraints by themselves do not seriously hamper the research process, they often constitute a problem when we try to apply the results in a context in which deceit, fraud, theft, robbery, drug trafficking, sexual abuse, rape, torture, and murder are the common themes. For ethical reasons, that context cannot be replicated in the psychological laboratory. It is difficult to create a research design in which human subjects are made to witness or to become victims of a serious crime in an ethically acceptable way. For this reason, the link between psychological research and its application in legal practice is never simple and straightforward.

The parties involved in civil or criminal cases know only too well that their cases are primarily decided on their legal merits. Psychological insights may play a role, but only if there is legal precedent, and in so far as they have clearly demonstrable relevance for the cases at hand. This may explain why the field of psychology and law has developed mainly in the context of actual legal trials; it is based on psychological questions raised in court, the expert testimony presented, and the acceptance or rejection of such testimony by judges and juries. It is virtually impossible for researchers in this field to make significant progress without experience as expert witnesses in actual trials.

One might expect that the progress in the field of psychology and lawis achieved by collecting in-depth descriptions of applications in actual trials. But this is not so. Often the scientific literature does not refer to any case in particular; at best it refers only obliquely to cases that the reader is supposed to recognise. Representative case collections that may be used for the training of our students, both in the faculties of law and of psychology, are rare. The few existing collections of case descriptions are almost without exception of American origin, which may be less useful for students in other countries with different legal systems. Another and more troublesome limitation is that most of the research in the field, and consequently of its application in the courtroom, is limited to a relatively small number of traditional topics, such as person identification through face recognition, the reliability of the memories of eyewitnesses, and false confessions. There are very few case descriptions involving the psychological aspects of automatic behaviour, consumer confusion, illegal gambling, causal reasoning, judicial decision making, and risky courtship behaviour. The reason for this paucity is apparently that psychologists are not thought to possess relevant information about these topics. Consequently, in these domains the expert opinion of psychologists is only rarely sought, even when such issues are raised in courtrooms.

This book is an attempt to fill some of these gaps. It discusses a number of often neglected issues in the field of psychology and law. The form chosen for these discussions is that of an extensive exposition of a case in which the issue arose and in which often one of the authors acted as an expert, appointed by the court or at the initiative of one of the parties involved in the case. The state of affairs with respect to scientific knowledge about the issue is then described in a succinct manner, with references to the relevant research literature. In the various chapters we describe how the psychological insights were introduced into the framework of predominantly legal reasoning, and what the courts did, or did not, do with our psychological knowledge. In this way, the book will not only be useful to those who wish to learn about the less frequently presented research on particular topics, but also, and particularly, about its application in legal practice.

It would have been impossible to describe and discuss such a variety of cases in sufficient detail without us having been involved in them as expert witnesses. Somewhat unfortunately, however, this means that almost all cases occurred in our own country and were thus decided within the framework of Dutch law and legal practice, with its sometimes surprising peculiarities. In our descriptions of the cases, we have attempted to leave out of consideration details that have no wider implication outside the Dutch context, and to concentrate on aspects of universal significance. It is our hope that teachers and students in the field of psychology and law will find this approach useful, and that some cases, in spite of their sometimes dramatic qualities, may occasionally elicit a smile.

CHAPTERI1

Illegal Gambling or the Victory Travel Club

In most countries gambling is regulated by the state, usually through legislation that forbids the commercial organisation of gambling activities, or through legislation that subjects commercial gambling operations to a licensing system. Legislation on gambling must contain a definition of what constitutes gambling. Which games are subject to the legislation, and which ones are exempt because they are considered games of skill? Such definitions are always problematic, because in reality there is no clear dichotomy of gambling games versus non-gambling games. Instead, there is a continuous scale with clear cases, like lotteries and roulette, at one end, and highly skilled games, like tennis or chess, at the other. The legally interesting cases are those in the middle, where there is uncertainty about the true nature of the game. There we find cases like blackjack and poker, in which professional players may earn considerable sums of money, which implies that skill is relevant, whereas beginners often lose because, lacking the relevant skills, they gamble. The dependence of the outcomes on the way in which individual players play leads almost automatically to a definition of gambling not in terms of the formal characteristics of the game, but in terms of how it is actually played. In that case, legislation on gambling should define the class of behaviours that constitute gambling, which almost inevitably leads to the involvement of psychological insights and concepts. As the case of the Victory Travel Club, discussed in this chapter, was tried in the Netherlands, it will be helpful to look at the definition of gambling according to Dutch law.

Dutch gambling legislation distinguishes between games of chance and games of skill. A game of chance is a game in which the large majority of the players do not have a decisive influence on the outcome upon which the winning of a prize is contingent!. There are two vague elements in this definition: large majority and decisive influence. Which proportion of players qualifies as a large majority, and how should

1 Article 1 of the Dutch Gambling Law (Wet op de Kansspelen).

the proportion of these unskilled players be measured in an actual case? And what constitutes a decisive influence? Decisive in what sense?

Both problems may be exemplified by the so-called ‘card counters’ in the game of blackjack. Card counting was first described by Thorp (1966). It consists of memorising the cards that have been played and, on the basis of this, evaluating the composition of the remaining deck. The betting strategy is varied according to whether the remaining deck is ‘rich’ in ten-point cards and aces, or ‘poor’. Ten-point cards are disadvantageous for the bank, because the bank is required to buy cards until a total of seventeen points is reached. When there are still many tens in the deck, the bank risks ‘going bust’ when a total of twelve to sixteen points is reached, because the bank must buy an extra card. The player can anticipate on this by standing on — twelve to sixteen points, which is in principle a losing hand unless the bank busts. This is very likely with a ‘rich’ deck; hence, it is a good strategy for the counter to place a high bet when the deck is rich. Card counting is not difficult to learn and may turn the advantage slightly in the direction of the counter. Usually, the advantage of the card counter over the bank amounts to no more than 0.5-1.0 percent of the betting amount, which means that the card counter only wins in the long run, notin every single game. Nevertheless, casino owners consider card counting highly undesirable. When spotted, card counters are often asked to leave, or are counteracted in various other ways. More details are provided in Wagenaar (1988c) and Keren & Wagenaar (1985). The questions that concern us here are: is the influence of a card counter on the outcome of the game decisive, and how many card counters must be present to make blackjacka game of skill?

The first of these questions leads us directly into philosophical problems, because it is not clear what the ‘outcome of the game’ is. Is it the way in which the cards come out which determines whether an individual game is won by the player or the dealer? Clearly, the card counter has no influence on the sequence of the cards in the deck. Is it the number of times a player wins? This is only marginally influenced by the card counter’s playing strategy. The real advantage of card counting is that, on average, higher bets were placed in those rounds in which the player wins, with the result that even when the counter does not win more often, his winnings will exceed his losses. If the financial gain or loss is considered to constitute the ‘outcome of the game; it is clear that the outcome in the long run will be decisive in the eyes of the casino owner, even though it is negligible in a single hand. From earlier court decisions it is not clear what the legal meaning of ‘outcome is. In some cases those accused of organising illegal gambling were convicted simply because the large majority of the players lost, or merely because playing cards were used.

The second question leads us into even bigger problems. Let us assume that card counting is recognised as a skill. Then, if seven card counters find themselves at the same blackjack table, there is definitely an absolute majority of skilled players. Does this mean that the nature of blackjack changes with the composition of the group of players at the table, so that in one and the same casino blackjack may bea skilled game at one table, and a game of chance at another? This problem is even further aggravated by the phenomenon of ‘following the card counter’. It often happens that the other players at a blackjack table spot the card counter, and begin to follow his betting pattern: high when the deck is rich, low when the deck is poor. In that manner all the players succeed in influencing the outcome of their bets, without possessing any relevant skill apart from spotting the card counter. They all depend on the skill of the card counter. In the long run, though, they all have a decisive influence on the financial outcome, a result that is even more feared by casino owners than the isolated activity of a single card counter. This effect of decisive influence is obtained even when only one out of seven players applies the skill of card counting, which clearly is not a majority.

These and similar problems have caused complicated legal procedures all over the world, concerning roulette-type games, blackjack, poker and, most relevant for the present chapter, pyramid games. In many of such procedures, psychologists have been asked to testify about the nature of the supposed skills that players might employ. Do such skills really exist? How many players may possess them and to what extent? How difficult are they to acquire and how large an effect might they have on the outcome of the game?

Why should gambling be prosecuted?

It is apparently communis opinioin our society that gambling is bad, that in principle it should not be done and that, in any case, unlicensed commercial gambling organisations must be prosecuted. But why is gambling bad? Historically, a wide variety of reasons has been offered. One of them is linked to religion. Gambling may result ina significant change of one’s destiny, at a time determined by the gambler. Some religious people believe that man’s destiny is in God’s hands only, and that a gambler forces God to take a decision at a time not chosen by the deity himself. Such contempt of God’s sovereign and mysterious ways constitutes a moral ground for rejecting gambling. Quite famous in this context is William Hogarth’s 1747 engraving of the apprentice Thomas Idle, gambling in the graveyard during church service (Shesgreen, 1973; plate 62). Ironically though, the Christian churches have a long tradition of collecting funds through the organisation of lotteries. This tradition originated in the Middle Ages within the Catholic church, and was copied without critical consideration by the Reformed churches (Fokker, 1862).

A second religion-related reason may be that man is destined to toil ‘by the sweat of his brow. Acquiring wealth through gambling would be in violation of this old commandment. But again, the systematic organisation of gambling events by the churches appears to contradict this, and the argument may therefore be deemed a reason of little importance. A related argument, more social than religious in nature, may be more relevant. The option of earning an income through gambling may prevent people from doing their share of honest work. Gamblers, however, must lose in the long run, because the odds are inevitably against them. Thus, in the long run, gamblers will fall into beggary and crime, which is of course unacceptable to society. Significantly, Hogarth’s character Thomas Idle ends up as a murderer, hanged at Tyburn. Related to this argument is the economical consideration that gambling is not productive; it isno more than a redistribution of money, to no societal advantage. Gamblers are freeloaders sponging on the work of others.

A third reason may be that some forms of gambling are highly addictive. Among the addictions, gambling has the highest rate of relapse after treatment. The effect of this addiction on the direct social environment of gamblers is often dramatic, because they will do almost anything to go on gambling. They will lie, cheat, steal, and may even turn to violent crime (Van ’t Veer et al., 1993; also Lesieur & Rosenthal, 1991). The commercial organisation of gambling can therefore be considered a provocation of addiction and criminality originating from it, which is the reason why gambling should at least be regulated and controlled. A licensing system may achieve this goal, which in turn implies that the organisation of gambling without a license must be prosecuted. This is a valid argument, although it ignores the obvious fact that in practice, licensing does not do anything to prevent a gambling addiction.

A fourth reason for a strict control of gambling is that commercial gambling organisations may offer a convenient way to whitewash money obtained by criminal means (Van ’t Veer et al., 1993). One can easily claim to have won a huge sum of money through gambling, unless gambling transactions are closely monitored and recorded. This requires a licensing system that includes rules to prevent whitewash operations and the prosecution of those who dodge these rules.

A fifth reason is that gambling operations are highly competitive. Every commercial organiser of gambling would love to have the monopoly ina certain region, during a certain period of time, and for a certain type of game. This argument played a role in church-organised gambling, and also in gambling organised by civil authorities, such as in state lotteries or state-owned casinos. Fokker (1862) describes how the city of Amsterdam established a monopoly by forbidding other cities in the province of Holland to organise lotteries during a period of two years surrounding big lotteries in Amsterdam. In 1726 this monopoly system was adopted by the Estates General when the Governmental Lottery was founded, the oldest state lottery in Europe. A direct consequence of this monopoly was, of course, that it needed to be enforced through the prosecution of invaders.

A final reason and perhaps the one that is closest to the current prosecution practice in the Western world is that commercially organised gambling must of necessity be fraudulent, in order to be profitable for the organisers. The basic rule of commercial gambling is that the odds must be in favour of the organiser, and thus against the individual player. This is, however, not the message that is communicated to the potential clients. On the contrary, the client is led to believe that gambling will lead to instantaneous and easily obtained wealth. The advertisements speak about winning, winners, amounts won, the joy of winning, and the things you can do when you have won. They suggest that people may control the process, that it is a matter of skill, and that through practice one can learn to improve one’s performance. Just one example of the creation of such illusions is the electronic display at the roulette tables showing the numbers that were drawn in previous rounds, suggesting that this is useful information. Which, of course, it is not. A similar form of memory support is not provided at the blackjack table, although there it would be very helpful. Here, in reality, casinos employ the opposite strategy by strictly forbidding the recording of cards that have been removed from the deck in previous rounds. So, the clients in commercially organised gambling are misled about what they can achieve and what will happen. The truth about gambling is the law of large numbers: the more you gamble, the more the unfavourable odds will be reflected in your net result. It is this aspect of fraud that constitutes the rationale for the prosecution of illegal gambling in the United States, which implies, however, that licence holders are allowed to run a fraudulent operation.

The Dutch law, focussing on the absence of influence on the outcome, may be interpreted as reflecting the same argument because, as argued by Wagenaar (1988c), it is precisely this aspect that is misconstrued by habitual and addicted gamblers. Ideally, the key question in the prosecution of illegal gambling should be whether the gamblers are allowed complete understanding not only of the mechanism, the odds and their limited ability to influence the outcome, but also of what in practice happens to participants. In other words, to what extent are prospective gamblers misled about the reality of the game? In the remaining part of this chapter we will assume that the aspect of misleading the players is the true basis for prosecuting illegal gambling. In this context pyramid schemes constitute a prime example of a misleading mechanism for the redistribution of wealth.

Pyramid schemes

The best-known form of a pyramid scheme is the chain letter. At level 1? of the scheme, a person sends letters to a number of other people — say ten — who consti-

2 The numbering of the levels in the pyramid starts at the top.

tute level 2. Each of these ten persons sends letters to ten others, who together constitute the 100 participants at level 3; and so on. In the chain letter, the receivers are asked to do two things: send ten letters to persons at the next level of the scheme, and pay a certain amount of money to a person several levels higher up in the organisation. A person at level 7 may be asked to pay to one person at level 5. That person will receive payments from 100 players. In general, when every player indeed sends out the a required letters, and the payment is made to players x levels higher, then the total amount of money received by every player will be a*. The system breaks down when new recipients of the letters refuse to participate. Then it will happen that players at the two lowest levels of the pyramid make their payments to players at a higher level, but do not receive payments themselves because the population of prospective players is exhausted.

In the legal sense, such a scheme may be considered a form of illegal gambling because the players have no decisive influence on the recruitment of new players x levels below them. This will especially be the case when x exceeds 2, because generally one does not know the persons recruited by one’s own recruits, and a fortiori by the recruits of those recruits. Because of the exponential increase of the number of participants on the successive levels of the pyramidal structure, the group of losers will always constitute a large majority. For them, there are no potential new players, and whatever they do, they will fail and lose their investment. Hence, they have no ‘decisive influence’ on the outcome of the game. According to the Dutch legal definition of gambling, pyramid games are thus forms of gambling. In the American notion, the organisation of pyramid games constitutes fraud, because the majority of players are misled about the fact that they are destined to lose.

An exceptionally harmful form of the pyramid scheme is the so-called Ponzi scheme, named after Charles Ponzi, a racketeer active in the 1920s. The scheme is very simple: people are asked to lend money to the organiser against an extremely attractive interest rate. The money is not invested and the interest is not paid from any profit, but exclusively from new loans. So long as the number of money lenders keeps increasing exponentially, the system works very well. But as soon as the population of potential lenders is exhausted, it becomes impossible for the organiser to pay the interest. Even worse: the original investment of the majority of contributors has been used to pay interest to the minority of early participants. But even these early contributors will lose when the racketeer disappears with whatever money is left, which of course he will. It was in this manner that a substantial part of the Romanian population was robbed of its savings in 1993; this was repeated in 1997 witha substantial proportion of the Albanian population.

Ponzi schemes and multilevel marketing

Ponzischemes illustrate that it may be extremely difficult to capture in a legal definition the dividing line between normal business practices and criminal behaviour. Lending money to a bank is usually based on the belief that the bank will invest the money and pay the interest from the profits thus made. But the lender has no influence on the investments. In fact, he does not receive any promise about the type of investment or, more generally, about the source from which the interest will be obtained. The lender has no influence on the bank’s financial performance and is not insured against a sudden breakdown of the bank’s solvency. The same can be said about buying shares in a commercial enterprise: the buyer of shares is speculating on the outcome ofa probabilistic process on which he or she has no influence whatsoever. Is this gambling? Should it be deemed illegal?

Even more disturbing is the similarity between pyramid games and the well-known and widely accepted system of multilevel marketing (MLM). The idea here is that a manufacturer of, for instance, a health product does not distribute the products market-wide in health shops himself but recruits a number of level-1 individual distributors. These distributors buy the products from the manufacturer and sell them on their own account. Often the level-1 distributors recruit level-2 distributors, who buy their products through the level-1 distributors and pay a cut of their profits to the level-1 distributor by whom they were recruited. These level- 2 distributors in turn may enlist level-3 distributors, and so on. In this way each distributor will sell the health product directly, hopefully with some profit, but may also act as an entrepreneur who employs a number of salespeople.

The biggest MLM scheme in the world is the Amway company, with bases in a vast number of countries. Amway produces a large variety of household goods, which are sold through the pyramidal structure of recruited private entrepreneurs, called Independent Business Owners (IBOs). In 2004, Amway has recruited 3 million IBOs worldwide, with sales worth US$ 6 billion (www.amway.com). Still, the Skeptic’s Dictionary (www.skeptic.com) alleges that, in the year 2000, the average Amway IBO earned an average of US$ 700, but spent about US$ 1.000 on Amway products.

Amway has often been prosecuted for organising an illegal and deceptive gambling system. The landmark trial was in 1978-79, when it was decided by the American Federal Trade Commission? that MLM in this form is acceptable, provided that certain rules are observed. Most prominent were three rules already in use with Amway: the ‘buy-back rule’, the ‘70 percent rule’, and the ‘ten customers

3 93 ET.C. 618, 716-17 (1979) ; see also the web site <mlmlegal.com/amway.html>.

rule’. The ‘buy-back rule’ specifies that an IBO must purchase any unused, marketable products back upon request from an IBO hierarchically ordered below him in the pyramid. This prevents IBOs at the top of a (sub)pyramid forcing participants below them to buy unrealistically large supplies. The ‘70 percent rule’ provides that IBOs must sell at least 70 percent of the products received in one month in order to get a performance bonus. This prevents the unwanted accumulation of goods with certain IBOs. The “10 customers rule’ states that each IBO must make sales at retail to at least ten different customers every month. This makes it impossible for IBOs to become nothing more but employers of other IBOs who do the real work. A fundamental attack on the whole idea of MLM was launched by Fitzpatrick & Reynolds (1997), who argue that, notwithstanding the FTC decision in the Amway case, MLM is in essence a pyramid scheme that cannot work because it would soon exhaust the population of individuals willing to serve at the lower levels. But since Amway and many other MLM organisations are successfully operating throughout the world without exhausting their markets even after several decades, this allegation is at least debatable; we do not really know how well the Amway IBOs are doing. The question of the success rate among the millions of Amway IBOs is important, since the key issue in the prosecution of illegal gambling is the question of whether these ‘players’ are, or are not, misled. In Amway’s information to potential new IBOs, there is nothing about the probability of losing money, or the proportion of IBOs who actually do lose money, or the number of other IBOs one must recruit in order to make any money at all. The three important rules imposed by the FTC have nothing to do with fair and complete information to potential ‘players. There is no fundamental reason why the Amway scheme cannot work, and there is no clear information that in practice it does not work. But, since the use of deception and fraud is the key issue in the prosecution of organisations that employ pyramid schemes, it is surprising that the relevant information about how well the distribution system works in practice is not provided by Amway.

The problem of framing MLM asa form of illegal gambling becomes even more complicated when it is realised that the rather general criterion of not being able to influence the outcome of a game that is in essence probabilistic applies to many other commercial activities. The author of a book may try to produce an attractive and well-selling product, but the actual sale of the book is always quite uncertain and in the hands of publishers and booksellers. Moreover, the population of actual buyers is limited, and may become exhausted fairly soon. Publishing companies might therefore be construed as organisations that recruit authors to write books, but without allowing them a reasonable influence on the financial outcome of their enterprise. In fact, as we know from personal experience, the writing of scientific books is often very much like being an Amway distributor who spends 1000 dollars in order to win 700. Once in a while a science book becomes a bestseller, but this is altogether unpredictable. Would it be fair to prosecute the world’s renowned scientific publishing houses for illegally organising a gambling racket?

Legal definition of pyramid games

In the Netherlands several trials against the organisers of commercial pyramid games have been held. A landmark trial was that against the club Coin Liberté, in which one of us served as a psychological expert, testifying on the amount of influence that the members had on the recruitment of novices. Since it was an essential feature of the scheme offered by Coin Liberté that one person could simultaneously act at many different levels of the pyramid, the possible exhaustion of the population was not a problem. The same people could be recruited again and again, and in actual practice indeed the majority of participants were active at various levels of the pyramid. The result was that the growth of the membership was linear rather than exponential. The growth rate was far below the autonomous growth rate of the Dutch population. It could therefore be argued that the group of potential new members was increasing, rather than decreasing. Coin Liberté won its case, but went bankrupt when its bookkeeper ran off with the cash. As a reaction to the outcome of this case, the legislator concluded that the general definition of games of chance needed to be supplemented with the explicit mention of pyramid schemes. Hence Article 1a was added to the Gambling Law as a lex specialis, specifying that pyramid games are games of chance. Since then the critical legal issue about pyramid schemes is not the decisive influence of the players, but simply whether a commercially offered scheme conforms to the legal definition of a pyramid game. In the same Article la, pyramid games are defined as games in which the gain of the participant is entirely or partially dependent on the surrender of any good (read: payment) or the acceptance of any obligation by later participants. We will see that this definition causes new problems, as it also covers almost any canvassing activity, and would also definitely outlaw the Amway-type sales system, which is operating rather successfully also in the Netherlands (see their website www.amway.nl).