A few years ago, one of our blog posts focused on Elizabeth Holmes and the massive Theranos fraud.

On January 3, 2022, Holmes became the first Silicon Valley CEO to be convicted of securities fraud and she now faces years in jail for inducing investors to entrust her with $900 million or so based on her false statements about the capabilities of the Theranos technology. Theranos could not run hundreds of medical tests simultaneously using just a drop of blood painlessly obtained, as Holmes repeatedly claimed. Rather, most of the test results it reported were actually the product of traditional means of testing and its own technology was quite unreliable for the few tests it did perform.

In that earlier blog post, as we are wont to do, we focused on the potential role that behavioral ethics concepts might have played in Holmes’s actions, emphasizing the overconfidence bias, loss aversion, moral licensing, and incrementalism.

Today, we’d like to reemphasize loss aversion, which is the human tendency to hate losses more than we enjoy gains. Our extreme emotional reaction to what we perceive to be losses can cause us to make unethical choices to avoid losses that we would never make to achieve similar gains. Most people are at least a little prideful, making it difficult for them to admit mistakes. But this difficulty can take them into dangerous territory.

Dennis Gentilin, who has thought a lot about ethics since being caught up in the National Australia Bank scandal in 2004, writes about loss aversion:

There is a driver of behavior within organisations that goes beyond money and power. People within organisations, especially the most senior and powerful, have worked for years to attain a status or title that they become highly attached to, is central to their identity, and defines who they are. When their position is threatened, be it due to poor performance, feelings of incompetence, changes in organizational structure or the risk of having previous maleficence uncovered, the natural response is to go to extreme lengths to defend and protect this position. What is driving this defensive response is the fear associated with the loss of their status and title, and the associated financial rewards and lifestyle the position affords. By extension, what is at stake is their very sense of self and identity.

At the beginning, Holmes no doubt believed strongly in the potential of her idea. It was a grand and potentially transformative technology that she envisioned. Consider Holmes’s position by the time the evidence started to mount that Theranos was not going to be able to realize her dreams. She was widely admired as perhaps the most successful female entrepreneur in the history of Silicon Valley. She was a billionaire (on paper). She was characterized as the female Steve Jobs. She was lionized as the genius with a heart. She was admired by Barack Obama, Hillary Clinton, and Joe Biden. She had made promises to investors that had led them to place nearly a billion dollars in her hands. She had made promises to employees about the grand mission they were all on to transform health care in America. She had made promises to customers and patients about her technology’s capabilities. Her sense of self and identity was without question utterly connected to her dream to change the world for the better.

With all that at stake…with all that to lose…how hard would it have been for Elizabeth Holmes to admit failure? It seems likely that her brain might well have had difficulty even processing the evidence that kept flowing from the Theranos labs that its engineers were unable to even come close to producing technology that lived up to Holmes’s representations to the world.

The more we study human ethical decision-making, the more we think that a critical skill for those who wish to lead a moral life is the ability to muster the courage to admit mistakes no matter how painful the consequences. Had Elizabeth Holmes had that ability, she would have lost a lot, but she would not be facing a substantial prison sentence.



Ken Auletta, “Blood, Simpler,” New Yorker, Dec. 15, 2014.

Nick Bilton, “Exclusive: How Elizabeth Holmes’s House of Cards Came Tumbling Down,” Vanity Fair, October 2016.

John Carreyrou, Bad Blood: Secrets and Lies in a Silicon Valley Startup (2018).

Dennis Gentilin, The Origins of Ethical Failures: Lessons for Leaders (2016).

Erin Griffith, “Silicon Valley Can’t Escape Elizabeth Holmes,” New York Times, Jan. 4, 2022.

Erin Griffith & Erin Woo, “Elizabeth Holmes Found Guilty of Four Charges of Fraud,” New York Times, Jan. 3, 2022.

Rachel Lerman et al., “Theranos Founder Elizabeth Holmes Found Guilty in Landmark Silicon Valley Fraud Case,” Washington Post, Jan. 4, 2022.

Sara Randazzo et al., “The Elizabeth Holmes Verdict: Theranos Founder is Guilty on Four of 11 Charges in Fraud Trial,” Wall Street Journal, Jan. 3, 2022.

David Streitfeld, “The Epic Rise and Fall of Elizabeth Holmes,” New York Times, Jan. 3, 2022.



Loss Aversion: https://ethicsunwrapped.utexas.edu/video/loss-aversion an