What the Elizabeth Holmes documentary and others around her failed to “ See”

# Elizabeth Holmes and Theranos: How Rationalization Can Distort Reality and Influence Others

The enduring fascination with Elizabeth Holmes extends beyond the rise and collapse of Theranos. It raises a deeper psychological question: How can someone become so committed to a particular version of reality that evidence, consequences and the concerns of others no longer seem capable of changing their beliefs? Equally important, how do intelligent, experienced people become drawn into the same distorted perception, overlooking warning signs that might otherwise appear obvious?

Recent reviews of the documentary *You Can See Everything* have explored the possibility that Holmes believes her own claims, even when they conflict with established facts. The film has been described as an unsettling examination of truth, perception, sincerity and manipulation. However, focusing exclusively on whether Holmes believed her own narrative risks overlooking a more consequential issue: what happens to human judgment when rationalization begins to replace objective reality?

Understanding the psychology of fraud requires looking beyond sensational accounts of individual behavior. In an article titled *Viewing Fraud Through the Telescope Model of Rationalization*, Timothy Hedley, a former global head of fraud risk management at a Big Four accounting firm, and I examine how rationalization can help people justify actions that would otherwise violate their ethical boundaries. Drawing on firsthand experience, the central argument is that understanding fraud requires examining not only what someone did, but also the thinking errors that allowed the behavior to seem acceptable.

A telescope brings distant objects into focus, but its optics also influence what becomes visible. Rationalization operates in a similar way. People interpret events through the lenses of ambition, fear, personal interests and existing beliefs. When those lenses become distorted, evidence that should challenge an assumption may instead be reinterpreted to reinforce it.

The Theranos case illustrates the consequences. The gap between the company's promises and what its technology could reliably deliver became central to the fraud. Claims of revolutionary medical innovation created a compelling narrative that competed with evidence that should have limited those claims. The company's story attracted investors, influential advisers and other supporters, demonstrating how a persuasive vision can acquire credibility even when the underlying evidence does not justify it.

The consequences extended far beyond the company's leadership. Patients, investors, employees and others were affected by the collapse. Such cases show how distorted thinking can contribute to self-destruction while harming people who become involved in the same enterprise. Recognizing these psychological patterns is therefore not simply an academic exercise; it is part of understanding how serious misconduct develops and how it might be prevented.

Ambition can become a justification for cutting corners, while early success can be mistaken for proof that future success is inevitable. In Silicon Valley, the familiar idea of “fake it until you make it” can blur the boundary between presenting an ambitious vision and making claims that cannot be substantiated. Technical setbacks may be dismissed as temporary, and contradictory results may be treated as obstacles that will eventually disappear.

Over time, this thinking can create a self-reinforcing system in which almost any contrary evidence can be explained away. Perception creates momentum, momentum attracts support, and that support can make the original perception seem increasingly credible. Founders, employees, investors and family members may all become caught in the resulting cycle. The more deeply they invest in a particular image of success, the harder it becomes to examine whether that image corresponds to reality.

Fraud is often explained through questions of character: Was the person greedy, dishonest, narcissistic or determined to succeed at any cost? Such questions may be relevant, but they do not fully explain how destructive decisions develop or why others become involved. Emotional needs and cognitive biases can cloud judgment, making questionable choices appear reasonable to the people making them.

Several thinking errors are particularly important. **Confirmation bias** encourages people to favor information that supports their existing beliefs while discounting contradictory evidence. In the Theranos case, investors who already believed in the promise of the company could be more receptive to reassuring claims than to information that challenged their expectations.

**Self-serving bias** can lead people to interpret events in ways that protect their self-image. When a decision fails, they may blame external circumstances or other people rather than reconsider their own judgment. In an organization, this can prevent accountability and make it difficult to identify the real causes of failure.

Another pattern is power orientation: projecting authority, certainty and invulnerability to influence how others perceive a leader. Holmes's distinctive presentation, including her intense gaze and deliberately deepened speaking voice, became part of the public image associated with her leadership. Such presentation can influence perceptions of confidence, but it cannot establish whether the claims being made are accurate.

Blaming a partner or another individual for failures can further reinforce distorted thinking by shifting attention away from the decisions and assumptions that require scrutiny. Superoptimism can also be dangerous, particularly among entrepreneurs who assume that problems will eventually work themselves out and underestimate the risks involved.

The greatest danger emerges when these thinking errors reinforce one another. A questionable decision is justified, the justification becomes the basis for another decision, and the resulting commitments become increasingly difficult to reverse. As the consequences grow, admitting the original mistake can threaten a person's identity, reputation, relationships and future. Defending the initial decision may begin to feel easier than confronting the evidence.

The effects are rarely confined to one person. Those around a determined leader may begin with different intentions and levels of knowledge. Some genuinely want to help; others are persuaded by confidence, reputation, authority or the promise of extraordinary achievement. Gradually, they can become caught in the same cycle of rationalization.

Overconfidence can spread socially, allowing distorted beliefs to become more resistant to correction. A founder's conviction reassures employees, employees' commitment encourages investors, and investors' confidence attracts additional supporters. Prestigious advisers may lend credibility to claims they have not independently verified. Each person's confidence then becomes apparent confirmation for the next, even when the underlying facts have not been established.

People may look around a room filled with equally convinced colleagues and conclude that their own doubts must be misplaced. Instead of asking whether the evidence supports a claim, they begin wondering why they should be the only ones questioning it.

Public commitment makes the problem more difficult. Once employees, advisers or investors have defended a leader, acknowledging warning signs may require them to admit that they were wrong. The psychological cost of changing their minds increases with every additional commitment. Silence becomes more comfortable, while skepticism may be interpreted as disloyalty.

Understanding these social mechanisms helps explain why warning signs can remain unaddressed even in organizations filled with intelligent and experienced people. Intelligence alone does not protect individuals from cognitive bias, social pressure or the desire to preserve their reputations.

Entrepreneurial decision-making is shaped by the interaction of emotional needs, personal identity, ambition and ethical choices. Criminal conduct does not develop in a psychological vacuum. Examining the mechanisms that permit misconduct may help organizations recognize emerging problems before the damage becomes irreversible.

The documentary's portrayal of Holmes and its exploration of subjective truth provide a starting point for this discussion, but fascination with the paradox should not be the conclusion. The more useful question is how rationalization becomes entrenched and what can be done to interrupt it. The psychological pressures surrounding fraud, including the role of emotional needs and mental well-being, deserve careful examination without assuming that any particular diagnosis explains an individual's conduct.

Organizations can reduce these risks by protecting dissent, independently verifying important claims and giving evidence priority over charisma. Leaders should acknowledge uncertainty when it exists, while employees and advisers should be able to question assumptions without fearing retaliation. Independent oversight and clear accountability can help prevent a compelling narrative from becoming a substitute for verification.

The same discipline applies to individuals. We should ask what evidence would change our minds, whether we are selectively interpreting information and whether loyalty to a person or idea has compromised our judgment. The Telescope Model of Rationalization offers a framework for examining these distortions rather than merely observing their consequences.

Holmes's story challenges assumptions about intelligence, sincerity, ambition and deception. Yet the most important lesson is not simply whether she believed her own narrative. It is how a narrative can become so powerful that reality is repeatedly reinterpreted to accommodate it—and how the people surrounding that narrative can gradually lose sight of the difference between conviction and evidence.

Rather than focusing only on how the deception was carried out, we should examine how rationalization changed what people believed they were seeing and why those distortions spread. The greatest danger is not merely that one person distorts reality. It is that, through the telescope of rationalization, an entire circle of people may eventually begin to see that distortion as the truth.