The stereotypical image of a scam victim is an elderly person with diminished mental acuity and little contact with other people. That image was wiped out, however, when the Bernie Madoff fraud was brought to light. How could so many intelligent, educated, well-connected, and successful people fall for a plain vanilla Ponzi scheme that, in hindsight, was obviously too good to be true?
A recent report on the psychology of scams commissioned by the UK government's Office of Fair Trading may provide some answers. Created by Exeter University's psychology department, the authors of the the 260-page report interviewed victims of scams, studied how scams are pulled off, and conducted a behavioral experiment. It might not make for light poolside reading, but one of my favorite blogs, Mind Hacks, has written a brief summary of the report's salient points.
Most of the report's conclusions make intuitive sense: successful scams look like legitimate enterprises, have strong emotional appeal, hook victims by getting them to commit small and then increasingly larger amounts of money, and dangle the promise of a pot of gold at the end of a rainbow.
But Mind Hacks highlighted a couple of fascinating counter-intuitive conclusions about scam victims:
Scam victims often have better than average background knowledge in the area of the scam content.
For example, it seems that people with experience of playing legitimate
prize draws and lotteries are more likely to fall for a scam in this
area than people with less knowledge and experience in this field. This
also applies to those with some knowledge of investments. Such
knowledge can increase rather than decrease the risk of becoming a
victim.
scams because they invest too little cognitive energy in investigating
their content, and thus overlook potential information that might betray the scam.
What these conclusions are saying, in short, is that scam victims don't trust their gut. Instead, they conduct research and draw on their existing knowledge to convince themselves that a fishy investment opportunity isn't too good to be true.
A rule of thumb you might draw from all this would be: "If your gut says no, walk away. If your gut says yes, then do your research before you commit."
Credit.com has a lot of good information about avoiding fraud and identity theft.
Mark Frauenfelder Credit.com contributor, editor-in-chief of MAKE magazine and the founder of the popular site Boing Boing, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online. He covers creative DIY projects and how-tos that will help you make the most of your money.
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The Psychology of Scams
Image via WikipediaIn February, 2009, the FTC stated that they were going to try to recreate in the laboratory conditions which enabled consumer fraud, specifically…