The Psychology of Scams
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In February, 2009, the FTC stated that they were going to try to recreate in the laboratory conditions which enabled consumer fraud, specifically focussing on decision making shortcuts.
My own view is that, based on years of interviewing victims of business opportunity and franchise fraud, two biases stood out: confirmation bias
and anchoring.
Confirmation bias ensured that the victims did not look for negative features, and anchoring on unrealistic earnings claims persuaded the victims that this was the real deal, even after they had "discounted" the earnings claims by a factor of 1/2 or 1/3, just to be safe.
, sometimes described as decision making biases, always leads to inaccurate risk assessments. 
, and others are just errors of reasoning. "According to the Office of Fair Trading (2006), 3.2 million adults in the UK fall victim to mass marketed scams every year, and collectively lose £3.5 billion.
Victims of scams are often labelled as 'greedy' or 'gullible' and elicit the reaction, '
How on earth could anyone fall for that?'
However, such labels are unhelpful and superficial generalisations that presume all of us are perfectly rational consumers, ignoring the fact that all of us are vulnerable to a persuasive approach at one time or another.
Clearly, responding to a scam is an error of judgement - so our research sought to identify the main categories of decision error that typify victim responses, and to understand the psychology of persuasion employed by scammers to try to provoke such errors."
According to the press release about the psychology of scams,
"Professor Stephen Lea of the School of Psychology, who led the research team, said: 'Modern economic life is complicated and we have to use all sorts of short cuts and rules of thumb to navigate our way through it.
Scammers take advantage of those necessary, everyday processes. This means that no-one is immune to being scammed. We need to be on our guard both for ourselves and for our friends and family.
If you have any worries that something might be a scam, you need to talk to someone else about it: It very likely is.'
Again, it is incorrect to simply assume that responding to a scam is an error of judgment. We don't say of people who enjoy magic shows and the cognitive tricks that they are making errors of judgments. They are simply seeing magical illusions that "persuade" their senses to see what is not there.
To focus on the decision maker's errors of judgment is to overlook the key component: the con criminal's intention to steal. And anyone at any time can fall prey to this precisely because the tools of persuasion are the same as any legitimate marketeer uses.
Nor do I think that by simply talking about it, a person will avoid a scam. But, I do think that by correctly talking can work, but not by disclosing the decision makers errors in judgment.
I gave a recent example about Global Wealth Traders.
Now, here are what the authors say that there key findings are:
"The present research suggests that the psychological reasons for responding to scams involve a mixture of cognitive and motivational processes.
Whilst different kinds of scam do exploit different vulnerabilities to some extent, there are similarities between scams in their content and the use of persuasive techniques.
The greatest and most consistent emphasis was on:
• appeals to trust and authority: people tend to obey authorities so scammers use, and victims fall for, cues that make the offer look like a legitimate one being made by a reliable official institution or established reputable business;
• visceral triggers: scams exploit basic human desires and needs - such as greed, fear, avoidance of physical pain, or the desire to be liked - in order to provoke intuitive reactions and reduce the motivation of people to process the content of the scam message deeply. For example, scammers use triggers that make potential victims focus on the huge prizes or benefits on offer.
There are also a number of other error-inducing processes that emerged:
• Scarcity cues. Scams are often personalised to create the impression that the offer is unique to the recipient. They also emphasise the urgency of a response to reduce the potential victim's motivation to process the scam content objectively;
• Induction of behavioural commitment. Scammers ask their potential victims to make small steps of compliance to draw them in, and thereby cause victims to feel committed to continue sending money;
• The disproportionate relation between the size of the alleged reward and the cost of trying to obtain it. Scam victims are led to focus on the alleged big prize or reward in comparison to the relatively small amount of money they have to send in order to obtain their windfall; a phenomenon called 'phantom fixation'. The high value reward (often life-changing, medically, financially, emotionally or physically) that scam victims thought they could get by responding, makes the money to be paid look rather small by comparison;
• Lack of emotional control. Compared to non-victims, scam victims report being less able to regulate and resist emotions associated with scam offers. They seem to be unduly open to persuasion, or perhaps unduly undiscriminating about who they allow to persuade them. This creates an extra vulnerability in those who are socially isolated, because social networks often induce us to regulate our emotions when we otherwise might not."
There is nothing unusual here: the authors could be describing any normal marketing approach.
Better we should focus on intention and the con criminal's use of the phantom fixation.
For example, the phantom fixation in business opportunity and franchise fraud is the lure of "being your own boss", a lure especially attractive to people recently laid off.
"Be your own boss", "in business for yourself but not by yourself", "following a proven business mode" are all pitches aimed at inducing a phantom fixation with retaining control of one's economic life.
A real franchise system would never make this pitch because the relationship is a highly regulated and contractual one, in which you may have even less control than an employee.
But for the franchise fraud to succeed, you must believe that by simply purchasing this system you will gain absolute control over your economic life. Then, if the result of your investigation into the opportunity reveals the fraud, cognitive dissonance will kick in to protect your belief that you are gaining control over your economic life and block out the bad news.
If you want to talk about a suspected fraud, call me.
