Much of what the public believes about fraud is simply and demonstrably wrong. From victim blaming, to thinking that fraud is rare, to the implicit thought that only dumb people fall for frauds and that they are easily avoided, many people are simply mistaken, and of course that affects how fraud stories are reported and how consumer education is written. The Fraud Report is thrilled that retired Psychology professor and fraud expert Anthony Pratkanis has agreed to work on a fraud myth of the week.
Myth 1: Fraud victims, especially older ones, tend to be lonely with few social contacts. In 1996, an AARP survey of older victims found just the opposite: Older fraud victims had extensive social networks and engaged in social and community activities the same or surpassing non-victims. Later studies confirmed these results and also revealed that con grifters will tailor their scam and pitch to fit the victim. As the UK Office of Fair Trading described the results of their 2006 survey: “Our research dispels the myth that only the vulnerable, elderly or naïve are taken in by scams. Anyone can be taken in because scams are customised to fit the profile of the people being targeted. There really is a scam for everyone.”
However, it should also be noted that fraud criminals will attempt to isolate a victim – for example, by creating false urgency in a grandparent scam, driving a wedge between the victim and family & friends, making an investment tip secret, attacking those who might intervene, urging the victim to hide their “romance,” creating a cohesive, but isolated network through seminars, social media, and derogating those who disagree as in MLM scams, plus other such tactics.
Myth Two: For most of us, fraud schemes are easy to spot. By Anthony Pratkanis. The general public believes that scammers usually employ giveaway clues such as typos, poor grammar or a shifty demeanor on the phone.
In explaining why Australians lost a record amount to scams last year, Catriona Lowe, Deputy Chair of the Australian Competition & Consumer Commission, points to a factor identified by others: “We have seen alarming new tactics emerge which make scams incredibly difficult to detect. This includes everything from impersonating official phone numbers, email addresses, and websites of legitimate organizations to scam texts that appear in the same conversation thread as genuine messages.”
Over 50 years of research on detecting lies finds that the same results apply to detecting fraud. People generally think that they can spot liars based on their insincere demeanor. This may work for the people we encounter on an everyday basis, but these types of cues are a poor means of detecting lies (slightly above chance in laboratory tests). This is especially the case for con grifters who ooze fake sincerity with a “naturalness and uniformity of action.” Unfortunately, con criminals’ ability to do this will only improve as they adopt new artificial intelligence tools.
The implications for fraud prevention: (a) when training or educating people do not assume that a fraud can be easily spotted and, (b) based on research in lie detection and my own research on fraud (with Doug Shadel and published by AARP in Off the Hook), all of us need to be very skeptical and question critically the information we receive.
Myth #3: Fraud victims are primarily older people. By Anthony Pratkanis. A 2022 report by the FTC using its Consumer Sentinel data, the most comprehensive US database for reported fraud, finds just the opposite: younger people (below the age of 60) are more likely than older adults to be victims of a fraud crime. Similar results have been obtained for over two decades in both the US and the UK.
With a nest egg of a lifetime of savings, older people do lose more money overall to fraud than younger people. And sadly, they are also targeted when they experience cognitive decline. Younger people tend to be targeted for their labor (fake job offerings; work at home schemes; multi-level marketing), in their life circumstances (romance fraud), and on social media (online shopping fraud). However, when they have savings, younger people can quickly find themselves targets for bigger losses, especially in investment fraud. A 2021 FTC study found that younger investors in cryptocurrency were over five times more likely to report losing money to cryptocurrency investment fraud than older consumers.
One problem with thinking that fraud only occurs against older victims is that it may encourage younger people to believe that it can’t happen to them, and, thus, they need not pay attention to consumer education on fraud and that they can easily detect fraud (because they believe that only those who are slipping mentally are victims).
Myth #4: Unlike other crime victims, the victims of fraud crimes do not experience much of the pain and trauma typically associated with crime victimization, by Anthony Pratkanis
Hollywood movies and the mass media in general often romanticize the cunning cleverness of the con grifter and fail to show the consequences to victims, as if fraud was a victimless crime.
Research reveals a much different reality, one in which fraud victims experience much pain and trauma, in addition to their financial losses. Ganzini and her colleagues found that among the victims of a Ponzi scheme, 45% experienced generalized anxiety, 29% were clinically depressed, and over 6% had suicidal thoughts (all rates greater than a matched control). Boyd and his colleagues investigated the victim impact of the Eron securities fraud and observed that among those losing more than $50,00, 54% stated it harmed their emotional well-being, 29% their physical health, and over 20% noted that it had damaged friendships and family and marital relationships. In a UK survey looking at the victims of frauds such as bogus investments, fake lottery, advanced fee fraud, and identity theft, Button and his colleagues showed that victims reported feeling anger and stress, with 39% reporting psychological and emotional issues, 17% damage to family and partner relationships, 11% physical health problems, and just under 2% reporting an attempted suicide.
Sadly, these research findings are often observed by those who work with fraud victims. As victim advocate Debbie Deem describes, fraud victimization often results in a loss of trust in others, in society and its institutions, in family and friends, and even in one’s own ability to make decisions.
Myth #5: If the victim wasn’t greedy they wouldn’t have fallen for the scam. By Anthony Pratkanis
This myth gained prominence in a 1956 interview of con criminal “Yellow Kid” Weil, who bragged: “They wanted something for nothing. I gave them nothing for something.” The greed myth is one way for fraud criminals to deflect blame onto the “greedy” victim.
If the myth was true, there would be no charity fraud, phishing, grandparent scams, government impostors, identity theft, or any of the other fraudulent schemes which promise no financial rewards.
But what about frauds that pitch financial gain, such as investment fraud? Taking inspiration from the cons’ old saw of “greedy victims,” DiLiema, Shadel, and Pak found a small, but significant 0.12 correlation between victimization and materialism (their measure of greed), profiling investment fraud victims as having a greedy mindset.
In contrast, Boyd found that 70% of Eron victims “invested” to secure basic retirement and needs, compared to 19% who sought a materialistic goal of enhanced lifestyle. Moreover, a 2006 UK study found victims were more likely to report desperation and not greed as their motive. In teaching undercover FBI agents how they commit fraud, financial fraud criminals Phil Kitzer and Mel Weinberg both state that they are looking for DMs – desperate men (and women) in need of money.
As AARP states: “Even though no single personality trait has been discovered that explains all fraud victimization, faulty generalizations abound. For example: . . . ‘all scam victims are either greedy or stupid…or both.’ Such labels are not only offensive and demeaning to those who have lost money to this crime, but they are simply untrue and belie previous research that has repudiated such simplistic explanations.”
Myth #6: Last year Americans only lost $8.8 billion in fraud crimes, by Anthony Pratkanis
According to the FTC, “consumers reported losing nearly $8.8 billion to fraud in 2022.” The key word is “reported,” as the amount of stolen money comes from reports to the FTC’s Consumer Sentinel Network. However, given that it is based on self-reports, it vastly underestimates the damages.
In research I conducted with my colleagues, we asked known fraud victims if they had been the victim of a scam. Less than half (43%) reported the fraud – a typical result as Deevy and colleagues found in their review. This makes sense as victims may not yet recognize that they have been defrauded, have forgotten the incident, or the victim is reluctant to discuss it.
The use of complaints further contributes to underestimating harm from fraud. Research finds that relatively few consumers file complaints with the government, and, when they do, they tend to complain about the product and not about deceptive practices.
The FTC figure is based on financial losses to the victim and overlooks several important but real secondary effects, including (but not limited to): psychological harm to victims and their family and friends, hours wasted using 2FA, repairing credit and identity, or trying to determine if something is a scam, unfunded needs of charities, taxpayer dollars spent on fraud prevention and damage mitigation, opportunity costs to entrepreneurs as funding goes to fraudulent entities, lost economic growth as resources are wasted, threats to national security as fraud crimes fund adversaries, cost to businesses for training and prevention, and the deterioration of trust needed, not only for commerce, but for everyday social life.
The FTC Sentinel provides important information, just so we realize that the $8.8 billion is the tip of the iceberg of harms and damages caused by fraud criminals. The reality is that the iceberg is huge.
Myth #7: One of the best ways to prevent fraud crimes is to teach financial literacy. By Anthony Pratkanis
Financial literacy refers to fundamental concepts of finance and is typically measured with quizzes about compound interest, asset diversification, bond pricing, etc. An oft-heard claim is that financial literacy is a protective factor in fraud victimization and thus an important intervention tactic. There is no scientifically-valid evidence for this claim.
Knowing that bond prices fall as interest rates go up is of little relevance in recognizing and responding to romance fraud, lottery scams, government impostors, grandparent schemes, and the like.
However, what about investment fraud? In a 2006 study, my colleagues and I found that verified investment fraud victims had significantly higher financial literacy than non-victim investors. This finding was replicated in 2014 by Graham of UK’s FCA and again in 2017 by Kieffer and Mottola of FINRA. Some of the most sophisticated investors have been fraud victims: Jay Gould, CalPERS, JPMorgan Chase, Sequoia Capital, Rupert Murdoch, Blackrock, Y Combinator, Andreessen Horowitz, and Wells Fargo former CEO Richard Kovacevich, to name a few.
Why this finding? Knowing the value of a diversified portfolio is of little use in recognizing pump and dumps, Ponzi schemes, and entrepreneurial fraud. It is like knowing the rank of poker hands without knowledge of coolers, seconds, mucks, and other forms of cheating. Active investors will gain financial literacy through their activities and will also be more likely to encounter con grifters who infiltrate the financial system. And, as always, a con criminal will use the target’s knowledge (and lack of knowledge) to tailor the pitch for best effect.
The good news: While financial literacy is of little value in fraud prevention, teaching about fraud schemes, as my colleagues and I first showed, effectively reduces victimization.
Myth #8: Consumer education can do little to prevent fraud. By Anthony Pratkanis
At the beginning of this century, I devised a methodology for testing the effectiveness of fraud prevention interventions. In this “sting” approach, the potential target of a fraud is randomly assigned to either an intervention or a control and then, a few days later, receives a fraudulent pitch.
Doug Shadel and I used this sting methodology to test various interventions (the results published by AARP). We found the following: Reverse boiler room call centers (which warn victims) are an effective intervention tool. A forewarning message (your phone number is on a list used by fraudulent telemarketers plus information about how to respond to fraud) reduced investment fraud victimization by 50%. A forewarning message with the addition of questions to ask and think about, in this case asking for a charity’s registration number and how much goes to charity, reduced charity fraud victimization by over two-thirds. In contrast, a message that increased fear and defensiveness (imagine the con as a stranger with a ski mask coming to your door; would you let them in?) actually increased victimization.
In addition, Shadel and I developed an investment seminar which taught about the nature of investment fraud, at-risk behaviors, how con criminals persuade, and best practices for preventing victimization. This was also shown to reduce victimization by 50%.
This research provides a guide to developing effective interventions: (a) do not raise fear and defensiveness, (b) warn about the crime, (c) provide information about fraud schemes and tools to respond to fraud, and (d) encourage a critical and questioning approach to potential fraud pitches. Please let the Fraud Report know if you are aware of any additional research on the value of consumer education.
Consumers are more likely to be victims if they have experienced significant negative life events. By Anthony Pratkanis
One factor that predicts vulnerability to fraud is experiencing negative life events. In 2006, we surveyed confirmed victims of lottery and investment fraud (with matched controls) and found that victims were more likely to have experienced a recent negative life event such as loan foreclosure, money concerns, death of a spouse, unemployment, or serious illness or injury. This was the first study to investigate negative life experiences of confirmed victims. The findings have been replicated numerous times including by the FTC in 2011 and again in 2017 and by AARP in 2021.
In our discussion of Myth #5, we noted that con grifters often seek those in desperation – that is, experiencing life stresses. From the criminal’s perspective this makes sense. Negative stress chews-up coping capacity. The criminal can pitch a phantom solution to resolve the life stressor. The con grifter can sympathize and gain a bond with the victim.
I developed the life stress hypothesis based on two reliable findings of social influence research: those relatively deprived are most vulnerable to extremist propaganda and negative life events are a predictor of recruitment into a cult. The weapon in a fraud crime is social influence, involving social-psychological dynamics common to other undue influence situations.
Of course, not every fraud involves negative life events. The criminal can pitch other phantom dreams as in a charity fraud or create negative events as in grandparent and ransomware schemes. Nevertheless, these findings provide an important insight. The con criminal can pitch a phantom solution to a victim’s problems, thus creating a trap for the victim who feels there is no place else to turn and, thus, may resist recognizing the crime – issues to be resolved by those seeking to intervene.
Myth #9: You can’t cheat an honest man (or woman). By Anthony Pratkanis
Honest human beings are frequently cheated. The old bank examiner scam relies on victims’ honesty and helpfulness as they are asked to withdraw money to catch a crooked bank teller. Charity fraud takes advantage of our better nature to honestly help others. Grandparent and ransomware schemes raise victims’ fears, putting them into an urgent situation that they must honestly deal with. Consumer fraud – pet scams, check fraud, tech support scams, fake rentals, online shopping fraud – occurs in an ostensibly routine transaction normally grounded in honesty and trust. Government impostors who dispatch fake bills depend on the honesty of the victim to pay that bill. Business email compromise counts on the employee responding honestly to the request. As we saw in Myth #5, it wasn’t dishonest greed but honest desperation that served as a more common basis for investment fraud victimization. In 1849, Samuel Thompson asked strangers to place confidence in him by lending money or a watch and, thus, the term confidence man was coined in this original con crime.
The cheating motto was touted by the likes of George Devol, Frank Tarbeaux, and Yellow Kid Weil and was popularized in a film in which W. C. Fields cheats everyone, the honest included. The cheater accusation serves criminals who use it to justify their crimes (it’s okay – victims cheat too) and as a blow-off (the victim is made to feel at fault and is thus less likely to complain).
Glibly, repeating this false saw harms victims who must deal, not just with the crime, but with being labelled as “dishonest.” Fraud crimes are not about victim deficits and so-called mindsets but about the manipulation and deceit of the criminal who is looking for any advantage to steal our money.
