Caught in the Scammer’s Net: Risk Factors that May Lead to Becoming an Internet Fraud Victim, AARP Survey of American Adults Age 18 and Older

Authors: AARP: Doug Shadel, Karla Pak, and Jennifer H. Sauer

Year: 2014

Focus Area (s): Victim Profiling, Fraud Surveys, Consumer Behavior, Prevention Techniques

Relevance: Identifying risk factors for being victimized by internet fraud may help identify and protect those who are most vulnerable.

Summary: This multi-state survey of over 11,000 individuals age 18 and older sought to answer three questions:

  1. Are there behaviors and life experiences that may increase a person’s risk of becoming a victim of online fraud?
  2. What proportion of individuals may be at risk of being victimized by online fraud?
  3. How concerned are Americans about online fraud and what if any steps are they taking to protect themselves?

Key findings include:

  • Nearly one in five Americans (19%) who use the internet, or as many as 34.1 million people, engage in at least 7 of the 15 behaviors or experience life events that may put them at increased risk of being victimized by online fraud.
  • Two-thirds of Americans (65%) who use the Internet, or as many as 116 million, people received at least one online scam offer in 2013.
  • Nearly eight in ten (79%) Americans who use the Internet are concerned about being scammed on the Internet.

First Paragraph: A new AARP survey finds there are 15 particular behaviors, life experiences, and knowledge attributes that may make a person more vulnerable to online fraud. Data from this national and multi-state survey of over 11,000 online users also shows that Americans are very concerned about online fraud, yet many avoid taking basic precautions to protect themselves.

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Consumer Fraud in the United States, 2011: The Third FTC Survey

Title: Consumer Fraud in the United States, 2011: The Third FTC Survey

Author: Anderson, Keith B.

Publication:  Staff Report of the Bureaus of Economics and Consumer Protection, Federal Trade Commission

Year: 2013

Focus Area: Prevalence, Victim Profiling, Fraud Surveys

Relevance: Surveys of fraud prevalence in the United States help define the scope of the problem and allow enforcement agencies to tailor their prevention and education efforts. The FTC Survey is one of the most comprehensive surveys of fraud-related information.

Summary: This report details the findings from the third survey commissioned by the Federal Trade Commission to examine consumer fraud in the United States. The survey was conducted from late 2011 to early 2012.

Consumers were asked questions designed to learn whether they had been victims of specific types of fraudulent transactions.  The survey also provides information about the mechanism through which the fraudulent transaction occurred.  Finally, the survey investigated the relationship between certain demographic characteristics and the likelihood of fraud victimization.

Key findings include:

  • During 2011, an estimated 25.6 million adults (10.8 percent of the adult population) were victimized by fraud.
  • The top 5 fraud categories were:
  1. Weight-loss Products (estimated 5.1 million victims)
  2. Prize Promotions (estimated  2.4 million)
  3. Unauthorized Billing for Buyer’s Club Memberships (estimated  1.9 million)
  4. Unauthorized Billing for Internet Services (estimated  1.9 million)
  5. Work-at-Home Programs (estimated  1.8 million)
  • The Internet was the most common way victims first learned about offers that turned out to be fraudulent and the most common way orders were placed.
  • High school graduates were the least likely to have been victimized by fraud.
  • Survey respondents who were more willing to take risks, who recently experienced a negative life event, and who had more debt than they could handle were more likely to have been victimized by fraud.
  • In general, consumers age 45-54 were the most likely to have been victimized by fraud. Those under age 45 were somewhat less likely to have been victimized than those 45-54, and those 55 and over were the least likely to have experience fraud.  However, those between 55 and 74 had the greatest chance of being victims of fraudulent prize promotions.

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The psychology of scams: Provoking and committing errors of judgment

Authors: Office of Fair Trading (prepared by University of Exeter School of Psychology)
Year: 2009

Relevance: We may make errors of judgment when we succumb to legitimate sales appeals. This work seeks to identify what particular errors lead to scam victimization.

    “[A] modest probability of falling for a scam is no longer an inexplicable exception to the general tendency of human choice, but rather an inevitable by-product of the processes that enable normal economic life to continue.” (p. 15)

Summary: This work includes an extensive literature review of scams (mass-marketed consumer frauds) and outlines four studies:

1. Extended interviews with scam victims

  • In addition to providing useful subjective feedback, these were also “text-mined” for psychological features that characterized victimization. For instance, most victims described perceived legitimacy and high reward in the scam ploy.

2. Text-mining scam communications

  • By categorizing the language of different scams, the researchers could identify key ploys typifying scams generally: appeals to trust/authority & visceral (vividly emotional) triggers referencing the future (“phantom fixation”).

3. Victim/Non-victim comparison – susceptibility to errors of judgments

  • “There was no evidence that any of the decision error propensities distinguished victims… from non-victims more effectively than others” (p. 121)
  • However, victims did report trying harder to understand scams than did non-victims. This counter-intuitive result may reflect non-victims reflex to discard promotional materials, rather than a careful attentiveness on the part of victims.

4. Scam simulation experiment – “hot” and “cold” conditions

  • By varying whether a mailed survey initially looked like a scam mailing (“hot” condition) or an innocuous mailing (“cold” condition), researchers were able to garner more direct feedback from people targeted by a “scam” – in this case from those who, by opening the mailing, had demonstrated interest in the ploy
  • Impact of $$: In the “cold” condition, respondents indicated that they would have been more likely to respond to the ploy when the prize was larger. In the “hot” condition, however, the manipulation cues were most critical.
  • The differences between conditions suggest that in-the-moment feedback may be particularly important when studying fraud and its victims.

First Paragraph: 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.

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Routine Online Activity and Internet Fraud Targeting: Extending the Generality of Routine Activity Theory

Authors: Travis C. Pratt, Kristy Holtfreter & Michael D. Reisig

Publication: Journal of Research in Crime and Delinquency

Year: 2010

Relevance: Routine behavior has been established as a reliable predictor of various forms of crime victimization.

Summary: Given the prevalence of fraud-related crime online, this study surveyed 922 Floridian adults (survey conducted in 2004-2005) explore the connection between relevant online behavior (such as online shopping) and the likelihood of online consumer fraud.

“Of all respondents, 2.5 per cent indicated they were the victim of Internet consumer fraud during the past year” (van Wilsem 2011; p. 5), with an estimated 300,000 people defrauded annually in The Netherlands (p. 7).

  • 15.2% of the Florida adults survey respondents described being targets of consumer fraud in the previous year (2004). (p. 11)
  • 3% of respondents reported being targeted via the internet.
  • “Younger and more educated individuals are significantly more likely to be targets of consumer fraud via the Internet.” (p. 16) but “the effect of education and age on Internet fraud targeting is fully explained by the number of hours consumers spend online and whether they make purchases from Internet Web sites.” (p. 16)
  • Accounting for age, education, and other demographic variables, “those who make purchases from Web site increase the odds that they will be targeted by cyber-fraudsters by 290 percent.” (p. 16)

Overall, consumer behavior online is a greater predictor of victimization than demographic characteristics. (p. 16)

Author Abstract: Routine activity theory predicts that changes in legitimate opportunity structures (e.g., technology) can increase the convergence of motivated offenders and suitable targets in the absence of capable guardianship. The Internet has fundamentally changed consumer practices and has simultaneously expanded opportunities for cyber-fraudsters to target online consumers. The authors draw on routine activity theory and consumer behavior research to understand how personal characteristics and online routines increase people’s exposure to motivated offenders. Using a representative sample of 922 adults from a statewide survey in Florida, the results of the regression models are consistent with prior research in that sociodemographic characteristics shape routine online activity (e.g., spending time online and making online purchases). Furthermore, indicators of routine online activity fully mediate the effect of sociodemographic characteristics on the likelihood of being targeted for fraud online. These findings support the routine activity perspective and provide a theoretically informed direction for situational crime prevention in a largely unexplored consumer context.

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Fraud and the American Dream: toward an understanding of fraud victimization

Authors: Adam Trahan (Indiana University), James W. Marquart (University of Texas at Dallas), Janet Mullings (Sam Houston State University)

Publication: Deviant Behavior

Year: 2005

Focus Area: Profile

Relevance: By examining a single $19 million fraud and its victims in detail, this article serves as a case study of investment fraud.

Summary: This article uses the example of a Ponzi investment scheme to analyze the behavior and motivations of victims of fraud.  Based on a previous article relating the American Dream to perpetrators of crime, this theory provides a new sociological  perspective on fraud victimization.

The author emphasizes the role of “the American Dream” as capitalist drive:

  1. requires constant pursuit of money for its own sake (86% of victims indicated that there was no specific purpose for their investments other than wanting more money.)
  2. emphasizes the end result instead of the means of acquisition
  3. focuses on individual gain without consideration for the impact on others

This set of priorities has been proposed as a partial explanation for the United States’ high crime levels.  This article suggests the “American Dream” may also underlie the motivation of fraud victims.

  • By focusing on the possible gains and de-emphasizing the method of obtaining them, consumers ignore the risks in investment.
  • Particularly when traditional investments fail at downturns in the economy, the incessant monetary drive of “the American Dream” provokes riskier, desperate action.
  • This urgency promotes poor, hasty decision making, and increases the appeal of fraud.

The authors also identify a particular context that, in combination with a fraud ploy, makes an investor likely to become a victim: the deification of money in society and a common belief in the status it provides.  This is not a function of personal greed, but rather an aspect of the economic culture. Fraud victims may be more thoroughly “indoctrinated” than non-victims.

Author Abstract: American culture and the practices of government focus an overwhelming majority of attention on violent ‘‘street’’ crime. As a result, very little is known about the victims of fraud. In order to contribute to this literature, a case study is provided that examines the victim population of a Ponzi scheme. Data are provided on the general characteristics of the victims, their investments, and the growth of the scheme. A theoretical model is formulated from Messner and Rosenfeld’s work in Crime and the American Dream. This paper expands the concepts of this theory by providing evidence that it can be used to explain victim behavior.

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Low Self-Control, Routine Activities, and Fraud Victimization

Authors: Kristy Holtfreter, Michael D. Reisig (Florida State University) & Travis C. Pratt (Washington State University)

Publication: Criminology

Year: 2008

Focus Area: Profile

Relevance: Which factors put people at risk for fraud remain largely unknown.  Previous attempts to identify the demographic profiles of common victims have had limited success.  This article instead examines behavioral characteristics that increase people’s risk of financial fraud.

Summary: One of the first theoretical analyses of fraud targeting and victimization, this article explores what puts people at risk for fraud targeting and victimization by examining specific routine financial activities and financial self-control.

  • Remote-purchasing (e.g., mail-order, online) significantly increases consumers’ risk of being targeted.  One additional form of remote-purchasing behavior (phone sales, infomercials, etc.) translates into a 61% increase in the odds of being targeted.
  • Low levels of self-control increase the likelihood of victimization once targeted.  An increase of one additional marker of low self-control on the evaluation scale increased the odds of succumbing to a fraudulent ploy by 302%.

This study uses data from a random Florida telephone survey conducted in 2004-2005, interviewing over 1,000 adults (922 complete responses).

For further research on enhancing individuals’ financial self-control, see: Hay and Forrest, 2006; Mitchell and MacKenzie, 2006; Muraven, Pogarsky, and Shmueli, 2006

Author Abstract: Recent research has used both routine activity/lifestyle frameworks and self-control theory to explain victimization. Thus far, combined tests of these theories have focused on offending populations and street crime victimization. Whether these frameworks also explain exposure to and likelihood of nonviolent victimization (e.g., fraud) in general population samples remains an open empirical question. Building on prior work, we assess the independent effects of routine consumer activities (i.e., remote purchasing) and low self-control on the likelihood of fraud targeting and victimization. Using a representative sample of 922 adults from a statewide survey in Florida, the results confirm our expectation that remote-purchasing activities increase consumers’ risk of being targeted for fraud. Low self-control has no effect on whether consumers are targeted, but it does significantly increase the likelihood of fraud victimization.

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2003 Consumer Experience Survey: Insights on consumer credit behavior, fraud, and financial planning

Author & Publishing: AARP

Year: 2003

Focus Area: Prevalence, Profile

Relevance: The rate and financial impact of fraud in the U.S. remains unclear, and survey studies such as this provide a useful window into the experiences of consumers.  By focusing on those 45+, this survey targets those with greater wealth and, potentially, more to lose.

Summary: This report examines the consumer behavior of adults age 45 and over.  It includes a measure of “bad experience with products or services,” which is identified as fraud or non-fraud.  Key findings include:

  • About 4 in 10 consumers reported ever having a bad buying experience when buying a product or service.
  • The percentage of consumers reporting a “bad experience” has increased significantly in recent years.  For instance, those reporting not receiving a product or service in the promised time increased 12% from 1999 to 2003.

Of those reporting a “bad experience,” 37% defined the experience as a major swindle or fraud.

  • Approximately 3.75% of the 45+ sample surveyed reported having been the victim of a fraud.
  • Approximately 2% of respondents reported that a given fraud cost them more than $1000.
  • The most frequent types of fraud reported by victims were: faulty car sale, false advertisement, company of purchase went out of business, and house contractor fraud.
  • African-Americans and 30% more likely than the general population and 45% more likely than Hispanics to indicate that a swindle or fraud cost them more than $1000.

Author Abstract: The 2003 Consumer Experiences Survey is the fourth survey in a series of periodic studies conducted in the past 10 years. The three previous surveys of consumer behavior were conducted in 1993, 1999, and 2000. 1 The current study examined many of the same topics from the past three studies including buying experiences with products and services, knowledge about investment terms, and experience with major fraud or swindles. However, other pertinent issues have been added to the current study including privacy and identity theft, and predatory mortgage lending.

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Investor Fraud Study: Final Report

Authors: The Consumer Fraud Research Group, for NASD Investor Education Foundation

Year: 2006

Focus Area: Persuasion, Profile

Relevance: Successfully preventing fraud depends on both understanding the techniques of fraudsters and identifying who is vulnerable to which types of fraud.

Summary: This study examines the characteristics of different types of victims and fraudsters’ tactics by  reviewing transcripts of fraud pitches and conducting interviews and phone surveys of lottery and investment fraud victims (165) and non-victims (150).

Fraud tactics:

  • source credibility (claiming to be from a legitimate business),
  • phantom fixation (tantalizing with wealth and riches), and
  • social consensus (claiming others are already investing successfully), along with many other methods from fear to friendship, tailored to any given audience.

Victim profiles:

  • Investment fraud victims were more often married men with higher educations and incomes, and with greater financial literacy than non-victims.
  • Lottery fraud victims were more often widowed women over 75, living alone and with strong religious feeling.  They were also more likely to feel that they “have not gotten what they deserve out of life” and “should live for the moment.”
  • Both investment and lottery victims were more likely to have experienced more difficulties and negative life events, relied on their own judgment rather than a professional’s opinion, were more open to sales pitches, and demonstrated “low persuasion literacy.”

Author Abstract: A multifaceted inquiry of consumer fraud analyzed undercover tapes of fraud pitches and surveyed victims and non-victims to determine how they differ. Tape analysis revealed con criminals customize their pitch to match the psychological profile of the victim and use a complex combination of influence tactics within each pitch to persuade. Investment fraud victims demonstrated a better understanding of basic financial literacy than non-victims. Both investment and lottery victims were more likely to have experienced a negative life event unrelated to their fraud experience. Both victim types were more likely to listen to sales pitches from unknown sales persons. Investment and lottery fraud victims both dramatically under-report fraud. It is recommended that 1) Financial literacy and fraud prevention efforts be broadened to incorporate greater emphasis on spotting and resisting con criminals’ persuasive tactics; 2) Encourage more reporting of illegal activity to law enforcement and 3) Conduct more research to develop a vulnerability index and test the effects of persuasion education as a deterrent to fraud.

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