Fraud Victimization: Risky Business or Just Bad Luck?

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Authors: Judy Van Wyk & Michael L. Benson (University of Tennessee)

Publication: American Journal of Criminal Justice

Year: 1997

Focus Area: Profile, Decision Making

Relevance: The degree to which people’s characteristics, attitudes, and behaviors influence their vulnerability to financial fraud remains an open question.  If financial risk-taking, for example, is found to influence a person’s susceptibility, then this tendency could be targeted for more effective fraud prevention.

Summary: Fraud victims are assumed to have characteristics or behaviors (such as taking unsafe risks) that make them more vulnerable to fraud, and thus share partial responsibility for their victimization.  This article investigates the actual influence of financial risk taking on the likelihood of fraud victimization.

  • Surprisingly, an individual’s age and willingness to take financial risks correlates with increased attempted victimization, but not directly to successful victimization.
  • Those who expressed more willingness to take financial risks are more likely to receive a fraud attempt.  It is possible that this difference can be accounted for by selective memory – those more open to financial risks may be inclined to remember fraud approaches, while those who would not conceive of taking such risks quickly forget them.
  • Younger adults are more likely to receive fraud attempts than elderly persons.  Again, this may reflect selective memory, as older adults are more likely to forget negative emotional information (Charles et al, 2003).

It is possible that risk-taking behavior, rather than attitudes toward such behavior, is more significant.  This research suggests that the single greatest determining factor in whether someone will be taken in fraud is whether that person was approached in the first place.  All other demographic and personal characteristics have significantly less predictive power.

Author Abstract: Victimology theory recognizes that the characteristics, attitudes, and behaviors of potential victims influence the likelihood of criminal victimization. An important question for victimologists is whether potential victims put themselves at risk by engaging in risky behavior or whether victimization is primarily a result of bad luck. While this question has been investigated extensively with respect to street crime victimization, little attempt has been made to apply it to victimization by fraud. This article investigates the influence of attitudes toward financial risk taking on the likelihood of fraud victimization. Using data from a telephone survey of 400 randomly sampled respondents, we find that age and attitudes toward financial risk taking are significantly related to the likelihood of attempted victimizations but not to successful victimizations.

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Forewarnings of Influence Appeals: Inducing Resistance and Acceptance

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Authors: Jeffrey M. Quinn & Wendy Wood (Texas A&M University)

Publication: Resistance and Persuasion. Ed. Eric S. Knowles & Jay A. Linn. Lawrence Erlbaum Associates, Publishers

Year: 2004

Focus Area: Persuasion, Resistance, Prevention

Relevance: Fraud prevention interventions frequently depend on forewarning individuals of persuasive dangers.  This chapter details how those warnings can influence a person either towards increased vigilance or towards increased susceptibility, depending on the context and manner of delivery.

Summary: Warnings may or may not create greater resistance, depending on the context and the information provided.

In order to maximize a person’s resistance, practitioners’ warnings should:

  1. Point out the possible threat to the person’s attitude.
  2. Not jeopardize the person’s self-image.
  3. Encourage thinking about specific aspects of the issue, including the potential repercussions of the threatening message.
  4. Be delivered free of distractions.

On the other hand, a forewarning may increase susceptibility if emphasis is placed on a person’s gullibility.  If recipients are concerned about losing face, they may preemptively agree with the persuasive appeal in order to minimize the later change (e.g., “It’s not persuasion if I agreed already!”).

Author Abstract: According to conventional wisdom, “forewarned is forearmed.” That is, warning of an impending request allows people to prepare for it and ultimately to resist it. For instance, advance knowledge that a telemarketer is about to call and deliver an unwanted sales pitch or that a friend is about to ask a burdensome favor should allow the target of such appeals to mount a successful defense. The idea that warnings generate resistance also is evident in reviews of persuasion research, which typically discuss forewarning effects along with other resistance techniques (e.g., Eagly & Chaiken, 1993). The assumption that warnings yield resistance can also explain a common practice in psychology experiments on attitude change. Experimenters often avoid warning participants of an impending persuasive communication, presumably to maximize participants’ susceptibility to persuasion (Papageorgis, 1967, 1968).

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Investor Fraud Study: Final Report

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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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Investigating Vulnerability and Reporting Behavior for Consumer Fraud Victimization : Opportunity as a Social Aspect of Age

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Authors: Judy Van Wyk (University of Rhode Island) & Karen A. Mason (Washington State University)

Publication: Journal of Contemporary Criminal Justice

Year: 2001

Focus Area: Profile, Aging, Decision-making

Relevance: Successfully arming people against fraud victimization requires understanding not only who is victimized, but why they are vulnerable.

Summary: This study analyzes the connection between fraud victimization, age, social activity, and risk-taking.

  • Younger adults are known to be more vulnerable to fraud than older adults: there is a 77% chance of being victimized between the ages of 18 and 24, and only a 44% chance for those between 65 and 74 (Van Wyk & Benson, 1997).
  • The authors investigate whether this is due to greater socialization and risk-taking at a younger age.
  • While both socialization and risk-taken strongly correlate to fraud victimization, they do not predict vulnerability more accurately than age.  This suggests that other aspects of youth aside from social engagement and risk-taking contribute to younger adults’ vulnerability.
  • Neither fraud victims’ social involvement nor their tendency to take risks affect their likelihood to report fraud.

In conclusion, being younger is a more reliable predictor of being a fraud victim than greater social involvement or a tendency to take greater financial risks.  While these two elements may partly explain younger adults’ vulnerability, additional factors still need to be investigated.

Data for this study was collected via a 1994 random telephone survey in Knox County, Tennessee, which correlates with other, similar studies (Titus et al. 1995, Boyle 1992).

Author Abstract: This study investigates vulnerability and reporting behavior for victimization by consumer fraud. Because socialization may increase the amount of contacts with others, contributing to greater opportunities for victimization, we predict that people who socialize more often may increase their likelihood of victimization.  Greater levels of socialization are also predicted to increase the likelihood of official reporting behavior for consumer fraud victimization because victims may depend on others for guidance in official reporting. The authors found support for the first prediction, but not the second. Although socialization does increase the likelihood of victimization, the authors found it to have no effect on official reporting behavior. These findings shed some light on the disparity between self-reports and official reports of victimization by consumer fraud.

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Positive Psychology: Fundamental Assumptions

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Authors: M.E.P. Seligman

Publication: The Psychologist

Year: 2003

Focus Area: Emotion, Motivation, Decision Making

Relevance: Positive psychology provides a different perspective on motivation, emotion, and ultimately decision making, and in so doing contributes to a balanced understanding of consumer behavior.

Summary: This article frames the field of positive psychology, outlining important terms and concepts and emphasizing the need for greater focus on “the parts of life that make life worth living.” (p. 127)

  • The author distinguishes between the pleasant life (pursuing positive emotions), the good life (using strengths and virtues for gratification in the main realms of life), and the meaningful life (using strengths and virtues in the service of something larger than one’s self).
  • Positive psychology hopes to refute the common idea that at the core of all positive emotion and behavior is some negative impetus, or “core.”  Instead, it posits that behavior such as morality, cooperation, and altruism are evolved in the same manner as murder, theft, and terrorism.
  • Understanding the positive elements of psychology may provide greater insights into motivation than the Freudian emphasis on guilt and repression.

Author Abstract: FOR the last half century psychology has been largely consumed with a single topic only – mental illness – and it has done fairly well with it. Psychologists can now measure with some precision such formerly fuzzy concepts as depression and alcoholism. We now know a fair amount about how these troubles develop across the lifespan, and about their genetics, their biochemistry and their psychological causes. Best of all, we have learned how to relieve some of these disorders. But this progress has come at a high cost. Relieving the states that make life miserable has relegated building the states that make life worth living to a distant back seat.

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Positive Illusions and Well-Being Revisited: Separating Fact From Fiction

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Authors: Shelley E. Taylor, University of California, Los Angeles; Jonathon D. Brown, University of Washington

Publication: Psychological Bulletin

Year: 1994

Focus Area: Self illusion, Mental health, Decision making

Relevance: People have an occasionally problematic tendency to see themselves in an excessively positive light, which may prompt them to take greater risks, fail to appreciation their vulnerability to fraud, and other dangerous actions.  Combating this tendency may have negative repercussions because, in moderation, an unrealistic self-assessment may in fact be necessary for good mental health.

Summary: This article discusses the theory that positive self illusions contribute to mental well-being, and refutes criticisms of the theory raised by other researchers (Colvin & Block).

  • Taylor & Brown’s 1998 article demonstrated that people tend to hold unrealistically positive views of themselves, their control over events, and their future.  As opposed to previous assumptions that mental health depends upon accurate perception, these positive illusions were found to actually improve psychological well-being.
  • While positive illusions that are too unrealistic can be detrimental to mental health (such as believing that one can make the sun rise, for example), optimistic self-assessments may be both empowering and necessary for healthy action.
  • As it systematically counters the critiques of Colvin & Block, the article serves as an extensive resource for further research on the subject of positive illusion and mental health.

Author Abstract: In 1988, we published an article that challenged the notion that accurate perceptions of self and the world are essential for mental health (Taylor & Brown, 1988). We argued instead that people’s perceptions in these domains are positively biased and that these positive illusions promote psychological well-being. In the current article, we review our theoretical model, correct certain misconceptions in its empirical application, and address the criticisms made by Colvin and Block.

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Instilling Resistance to Scarcity Advertisement

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Authors: Savia A. Coutinho and Brad Sagarin, Norther Illinois University

Publication: Studies in Learning, Evaluation Innovation and Development

Year: 2007

Focus Area: Decision Making, Emotions, Prevention, Persuasion

Relevance: Reducing the incidence of fraud depends in part upon reducing the public’s susceptibility to the tactics of fraudsters.  People are more vulnerable when they deny their own vulnerability.

Summary: This article expands on previous work (Sagarin et al 2002) investigating how to train people to detect and defend against unscrupulous persuasion methods.  The study focused on developing resistance to the use of illegitimate scarcity tactics by dispelling illusions of invulnerability.

  • Subjects of the study were either assigned treatment or left as controls.  Those who were assigned treatment were either a) demonstratively shown that they had been misled by advertisements, b) told that some advertisements use scarcity techniques illegitimately, or c) told of the illegitimate techniques and asked to rate the extent to which they were convinced by a set of advertisements.  Subjects were then provided with two rules for discerning legitimate from illegitimate scarcity tactics, and asked to record their responses to the advertisements.
  • Subjects who had experienced the feeling of being misled were substantially more resistant to subsequent illegitimate scarcity tactics.
  • Reducing this “illusion of invulnerability” has potential benefits in the realms of health and safety, as individuals typically perceive themselves as less vulnerable to illness, disease, infection, and other negative consequences than the population in general.

Author Abstract: This study examined the effectiveness of instilling resistance to scarcity advertisements among college students. Participants, who were undergraduate students enrolled in introductory psychology classes in their first year of college, were taught the distinction between legitimate and illegitimate uses of scarcity in advertisements through constructivist learning theory-based training. Following Constructivist Learning Theory which suggests that direct experience is a powerful learning tool, some participants had their vulnerability to deception demonstrated to them by unambiguously showing them that they had been misled by illegitimate scarcity advertisements. Other participants only read about how to distinguish illegitimate from legitimate uses of scarcity in advertisements. Results showed that participants with direct experience of demonstrated vulnerability found the advertisements to have manipulative intent and to be unpersuasive. Results suggest that Constructivist Learning Theory-based programs can effectively train students on identifying illegitimate scarcity advertisements; such training in schools and colleges may help students become critical thinkers.

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Dispelling the Illusion of Invulnerability: The Motivations and Mechanisms of Resistance to Persuasion

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Authors: Brad J. Sagarin, Northern Illinois University; Robert B. Cialdini and William E. Rice, Arizona State University; Sherman B. Serna, Northern Illinois University

Publication: Journal of Personality and Social Psychology

Year: 2002

Focus Area: Prevention, Education, Profile

Relevance: Reducing the incidence of fraud depends in part upon reducing the public’s susceptibility to the tactics of fraudsters.  People are more vulnerable when they deny their own vulnerability.

Summary: This article describes three experiments that explore how to increase people’s resistance to illegitimate forms of persuasion.  The authors note that a great deal of attention has been spent understanding persuasion methods, but little on how to protect against persuasion that seeks to deceive.  Effective persuasion resistance training was found to consist of two parts:

  1. Demonstrating personal vulnerability to persuasion – not just the vulnerability of people in general (an outline of how to achieve this is provided as a three-step process)
  2. Educating individuals on how to distinguish legitimate from illegitimate forms of persuasion

The focus of the experiments was not to increase resistance to all forms of persuasion, only to reinforce resistance against those that use illegitimate methods to manipulate consumers.  By combining the two principles above, participants consistently demonstrated:

  • Increased preference for ads that used legitimate (or “fair”) persuasion methods
  • Increased resistance to ads that used illegitimate (or “unfair”) methods
  • Sustained improvement over time

The authors note that these results were obtained using brief, written formats, and that significantly greater results might be achieved through interactive and longer-lasting interventions.  Further work on this topic has been published by Professors Coutinho and Sagarin of Northern Illinois University (2007).

Author Abstract: Three studies examined the impact of a treatment designed to instill resistance to deceptive persuasive messages. Study 1 demonstrated that after the resistance treatment, ads using illegitimate authority-based appeals became less persuasive, and ads using legitimate appeals became more persuasive. In Study 2, this resistance generalized to novel exemplars, persevered over time, and appeared outside of the laboratory context. In Study 3, a procedure that dispelled participants’ illusions of invulnerability to deceptive persuasion maximized resistance to such persuasion. Overall, the present studies demonstrate that attempts to confer resistance to appeals will likely be successful to the extent that they install 2 conceptual features: perceived undue manipulative intent of the source of the appeal and perceived personal vulnerability to such manipulation.

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Consumer Fraud and the Aging Mind

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Authors: Denise C. Park, University of Illinois at Urbana Champaign

Publication: Scientific Testimony Presented to The Senate Special Committee on Aging

Year: 2005

Focus Area: Prevention, Decision Making

Relevance: The author outlines the vulnerabilities associated with a gradually degenerating mind and some of the communication strategies that can help marketers, public policy makers, and advocacy groups overcome them.

Summary: Cognitive systems begin to deteriorate in one’s 20’s, and continue to worsen over time.

  • Information is processed more slowly
  • Memory becomes less effective
  • The ability to process large quantities of information simultaneously decreases

Stored knowledge is used as a buffer against this increasing “cognitive frailty”.  When unexpectedly approach by a fraudster, older adults are more likely to be overwhelmed, increasing their vulnerability.

  • Older adults focus on the positive and ignore the negative aspects of a message, and are thus more likely to overlook warning signs of fraud.
  • Older adults tend to remember the gist of information rather than the specifics, and that vague familiarity increases their susceptibility.
  • Older consumers who are warned about the falseness of a particular fraudulent offer are more likely to believe the offer is true at a later date, due to the familiarity of the claim.  Familiarity trumps fact.

Author Abstract: Good afternoon, Chairman Smith, Senator Kohl, and other members of the Committee. My name is Denise Park. I am a cognitive neuroscientist and professor at the Beckman Institute, which is part of the University of Illinois in Urbana-Champaign. I direct the Roybal Center for Healthy Minds at the University of Illinois, a Center funded by the National Institute on Aging that is designed to take the results of basic laboratory research on aging and determine how these results can be used to improve function in older adults in their every day lives. I have also been involved with the NIH by just completing a stint chairing an NIH Review Panel for the past several years and I also just completed a term on the Board of Directors of the American Psychological Society.

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Consumer decision making and aging: Current knowledge and future directions

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Authors: Carolyn Yoon, University of Michigan; Catherine A. Cole, University of Iowa; Michelle P. Lee, Singapore Management University

Publication: Journal of Consumer Psychology

Year: 2009

Focus Area: Decision making, Aging

Relevance: Understanding of the effects of age on consumer decision making is necessary to understand what leads older consumers to accept fraud and what methods can be used to aid their fraud resistance.

Summary: This article serves as a survey of research on decision making and aging, outlining a range of conclusions, their pragmatic implications, and questions for future research.  Older consumers are not well understood, and are often oversimplified.  Understanding the effects of age must be longitudinal; one group of people in their 70s will have different tendencies than another, later generation in its 70s, in part due to different sets of shared defining experiences (e.g., Baby Boomers vs. Depression era).

Older consumers are more likely than younger consumers to:

  • respond to emotional material, personal information, familiar names and big brands
  • forget the source of information (and thus misremember a fact as true, for example)
  • use rules of thumb, intuition, or “common sense” to make decisions
  • make poor decisions under time pressure, later in the day, or when accompanied by references to negative elder stereotypes
  • delegate decision making to others (either younger consumers or by using default options)

The article also contains many practical tips for marketers interested in targeting an older audience, as well as recommendations for further areas of research.

Author Abstract: We review existing knowledge about older consumers and decision making.  We develop a conceptual framework that incorporates the notion of fit between individual characteristics, task demands and the contextual environment.  When the fit is high, older consumers use their considerable knowledge and experience to compensate for the impact of any age-related changes in abilities and resources.  When the fit relatively low, older consumers feel increased need to adapt their decision making processes.  We discuss these consumer adaptations and propose a number of research questions related to the processes underlying them in order to contribute to a better understanding of how they can lead to more effective consumer decision making for older adults.  We further consider some pragmatic implications of the adaptations for marketing management and public policy.

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