Consumer Fraud and the Aging Mind

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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Affective Forecasting: Knowing What to Want

Authors: Timothy D. Wilson, University of Virginia; Daniel T. Gilbert, Harvard University

Publication: Current Directions in Psychological Science

Year: 2005

Focus Area: Decision Making, Emotion, Prevention

Relevance: Poor financial decisions, such as falling for a scam, may in part result from a person’s inability to accurately forecast what will make them happy.  If we first understand what causes faulty emotional predictions, and then encourage a more accurate analysis, we may be able to facilitate safer and more appropriate decision making.

Summary: “[P]eople routinely mispredict how much pleasure or displeasure future events will bring and, as a result, sometimes work to bring about events that do not maximize their happiness” (p. 131).  This tendency is explained in part by impact bias, or an inability to infer the severity or duration of the emotional consequences of an event – positive or negative, partly due to:

  • focalism, or the tendency to disregard all but one aspect of the future when predicting it, and
  • immune neglect, or the tendency to ignore how we explain away negative experiences

These tendencies may in part explain why people:

  • attribute their own resiliency to a higher power
  • prefer reversible decisions to irreversible ones (though the latter usually make them happier),
  • may be impacted more significantly by minor events than major ones, and
  • mistakenly predict that losing something will have a greater impact than gaining its equivalent.

Encouraging the following behaviors may help create a more informed perspective and facilitate more balanced decision making:

  • Considering a range of things that make one happy and unhappy (“Many different things, not just the one thing I’m worried about, will influence how I feel in the future.”)
  • Improving one’s awareness of natural coping mechanisms (“Positive events won’t be as good and negative ones won’t be as bad as I anticipate thanks to my psychological immune system.”)

Author Abstract: People base many decisions on affective forecasts, predictions about their emotional reactions to future events. They often display an impact bias, overestimating the intensity and duration of their emotional reactions to such events. One cause of the impact bias is focalism, the tendency to underestimate the extent to which other events will influence our thoughts and feelings. Another is people’s failure to anticipate how quickly they will make sense of things that happen to them in a way that speeds emotional recovery. This is especially true when predicting reactions to negative events: People fail to anticipate how quickly they will cope psychologically with such events in ways that speed their recovery from them. Several implications are discussed, such as the tendency for people to attribute their unexpected resilience to external agents.

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Putting Time in Perspective: A Valid, Reliable Individual-Differences Metric

Authors: Philip G. Zimbardo, Stanford University; John N. Boyd, Stanford University

Publication: Journal of Personality and Social Psychology

Year: 1999

Focus Area: Profile, Prevention, Emotion, Decision Making

Relevance: An accurate assessment of time perspective, a process that influences decision making, could help identify characteristics of fraud victims that make them particularly vulnerable to scams. This information would allow prevention programs to tailor education techniques to the needs of vulnerable groups and teach skills that encourage people to use the appropriate time perspective.

Summary: Time perspective (TP) is a learned, unconscious process that people use to mentally sort and organize experiences. Time perspectives influence decision making, but this influence often goes unnoticed because time perspective is so pervasive in daily life. This paper presents a questionnaire designed to allow measurement and comparison of time perspective.

  • There are five components of time perspective: past-negative, present-hedonistic, future, past-positive, and present-fatalistic.
  • A “balanced TP” allows an individual to shift between TPs depending on the situation. Over-reliance on one particular time perspective can lead people to make bad decisions.

Author Abstract: Time perspective (TP), a fundamental dimension in the construction of psychological, time, emerges from cognitive processes partitioning human experience into past, present, and future temporal frames. The authors’ research program proposes that TP is a pervasive and powerful yet largely unrecognized influence on much human behavior. Although TP variations are learned and modified by a variety of personal, social, and institutional influences, TP also functions as an individual-differences variable. Reported is a new measure assessing personal variations in TP profiles and specific TP “biases.” The 5 factors of the Zimbardo Time Perspective Inventory were established through exploratory and confirmatory factor analyses and demonstrate acceptable internal and test-retest reliability. Convergent, divergent, discriminant, and predictive validity are shown by correlational and experimental research supplemented by case studies.

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Feeling and Thinking: Preferences Need No Inferences

Authors: R.B. Zajonc, University of Michigan

Publication: American Psychologist

Year: 1980

Focus Area: Decision making, Persuasion, Prevention

Relevance: Emotions are difficult to untangle from decision making processes, so it is essential to understand their influences, both conscious and subconscious. For example, people make rapid decisions about whether they like or trust a new acquaintance using emotional cues rather than cognitive facts. This can help explain why people trust a charming and well-spoken fraudster, even if their cognitive judgment would tell them to be suspicious.

Summary: Emotional responses to stimuli occur quickly – often before sufficient time has passed to think about the stimuli – but can evolve as more information is learned. Rarely are initial impressions changed altogether. In conversation with other people, emotional cues like tone of voice may carry more valuable information than the actual words being spoken.

  • Immediate emotional responses, or affect, is a basic reaction and is unavoidable – everyone has emotional reactions to events and stimuli (although the emotions may not be particularly strong). These emotions are based in the individual’s self definition and are difficult to explain to others.
  • There are decisions that people make that benefit from more cognitive and less emotional influence – but it can be difficult to extract emotional feelings from decision-making precisely because these feelings are unavoidable and difficult to articulate.

Author Abstract: Affect is considered by most contemporary theories to be postcognitive, that is, to occur only after considerable cognitive operations have been accomplished. Yet a number of experimental results on preferences, attitudes, impression formation, and decision making, as well as some clinical phenomena, suggest that affective judgments may be fairly independent of, and precede in time, the sorts of perceptual and cognitive operations commonly assumed to be the basis of these affective judgments. Affective reactions to stimuli are often the very first reactions of the organism, and for lower organisms they are the dominant reactions. Affective reactions can occur without extensive perceptual and cognitive encoding, are made with greater confidence than cognitive judgments, and can be made sooner. Experimental evidence is presented demonstrating that reliable affective discriminations (like-dislike ratings) can be made in the total absence of recognition memory (old-new judgments). Various differences between judgments based on affect and those based on perceptual and cognitive processes are examined. It is concluded that affect and cognition are under the control of separate and partially independent systems that can influence each other in a variety of ways, and that both constitute independent sources of effects in information processing.

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Spent Resources: Self-Regulatory Resource Availability Affects Impulse Buying

Authors: Kathleen D. Vohs, University of Minnesota; Ronald J. Faber, University of Minnesota

Publication: Journal of Consumer Research

Year: 2007

Focus Area: Persuasion, Prevention, Decision Making

Relevance: If victimization by fraud is seen as a type of impulse purchase, people who tend to make impulse purchases may be uniquely vulnerable to scams. The concept of self-control as a limited resource can also inform profiling and prevention efforts.

Summary: This paper presents a theory of impulse buying in which people have a renewable, but limited, resource of self control. If they use up some of that self control in one situation, they have less self control available in the next situation. It takes time to replenish one’s reserves of self-control.

  • People who were asked to control their attention – a test of self-control – in the first part of an experiment were willing to pay more for a product in the second part of the experiment.
  • People who already have a tendency to make impulse purchases were especially vulnerable to reductions in their self-control.
  • The researchers tested whether people were more likely to buy products that appealed to their emotions, like junk food, or to their rational minds, like healthy foods. Participants didn’t prefer one type of product over the other, which was unexpected.

Author Abstract: This research investigated impulse buying as resulting from the depletion of a common—but limited—resource that governs self-control. In three investigations, participants’ self-regulatory resources were depleted or not; later, impulsive spending responses were measured. Participants whose resources were depleted, relative to participants whose resources were not depleted, felt stronger urges to buy, were willing to spend more, and actually did spend more money in unanticipated buying situations. Participants having depleted resources reported being influenced equally by affective and cognitive factors and purchased products that were high on each factor at equal rates. Hence, self-regulatory resource availability predicts whether people can resist impulse buying temptations.

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Can Insight Breed Callousness? The Impact of Learning about the Identifiable Victim Effect on Sympathy

Authors: Deborah A. Small, University of Pennsylvania; George Loewenstein, Carnegie Mellon University; Paul Slovic, Decision Research

Year: 2005

Focus Area: Persuasion, Prevention, Emotion, Decision Making

Relevance: Frauds may take advantage of sympathy to extract money from their targets – yet another example of the emotional component of decision making. Fraud prevention programs may also use stories of specific victims to elicit sympathy and understanding from people at risk for fraud.

Summary: Large donations of money could be more efficiently used if they were distributed to a number of victims, rather than to a single person. But these “identifiable victims” inspire more generosity in donors than descriptions of statistical victims. This paper asks if individuals can be taught to value life – whether identifiable or statistical – equally.

  • People tend to value proportions more than total numbers, so a tragedy that affects 20 people in a town of 300 is seen as much more serious than a similar event that affects 20 people in a city of two million. The same goes for positive events.
  • People give more generously when they are giving to a victim who has been selected (even if they aren’t told anything more about the victim) rather than a victim who will be chosen in the future.
  • When subjects in this experiment were educated about the influence of identifiability, they gave similar amounts to both statistical and identifiable victims. However, they gave less to identifiable victims, rather than giving more to statistical victims. As a result, total generosity decreased.

Author Abstract: When donating to charitable causes, people do not value lives consistently. Money is often concentrated on a single victim even though more people would be helped if resources were dispersed or spent protecting future victims. We examine the impact of insight about the “identifiable victim effect” on generosity. In a series of field experiments, we show that teaching or priming people to recognize the discrepancy in giving toward identifiable and statistical victims had perverse effects: individuals gave less to identifiable victims but did not increase giving to statistical victims, resulting in an overall reduction in caring and giving. Thus, it appears that, when thinking analytically, people discount sympathy towards identifiable victims but fail to generate sympathy toward statistical victims.

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Rational Actors or Rational Fools? Implications of the Affect Heuristic for Behavioral Economics

Authors: Paul Slovic, Decision Research; Melissa L. Finucane, Center for Health Research, Hawaii; Ellen Peters, Decision Research; Donald G. MacGregor, Decision Research

Publication: American Institute for Economic Research (symposium paper)

Year: 2002

Focus Area: Decision Making, Prevention, Emotion

Relevance: This article presents a readable and comprehensive review of the affect heuristic – the tendency to rely upon positive or negative emotions to guide decision making – with many experimental examples. The section on judging risk may be especially useful in the fraud prevention field, as people tend to assume that low risk situations have high benefits, and vice versa.

Summary: “Using an overall, readily available affective impression can be far easier — more efficient — than weighing the pros and cons or retrieving from memory many relevant examples, especially when the required judgment or decision is complex or mental resources are limited.”

  • In most cases, people perceive high risk situations as having low potential benefit, and low risk situations as having high potential benefit. When time is limited, this relationship becomes even stronger.
  • Well-known and dreaded hazards (i.e. cancer) are seen as riskier than less dreaded hazards (i.e. accidents).

Author Abstract: This paper introduces a theoretical framework that describes the importance of affect in guiding judgments and decisions. As used here, “affect” means the specific quality of “goodness” or “badness” (i) experienced as a feeling state (with or without consciousness) and (ii) demarcating a positive or negative quality of a stimulus. Affective responses occur rapidly and automatically — note how quickly you sense the feelings associated with the stimulus word “treasure” or the word “hate.” We shall argue that reliance on such feelings can be characterized as “the affect heuristic.” We will trace the development of the affect heuristic across a variety of research paths and discuss some of the important practical implications resulting from ways that this heuristic impacts our daily lives.

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Impact of Risk Disclosures Through Direct-to-Consumer Advertising on Elderly Consumers’ Behavioral Intent

Authors: Prashant Tukaram Nikam, The Ohio State University
Year: 2003

Focus Area: Prevention, Consumer Behavior

Relevance: Communication about risk happens both in legitimate fraud prevention programs and in fraud pitches to victims. In this research about pharmaceutical advertisements, the type of risk warning (general vs. specific) was more important than the number of warnings. The type of warning also influenced whether people sought further information about the product – people who heard specific warnings were less likely to research the product further. Do these trends hold true for fraud prevention programs?

Summary: Direct-to-consumer advertising (DTCA) for prescription drugs encourages consumers to approach their doctors about the advertised product. The FDA requires that these advertisements present balanced information about the risks and benefits of the product, but in practice these regulations are bent or broken.

  • The type of risk warning is more important than the number of warnings. People who received generalized information about the risks of an advertised drug thought more positively about the drug than people who received information about specific risks – regardless of the number of risk warnings they received.
  • People who received information about specific risks were less likely to research further information about the drug than people who heard generalized warnings.
  • The participants, who were all over 60, were more likely to ask their pharmacist or doctor for information about a drug than to research it online or in publications.
  • There are public health risks associated with overly strong risk warnings; people at risk for a condition may not seek help for it and people may not take prescribed medicine as directed if they fear side effects. These public health risks should be balanced when creating appropriate direct-to-consumer advertisements.

Abstract (from the authors): The new FDA guidelines on Direct-to-Consumer Advertising (DTCA) of prescription drugs require the sponsor to present balanced benefit-risk information. However, data suggest frequent lack of compliance with these guidelines. Misinformation to consumers can have serious implications on health and safety. The study objective was to explore the impact of variations in risk disclosures through DTC print advertisements on consumer attitudes and behaviors. A 2 x 2 factorial design was implemented, where the risk statements in the advertisements varied in number and specificity. A convenience sample of 240 elderly (≥ 60 years) male and female participants was recruited. The participants were asked to read a print advertisement and then complete a questionnaire.

Participants exposed to specific risk statements were less likely to look for additional information (p<0.01) and adopt the advertised drug (p<0.01). Additionally, they held less favorable attitudes toward the advertised drug (p<0.01) as compared to those presented with general risk statements. The number of risk statements presented had no significant effect on attitudes or behaviors. However, a two-way interaction effect of number and specificity of risk statements on likelihood of adoption was observed. This interaction demonstrates that when participants were exposed to two risk statements, they did not significantly differ in adoption rates as a function of specificity. However, when exposed to four risk statements, specificity had a significant impact on adoption of the advertised drug, such that participants receiving four specific risk statements were less likely to adopt the advertised drug. These findings have significant implications health policy. Presentation of highly specific risk information can adversely affect healthcare seeking behavior. Thus, drug manufacturers should aim at providing fair balance of benefit-risk information to lay consumers without compromising public health. There is also a need to re-evaluate and develop explicit FDA guidelines on fair balance of risk information presented in DTCA. Furthermore, the current research indicates that highly specific drug risk information can heighten perceived risk, which may result in reduced compliance.

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How Can Decision Making Be Improved?

Authors: Katherine L. Milkman, University of Pennsylvania; Dolly Chugh, New York University; Max H. Bazerman, Harvard University

Publication: Perspectives on Psychological Science
Year: 2009

Focus Area: Decision making, Prevention

Relevance: While prevention efforts cannot ensure that people make the correct decision, strategies to improve the decision-making process are valuable assets in improving outcomes. When is intuition detrimental and when is it valuable to decision making? Of particular interest in fraud prevention are techniques to address biases that people do not want to admit or believe about themselves.

Summary: Bad decisions are expensive and people want to avoid them, but there has not been enough academic work on strategies to improve decision making.

  • Good decisions are those that the decision maker “would regard as the right choice regardless of whether she was evaluating her own decision or someone else’s.”
  • The authors propose a model of decision making that involves two systems; one, the intuitive, fast, emotional system and two, the deliberate, slow, logical reasoning system.
  • In cases when system one leads to biases that undermines good decision making, strategies to actively incorporate rational thinking can improve outcomes. Alternatively, decision-making situations can be altered to account for emotional biases – especially in situations where people do not want to admit or believe their own biases (i.e. racial bias).

Author Abstract: The optimal moment to address the question of how to improve human decision making has arrived. Thanks to 50 years of research by judgment and decision-making scholars, psychologists have developed a detailed picture of the ways in which human judgment is bounded. This article argues that the time has come to focus attention on the search for strategies that will improve bounded judgment because decision-making errors are costly and are growing more costly, decision makers are receptive, and academic insights are sure to follow from research on improvement. In addition to calling for research on improvement strategies, this article organizes the existing literature pertaining to improvement strategies and highlights promising directions for future research.

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Harnessing Our Inner Angels and Demons: What We Have Learned About Want/Should Conflicts and How That Knowledge Can Help Us Reduce Short-Sighted Decision Making

Authors: Katherine L. Milkman, Harvard University; Todd Rogers, Harvard University; Max H. Bazerman, Harvard University

Publication: HBS Working Paper # 5787

Year: 2007

Focus Area: Prevention, Decision Making

Relevance: Understanding the contextual factors that influence a person’s ability to successfully exercise willpower and good decision making may improve the efficacy of financial fraud prevention efforts.

Summary: This overview of the want/should literature focuses on the contextual factors that change whether people tend to choose what they want to do or what they think they should do. It also suggests lessons for individuals and policy makers.

  • Now or Later: When making choices that take effect in the future, people favor should over want, e.g. when people are making choices about what to do tomorrow they’re more likely to choose to save money, exercise, or watch edifying films than if they’re making choices about what to do today.
  • Multiple choices or One at a time: Direct comparison of two or more choices encourages people to weight them more rationally, activating the should self. But when evaluating different possibilities one at a time, individuals are more likely to favor the want option.
  • Other factors, briefly mentioned, include: “extreme cognitive load,” memorizing a seven digit as opposed to a two digit number increases likelihood of selecting a want option. “Isolated vs. series of similar future choices,” when people are told they’re making the first in a series of choices, they’re more likely to choose the want option.

Finally, the authors consider ways policy could create “conditions that will help each individual do what is in her own long-term best interest,” which often involves enabling the selection of should over want options. Mechanisms discussed include commitment devices — preventative measures to restrain the want self — e.g. piggy banks and “save more tomorrow” program, which let workers sign up to have half of future raises set aside in an investment savings account.

Author Abstract: Although observers of human behavior have long been aware that people regularly struggle with internal conflict when deciding whether to behave responsibly or indulge in impulsivity, psychologists and economists did not begin to empirically investigate this type of want/should conflict until recently. In this paper, we review and synthesize the latest research on want/should conflict, focusing our attention on the findings from an empirical literature on the topic that has blossomed over the last 15 years. We then turn to a discussion of how individuals and policy makers can use what has been learned about want/should conflict to help decision makers select far-sighted options.

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