Deception: From Ancient Empires to Internet Dating

Authors: Brooke Harrington, Ed., & Guido Möllering (Max Planck Institute), Paul Thompson & Hany Farid (Dartmouth College), Jeffrey T. Hancock (Cornell University), Tom Lutz (University of California, Riverside), Maureen O’Sullivan (University of San Francisco), Carl T. Bergstrom (University of Washington), Gary Urton, Frederick Schauer & Richard Zeckhauser (Harvard University), Mark G. Frank (State University of New York),  Gary Alan Fine (Northwestern University), Ford Rowan (George Washington University), William Glenney IV (Naval Operations’ Strategic Studies Group), & Kenneth Fields (Stanford University)

Publication: Stanford University Press
Year: 2009
Focus Area: Deception

Relevance: By synthesizing the fragmented world of deception research across the humanities and sciences, this text serves as a “status report on deception” (p. 2).

Summary: The interwoven contributions to this work are organized around four themes of deception:

  1. defining & detecting deception
  2. technology & deception
  3. the relationship between deception & trust
  4. social institutions through which deception is perpetrated & regulated

Each theme is addressed from three or four different perspectives, all of which account for and refer to the other works.  This creates a cohesive and broad view of the state of deception research, while allowing for the varying definitions, foci, and opinions within the field.  Of particular relevance to financial fraud are the sections on:

  • cognitive hacking (Paul Thompson, Dartmouth College)
  • digital deception (Jeffrey T. Hancock, Cornell University)
  • digital doctoring (Hany Farid, Dartmouth College)
  • method acting in daily life (Tom Lutz, University of California, Riverside)
  • fraud in financial markets (Brooke Harrington, Max Planck Institute)
  • why most people are poor lie detectors (Maureen O’Sullivan, University of San Francisco)

Opening Paragraph: Deception and especially lying are typically ascribed to human beings and often distinguished from other forms of conveying incorrect or misleading information by intentionality.  If a person is merely ignorant of the truth, then telling something other than the truth would not usually be considered lying, except that pretending to know the truth is itself a kind of deception.  (Different ideas about intentionality are presented elsewhere in this volume, along with proposals to distinguish lying from deception.) –excerpted from Foreword by Murray Gell-Mann, Santa Fe Institute (Nobel Prize in physics, 1969)

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Responding to Deception: The Case of Fraud in Financial Markets

Author: Brooke Harrington (Max Planck Institute)

Publication: (Book) Deception: From Ancient Empires to Internet Dating

Year: 2009

Focus Areas: Re-engaging with fraud, Victim behavior

Relevance: Fraud is a crime in which victims can be made to feel responsible for their victimization.  This text challenges the belief that this is just a response of “dupes,” by exploring the example of  consumers’  reactions to learning of wide-spread fraud in financial markets.

Summary: Understanding what leads victims of fraud to deny their own victimization is essential, as it is not uncommon, even among those who are informed, intelligent, and perceptive.  Previous scholarly work maintained that reactions to evidence of betrayal must be either withdrawal (removing oneself from exposure) or inaction (therapy, “cooling”, or other identity-maintenance).

This chapter (and the research it describes), uses the example of investors’ reactions to the massive frauds unveiled in the early years of the 21st century to explain how we can – and do – re-engage in the very process that has conned us, and often refuse to believe that we have been conned – either by expressing a belief in the “larger structure” or by assuming responsibility for our own victimization (“I should have known.”).

This behavior contrasts with the once popular notion, as expressed by Alan Greenspan, that, “Trust is at the root of any economic system based on mutually beneficial exchange.  In virtually all transactions, we rely on the word of those with whom we do business… If a significant number of business people violated the trust upon which our interactions are based, our court system and our economy would be swamped into immobility.”

The justification for this ongoing participation can take any number of forms, including necessity, self-delusion, or simply a weary acceptance that the pervasiveness of deception is such that, “if you can’t beat ’em, join ’em.”

Even while everyday investors profess distrust, they continue to invest, to participate, to spend.  This research forms a foundation for a different theoretical and practical conception of consumer fraud and victimization.

First Paragraph: The economic history of the 21st century reads like a litany of Biblical plagues: instead of locusts, frogs, and boils, we have Enron, WorldCom, and Tyco, followed by the options-backdating scandal and now the subprime mortgage meltdown.  It is perhaps even more disheartening to realize that American investors are still in much the same position as Emerson was over 150 years ago: dismayed to find themselves on the receiving end of deceptive corporate practices.  BusinessWeek summed up this crisis in financial markets with the headline: “Can You Trust Anybody Anymore?”

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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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Fraud Victimization: Risky Business or Just Bad Luck?

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

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

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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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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Beyond Valence: Toward a Model of Emotion-Specific Influences on Judgement and Choice

Authors: Jennifer S. Lerner, Carnegie Mellon University and UCLA; Dacher Keltner, UC Berkeley

Publication: Cognition and Emotion

Year: 2000

Focus Area: Emotion, Decision Making, Risk, Profile, Prevention

Relevance: Personality traits, namely a tendency towards fear or anger, can influence risk assessment. People who characteristically tend toward anger make riskier decisions. However, strategies that make people aware of their thought process as they judge risk can diminish the influence of emotion on risk assessment.

Summary: The effects of positive and negative moods on decision making have been studied, but this research studies the differences in impact between two kinds of negative mood – anger and fear – on risk assessment.

  • Valence studies – those that look simply at positive or negative mood – would predict that angry people and fearful people would have similar responses in a risk assessment test. However, this study found that the two emotions elicit different assessments of risk, even though they are both negative moods.
  • Anger – defined by certainty and a sense of individual control – leads people to make fairly optimistic risk assessments. Fear – defined by uncertainty and lack of control – leads people to make pessimistic assessments about risk.
  • This study examined people who were temperamentally prone to anger or fear – it did not study the effect on risk assessment of individual and discrete episodes of anger or fear. Systematically angry people tend to lead riskier lives than people who are characterized by fearful personalities.
  • Although people may rely on emotions to make decisions, when they are made aware of their thought processes or the consequences of their decisions, they may rely less on their comfortable appraisal tendencies.

Author Abstract: Most theories of affective influences on judgement and choice take a valence-based approach, contrasting the effects of positive versus negative feeling states. These approaches have not specified if and when distinct emotions of the same valence have different effects on judgement. In this article, we propose a model of emotion-specific influences on judgement and choice. We posit that each emotion is defined by a tendency to perceive new events and objects in ways that are consistent with the original cognitive-appraisal dimensions of the emotion. To pit the valence and appraisal-tendency approaches against one another, we present a study that addresses whether two emotions of the same valence but differing appraisals – anger and fear – relate in different ways to risk perception. Consistent with the appraisal-tendency hypothesis, fearful people made pessimistic judgements of future events whereas angry people made optimistic judgements. In the Discussion we expand the proposed model and review evidence supporting two social moderators of appraisal-tendency processes.

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