The Psychology of Consumer Fraud

Authors: Doug Shadel & Karla Pak

Publication: Doctoral Thesis

Year: 2007

Summary: This work provides a literature review of social influence (as it relates to consumer fraud) and consumer fraud victimization (including fraud’s prevalence, fraud types, and typical victim profiles).

It also introduces an undercover taping project identifying various persuasion strategies used by conmen.

  • Of 1,112 influence tactics coded across 128 transcripts, the most commonly-used tactic was “Phantom Fixation,” with 249 instances (p. 66). See page 67 for a chart of influence tactics by scam type.

The work also describes a series of fraud victim profiling studies, comparing known victims of fraud to non-victims. In so doing, it seeks to identify factors that predict victimization in two different types of fraud, while circumventing the problem of victim-denial.

  • Investment fraud victims are more likely to be financially literate, married, male, have a college degree or more, earn $35,000 per year or more, and are more open to persuasive appeals (p.157).
  • Lottery fraud victims are more likely to be female, widowed, living alone, earn less than $30,000 per year, be less financially literate, and “live for today” (p. 158)

The survey also found that many known victims were unwilling to acknowledge their victimization:

  • When asked simply, only 10-20% of investment victims and 14-56% of lottery victims would acknowledge having been defrauded, with the rate depending on the question phrasing (p. 150).
  • The secondary study of just investment victims was able to attain 62% acknowledgement using a series of progressive, investment-specific questions (p. 150).

The survey included 80 known lottery fraud victims, 80 investment fraud victims (9 self-identified), and 160 general population (self-identified as non-victims).

Author Abstract: This study was a three-part inquiry of consumer fraud. In part 1, undercover tapes of fraud pitches were analyzed to determine how con men pitch their victims. 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. In part 2, a 72 question survey was administered to 80 victims of lottery fraud, 80 victims of investment fraud and 160 non-victims of fraud. 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 underreport fraud. In part 3, a 2nd survey was administered to a different population of 125 investment fraud victims and 258 non-victims to determine if findings from survey 1 could be replicated. In fact, major findings relating to financial literacy were replicated, as were demographic, psychological and behavioral characteristics of investment fraud victims. In addition, new findings relating to “persuasion literacy” were found: victims of investment fraud were less able to identify pitch lines used by con men in fraud schemes than a non-victim population. This suggests that a key strategy for deterring fraud victimization in the future might be to teach both financial literacy and persuasion literacy to investors.

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