Sunday, May 6, 2012

How do scams really work?

English: A list of all scams in India from yea...English: A list of all scams in India from years 1992 to 2010. (Photo credit: Wikipedia)Ever wondered how scams really work? How do they trick you into making the wrong decisions? To know that, you need to know how your brain thinks through a decision, what are the factors in the evaluation, and how scams interfere with the evaluation process.

Your brain needs three factors to evaluate a particular action:
  • risk -- what is the chance of the reward actually coming through? Lottery chance is tiny, work is almost certain. 
  • cost -- what is the cost that you need to pay? (could be money, time, work, reputation, etc.)
  • reward -- what is the payoff that you get once you paid the cost and accepted the risk? 
There are THREE ways you can be lead to making a 'wrong' decision

  • Your lack of skepticism, as you accept whatever you're told, without any fact-checking 
  • You were given extra factors to consider instead of just the relevant factors, which weighed the decision in their favor instead of yours
  • You were given a distorted picture of the three factors: risk / cost / reward

The lack of skepticism is very much your own responsibility, but it is easily cured with a dose of skepticism. 

Propaganda / persuasion / compliance techniques can be used to turn you a certain way, but you can see through that. 

Deliberate action by the other party to misrepresent the factors involved means it's a scam. 

  • Misrepresent risk as far lower than it is
  • Misrepresent cost as much lower than it is
  • Misrepresent reward as much higher than it is

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