Friday, January 18, 2013

How Conman Misrepresent Risk To Defraud You

In any go/no-go decision, your brain evaluates a simple equation:
if (reward > (risk * cost))  then go else no-go. 
So if a conman wants to defraud you, they will exaggerate the reward, and minimize the risk and cost.

But how is the risk minimized? Through neglect to mention, outright lie, and if all else fails, a dare.

Neglect to Mention

I always hear this radio ad... How would you like to invest in a market immune to stock fluctuations, and earn up to 15% annual returns?

It'd be lovely, but clear, this investment has its own set of risks. It's just NOT in the stock market, but in some other market.

You hear "no stock market risk", and you thought you heard "no risk". The risk is elsewhere. It's conveniently left out of the ad... neglect to mention, indeed.

The Outright Lie

If the lie's outrageous enough and convincing enough, the victim will convince themselves that it's real. However, this takes some real balls to construct some elaborate ruse, but some conmen are up to it.

One set of conmen, hoping to attract some big investors, claimed that they have access to some special secret US government fund that funds hurricane relief, is secured by a Swiss Banker, and is endorsed by the Federal Reserve Bank. They even staged a meeting between the investors and the banker, his staff, and a Federal Reserve Chairman (all of whom are part of the scam). Unfortunately for them, the "investors" they hope to entice are actually undercover FBI agents.

"I dare you!"

When you can't minimize the risk and someone keeps asking hard questions, the conman will resort to the dare, in order to intimidate the asker into silence. Technically this is a misdirection, as it doesn't minimize the risk, but rather, mis characterize risk. It's better illustrated through an example
Jittery Investor: But what about the risk? How much risk?
Conman (outraged): I don't have time to waste with people who can't move forward and have no vision! Of course there is risk! You can be run over by a truck the minute you walk out of here! That's risk! You have to risk in order to gain! 
Note that the conman never did answer the question about how much risk. It's basically daring the victim to speak up, to keep asking the hard questions, by making the victim look embarrassed  weak, timid, etc. It's classic schoolyard bully tactic, i.e. "You scared, scared-y cat? You yellow?"

Don't let conman defraud you using these tactics.

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