Saturday, June 14, 2014

Scam Psychology: Naive Realism / Anecdotal Fallacy / Argument from Illusion

Illustration of Naive realism or Direct realism.
Illustration of Naive realism or Direct realism. (Photo credit: Wikipedia)
One of the most often used counter-arguments by a scheme participant against skepticism is the self-testimonial, as in "I have done this, so I know it works, and therefore the whole business works!"

Let us assume that they are not outright scammers for the moment (i.e. liar, liar, pants on fire)

What they don't realize is they are operating from "naive realism", i.e. they assumed that everything they experienced is real, when it is quite possible they've been defrauded (magic trick), and they then extrapolated from their limited (but realistic) experience to conclude that the whole business must be "real".  One version of such self-testimonial, and the most often used, is the "It paid me" argument, as in "this opportunity paid me, therefore it's not a scam".

Yet this is the most powerful of all arguments, even if it's false. TelexFree victims in and around Boston, Massachusetts told Boston Globe that pressure from friends and family, esp. when posing with new house, new car, new luxuries, etc. often prove to be impossible to resist, esp. by people with (naive) "unbridled enthusiasm". Quoting from the Boston Globe story:
...Fausto da Rocha said he probably lost $45,000, the proceeds of an insurance payment from an auto accident. He had initially resisted TelexFree, but after friends profited, he decided to join, hoping the investment would accelerate his recovery from bankruptcy a few years earlier and losing his house. Da Rocha, well known in the Brazilian community, said he recruited about 20 relatives and friends. 
“I feel guilty,” da Rocha said as tears clouded his eyes. “My career is gone. I’m going to clean houses with my wife. Cleaning houses is a good business.”
But the social cost is even greater. He had 20 relatives and friends he can never look in the eye again.

Sann Rodrigues, one of the "TelexFree 8" charged by SEC
as part of a scam, showing off his Ferraris and MB and mansion
in Florida in one of his videos (screencap from Vimeo)

What's even more interesting is the more you tell or listen to the story, the more you believe in it. You may not believe it at the beginning (it's just a job), but eventually you will. Here's something you may not know; if you read about rich people or talk about rich people, you get pleasure from it as if you are rich, just to a lesser extent, much like "groupies" or "camp followers" to rock bands and rock stars congregate around the celebrities. And after a taste of that pleasure, you will want more. That's why so many scams rely on displaying money or other evidence of affluence, such as exotic cars, beautiful houses, or exotic locales. To the right you'll find a screencap from a video of Sann Rodrigues, aka Sanderley Rodrigues de Vasconcelos, who had been charged by the SEC before as a scammer, showing off his exotic cars, mansion, and his beautiful family, which may have been purchased with money derived from his involvement in the TelexFree ponzi scheme. Yet such images are powerful recruitment tool: you too can be like me (if you join).

A person's view / experience is limited by his or her prior experience and knowledge to interpret the experience. If a person had never seen an automobile before, depending on their cultural context it could be described as horseless carriage, iron turtle, or some other terms. So if a person had never experienced a scam such as Ponzi scheme or pyramid scheme (and often, even if they did) they may not recognize the signs and interpret the fact that they received some of their money back as "proof" that the scheme works, when it can also be proof that it's a pyramid scheme or Ponzi scheme.

Thus, it's also known as "argument from illusion"... The person is not arguing with all the data, merely what s/he can experience. It's like the 3 blind men and an elephant example.  It'd be like the guy touching the legs (Wow! Elephant is like a small tree and rough!) telling the guy who felt the tusks (It's thick, bony, but curved!)  "You are absolutely wrong!" Neither of them have the full picture, yet neither would admit so.

In formal logic there's this "anecdotal fallacy", which basically states that you cannot prove anything if you only have your own experience as proof, as you could be an exception.

So how do you deal with these cognitive biases? Stop trusting your eyes and your heart 100%. You can be defrauded and lied to all the time. And you can only be cheated if you ALLOW yourself to be cheated.

Consider the business both from your view as an associate / affiliate, and from the business point of view. Does the business model make sense for BOTH VIEWS? Scams often claim to be a very profitable business and they need you to spread the word and they'll pay you a ton of $$$ for that... but first you have to pay them. If it's so profitable, why do they need YOUR money? Where is your money going? It makes sense for you the affiliate, but it makes no sense for THEM as a business. Just reinvest all that profit for X months.

Ask the person who was trying to recruit you. If they get haughty and bothered, like "why are you asking so many questions", walk away.

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