Scam Psychology: What is Survivorship Bias and How It Screws You Over (esp. in MLM)

Ever heard of "survivorship bias"? No? It means you gain a skewed view from examining only the "winners" (or survivors) of a particular process, and the skewed view is wrong. But to illustrate this, it's best to start with an example from the annals of history, namely, Mr. Abraham Wald, and Department of War Math.

Abraham Wald is a brilliant mathematician that lived in Hungary before World War II. Being a Jew, he was discriminated against, and when the Nazis took over, he emigrated to the US and quickly joined the new "Department of War Math", where he and other scientists are asked to help solve math problems that is related to war. And one of them is about bomber survivability.

English: Boeing Y1B-17 in flight (Photo credit: Wikipedia)

In World War II, the Allies launched huge bombing raids against the Axis territories and suffered tremendous losses. The chances of a bomber crew surviving two dozen missions is very very small. On some early mass bombing missions Allies suffered as high as 25% (i.e. 1 out of 4 bombers sent out were shot down). And remember, HUNDREDS were sent out at a time.  DAY AFTER DAY.

Obviously, one cannot armor the bomber enough to make it bulletproof, and make it still fly and carry bombs. So where should the armor be added? And how much? Where should the trade-off be done between bomb payload and armor? That's where Wald and his colleagues come in.

The story goes that the scientists and assistants flew to Washington, to be briefed by the US Army Air Corp generals and their staff, where they explained the problem, along with representatives from Boeing (the builder) who explains the structure of the aircraft and explains the problems. Then there's data from the USAAC where they present the data they gathered from the bombers that survived, where they are hit and patched, so on and so forth. And they tried armoring the parts that keep getting shot up, but it's not helping the aircraft to come back safely.

Allegedly Wald listened to some more of this, then stood up, told the generals that they are looking at it ALL WRONG. The parts that got shot up on the bombers that came back are the parts that should NOT be armored.

Wait, what?!

Really! He's right! Think about it for a minute...

TelexFree News Update 5/2/2014: New CEO knows nothing, most procedural things done, no big news

May 2nd is the big court date for TelexFree and Jordan "Ponzitracker" Maglich was live-tweeting about the trial, and not too much happened. Before giving you a summary, I would like to make some comments.

1) Nothing Important Happened. Really. 

Any one who tell you otherwise, like "court exonerates TelexFree", are LIARS.

There was ONE document, that says something will be decided today, but today's session will be continued Monday. It has NOT concluded. So any one who was talking about "good news" are LIARS. There are NO SIGNIFICANT NEWS. Today is just some testimony, and decisions on what can be admitted as evidence, and what cannot be.

2) Unauthorized and plagiarized "live tweet" of trial

Any one "live tweeting", unless they are actually IN the courtroom, and they are probably lying, are simply copying Jordan "Ponzitracker" Maglich's coverage (and Oz's authorized copy on BehindMLM).

Here's the original: http://www.ponzitracker.com/main/2014/5/2/live-blogging-the-telexfree-bankruptcy-hearing.html

There are many alleged coverage on Youtube, mostly of stupid, unattributed (and unauthorized) translations and copies of the real thing, and often the information are outright WRONG. Some even claimed that the bankruptcy was already approved (it haven't even started).  THOSE ARE LIARS. THEY POST CRAP LIKE THIS:

Actual fake news found online even before the trial
coverage ended today, 2-MAY-2014

Accept no substitutes. Ponzitracker will be covering the continuation on Monday. If you wish to donate a few dollars to pay for his special lawyers-only subscription ($30 per hour!) to the trial, please do so at his website.

Now, a quick summary of the trial thus far:

TelexFree News Update 4/30/2014: Sann Rodrigues invokes God, Santiago De La Rosa ordered to sell bling cars

Not too many news items, as everyone is waiting for the huge court date of May 2nd...

Sann Rodrigues invokes God, vows "I am never going to stop this [TelexFree?]"

According to the SEC, in court documents recently filed, they found Sann Rodrigues uploaded a video to Youtube on April 16th, the day of the SEC/ FBI / HSI / ICE / who knows what else raid on TelexFree. In the video, Sann Rodrigues announced:

I am never going to stop this. If I say to my network I will never stop this because it is in blood, DNA. And who started multi-level was God. If you want to learn, learn. If you want to frown, frown. God made binary, Adam and Eve, and told them to multiply. For me, it is given by God.

It was pretty obvious that Sann Rodrigues was referring to TelexFree (that he will never stop doing TelexFree).

So being a scammer is in his blood, hmmm? Please keep in mind this is NOT Sann Rodrigues's first time being investigated by SEC. Back in 2007 SEC busted him for operating "Universo FoneClub" that charged over 1000 dollars for an opportunity to sell phone cards, but people actually made money recruiting other people.

Back then, he claimed that God wanted Brazilians to prosper and Universo FoneClub was the way. Now he claimed God invented binary. It's clear that he's recycling his old recruiting talk and he really isn't going to change... Much like Kevin Trudeau (who recently got 10 years jail sentence).

Recall that the only one who really prospered is himself. He's the one showing off fancy Ferraris on TV and a mansion in Florida. And he's not shy showing it off. See for yourself:

Sann Rodrigues on Vimeo, self-proclaimed millionaire through TelexFree, showing off his assets
vows to never stop (what? cheating other people? first through Universo FoneClub, then TelexFree?)

Which brings us to one of his co-conspirators, also charged by the SEC, Santiago de la Rosa.

TelexFree News Update 4/29/2014: Banned in Montana, Wanzeler, Merrill, and Craft forced out?

There are not that many updates for Monday... seems everything will be decided on May 2nd.

Montana Banned TelexFree, citing lies about no operating in that state

On April 23rd, 2014 Montana issued a "cease and desist" to TelexFree, after asking it for many months to provide a list of members in Montana, how much had they paid in, and how much had they been paid. Montana requires all MLM companies to register with the state, and TelexFree submitted an old form. When informed they need to submit the right form, the company kept on submitting incomplete information. In October 2013, TelexFree replied that they are gathering information, and have stopped operating in Montana, and in February 2014, claimed that they are no longer seeking to operate in Montana. However, when TelexFree got raided in Massachusetts, Montana has identified at least 34 participants in Montana, totalling over 70000 dollars.

See PatrickPretty.com for details, and thanks to them for spotting it first.

Scam Psychology: Do You Really Understand Your Odds? (i.e. What is Probability Neglect?)

Read and answer this simple question:

Susan and Jennifer are arguing about whether they should wear seat belts when they ride in a car. Susan says that you should. Jennifer says you shouldn't... Jennifer says that she heard of an accident where a car fell into a lake and a woman was kept from getting out in time because of wearing her seat belt, and another accident where a seat belt kept someone from getting out of the car in time when there was a fire. What do you think about this?

Perhaps it's not so simple now, is it?

Answer this yourself, but keep it in the back of your mind, while you realize the truth...

Human beings SUCK at understanding probabilities... esp. if they are not educated (through no fault of their own).

Human beings are easily influenced into overestimating or underestimating certain probabilities, through time, newsworthiness, and misunderstanding about small possibilities, and outright lies. Here are some of the things psychologists have learned over the years:


Newsworthy Information Affects Perception of Statistics

Human brain have a cognitive bias called 'availability' bias, in that fresh information, esp. those that captures our attention, such as disaster, death, huge lottery winning, or whatever captures your interest, will cause you to remember the information, and thus, influence your perception of likelihood of future events.

After a natural disaster, demand for insurance goes up, even though probability of disaster had not. People simply are more worried after a widely reported natural disaster.

Similarly, report of a recent disease will raise vaccination rates. After a meningitis outbreak at a major university on the East Coast, vaccine was offered within a week, and 95% of eligible student chose to take the vaccine. On the West Coast, a similar outbreak happened 5 months ago. Due to FDA approval process, both East Coast and West Coast were given vaccines at the same time. Only 50% of students in the West Coast University chose to take the vaccine. The news is no longer fresh on their minds.

The more a particular risk or statistic is mentioned in recent news or dredged from memory, the more likely it will be weighed more prominently in one's decision process, even when they should not be.

Most scams rely on modern buzzwords to make sure they related to SOME terms in recent news, like "internet", "apps", "VOIP", "web ads", and so on. They want you to think that "tech" companies succeed because tech is mentioned all the time. And in turn, want you to believe their scam will be a 'success'.


Small Probabilities are Rarely Judged Correctly

Events of small, tiny, or negligible probabilities are downplayed or outright ignored, esp. when coupled with other biases.

Back in the 1980's when automobile seatbelt wearing became mandatory, many people still resisted wearing them. When questioned, they acknowledge that not wearing seatbelts is not a good idea, but most justified it by stating they don't get into accidents, or they haven't had an accident in many years. Their self-optimism bias made them believe that the small probability of getting into an auto accident is 'effectively zero'.

However, the small probabilities can also be over-weighed, esp. when the events are shocking. For example chances of disasters, such as nuclear reactor melt-downs, or Liquefied Natural Gas (LNG) transport explosions, airline disasters, or terrorist attacks... or even something like mass shootings, are often vastly over-weighed and perceived to be far more often they they actually are due to media attention. For example, how many nuclear reactor melt downs have been there? Most people can only name 3: Three Mile Island, Chernobyl, and Fukashima. There actually had been many more (give or take, about 20-30, depending on how you count the ones on-board Soviet submarines).  But that's counting 60 years of nuclear reactors, over 400 plants currently in operation, and most of the problems had to do with the earliest (and thus, the less safe) models.  Chances of a nuclear reactor melting down is exceedingly small, esp. given modern safeguards. Yet after Fukashima, many nations vowed to close their nuclear power plants and/or severely reduce plans to build them. In this case, news coverage has made the risk look that much larger than before.

Scams leverage this small probability misconception by emphasizing that everybody can be successful without mentioning the odds, usually stated as "if you work hard, you can be successful just like me." The definition of "success", the odds, and the definition of "work hard" are, of course, left vague. They simply neglect to mention that everybody has equal by miniscule odds.  Then the scammer will emphasize that the potential victims are making the right choice, how it's a commitment to success, etc. Soon the participants will COMPLETELY ignore the odds that they may be participating in a scam, not a business.

Scam Psychology: What Are YOUR Communication Vulnerabilities?

Scammers are often very good communicators. They can tailor their message for a wide variety of audiences and they are quick in recognizing your particular communication vulnerabilities, and thus, exploit you using those vulnerabilities. To counteract this, you need to know what type of communication vulnerabilities do you have. These are four questions you need to ask. Are you:

• Idea or evidence?
• Direct or diplomatic?
• Think about it or go all in? 
• Accept a map or blaze your own trail? 

Each of these questions may indicate a communication vulnerability. If you have more than one, you need to beware. If you have 3 or 4 you may be especially vulnerable. You may want to keep score for yourself. 

Are you an Idea person or Evidence person?

Some people are caught up in ideas. As long as they like the idea they could care less about the evidence. It's much like ideology, or as Stephen Colbert put it "Truthiness". Others are more about the evidence, and refuse to commit to an idea until they see enough.

In general, scammers prefer "idea person" as they are much easier to sell to. Once they sell the "idea",  the "idea person" will look for evidence to convince him- or herself.

Scams often involve a nebulous high concept (the "idea") that sounds logical and feasible, but in reality have tons of complexities that most people are not aware of or are impossible to research without being a professional.  The evidence people would want more evidence, while idea people would just accept the idea without further proof.

If you're an "idea" person, add 1 to your score.


Are you a direct person or a diplomatic person? 

Do you prefer cutting straight to the point, or do you prefer a bit more socialization?

Scammers prefer those of you who socialized, as they want to hit you with (real or fake) social proof and exploit various cognitive biases that all people have. They can also distract you with fancy displays and language, bandwagon effect, crowd hysteria, shilling, and other tricks.

Scammers also don't want any "direct" person to ask questions about more evidence. If you are too diplomatic you may never get any evidence, or just enough to convince yourself.

Scams often involve fancy events, elaborate presentations, exotic locations, and so on, where you mingle with people who were already convinced of the "idea" (see above).

If you're a diplomatic person, add 1.