5 Reasons Why You Fall for Scams, Cons and Rip-offs

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By Bob Sullivan

Back in 1996, it was pretty easy to steal money from people on the Internet. You put up an item for sale on a site like eBay (EBAY), you took people's money, and you never sent the thing they bought. (Really, that's the first Internet scam article I wrote almost 20 years ago).

Scams have become a lot more sophisticated since then, but two things have remained incredibly constant during the past two decades. First, victims almost always send money using a method that offers no recourse, such as wiring the funds. And when I write an article about the latest con, a chorus of too-clever-by-half people will scream, "That could never happen to me!"

When I encounter people in that second vocal group, I often quiz them about their extensive portfolio of overpriced extended warranties, time shares and underperforming mutual funds, and gently remind them that the folks who think they're too smart to get cheated are often the easiest marks.

One of the first things a trained con man or woman will do to victims is lavish them with praise. ("I can't believe this great deal I'm giving you," says the auto dealer as he walks away with your money.) So if you think you can't be scammed, you are probably next in line. And for that other group, I say simply, "Stop wiring money to people." Doesn't matter how elaborate the cover story is.

Because I've interviewed thousands of victims during the past two decades, I'm often asked why people fall for scams or corporate rip-offs. Here are my top five reasons. "People are stupid," a popular refrain, is never my answer. On the other hand, "Because people think they are smart" is No. 1.

1. If It Sounds Too Good to Be True, It's Your Fault

Like a good wrestler, con artists know how to use a person's strength against them. One hard-to-confess truth about nearly every scam victim I've ever spoken to is this: We all have a little criminal in us. There's a piece of us that's anxious to get in on an investment before anyone else knows about it, or to get that new gadget at a price others could only dream about.

Yes, the bad guy taking the money is a big criminal. But virtually never have I interviewed a victim who wasn't a little criminal. People wire money to Africa or re-mail a stolen computer to London because they are a willing accomplice. Don't think you deserve special treatment; don't think you are smarter than everyone else. That's when the trouble begins.

2. We Are All Smart in Different Ways

Everybody is good at something. And everyone is dumb at something. Maybe you are a slick investor, but you don't realize your dentist is overtreating you. Maybe you have an elegant spreadsheet of monthly expenses but haven't yet noticed your cable bill has risen from $50 to $150 per month. Maybe you are a business reporter but you are terrible with money (very common).

Nobody is good at everything, which means there will come a time when you have to flat-out trust someone else not to cheat you. The plumber. The auto mechanic. The surgeon. At these times, you have to keep in mind reason No. 1: When you are information-poor, you are a potential victim. Yes, you, who thinks you are above all this. And that's where reason No. 3 comes in.

3. You Don't LIsten to That Little Voice

Of all our scam-fighting skills, one is far more important than all the rest: that little voice inside that tells us whether someone is trustworthy. As I've just explained, there will come a time when you have to rely on an expert. Your ability to discern between honest and dishonest will be all that stands between you and a rip-off.

And guess what? Many people overestimate their ability to do this. In fact, that probably explains most of the victims I've ever spoken with. How many times have you heard the phrase, "But he/she seemed so trustworthy?" A little mirror gazing is your biggest ally on this one. Have you ever fallen for a lying lover, a cheating used car salesman, or a cellphone kiosk kid who misled you about a data plan? You might want to re-examine your skills at judging people. And perhaps you should take a friend the next time you buy a car.

On a related note, most victims will also say, "Well, I did have this strange feeling ... ." Those people, for some reason, have learned to not trust the little voice inside them that issues warnings. If that's you, ask yourself why before it's too late. That little voice is usually pretty smart.

One class of folks who make such mistakes deserve a pass -- and a lot of empathy -– the elderly. Recently, a UCLA professor used a machine to examine the brains of old and young people and found that a region called the anterior insula lit up less in older folks than younger folks. That's the part that lights up if the brain perceives danger, or more specifically, if it perceives a person to be potentially dangerous. Researchers call it a diminished "gut" response.

What does this mean for you? As you age, you almost certainly will fall for things that you didn't when you were younger. So don't be overconfident. And please, talk to your aging parents often about money.

4. You Rely Too Heavily on Friends' Advice

The other common phrase uttered by victims is, "But he/she was recommended by a friend!" For some reason, many people turn off their evaluative systems when a friend's recommendation is in play. In the computer hacking world, they call this "third-party validation," and it's very effective. Just look at the list of Bernie Madoff "friends."

Here's why: Once people decide to go with a money manager, car mechanic or dentist, they hate encountering "cognitive dissonance" that might suggest they've made a mistake. So they often become blind to signs that the person they trust is taking advantage of them. Behaviorists call this "confirmation bias." People are biased toward information that shows they are right (naturally). So if you pick the money manager they recommended, that makes them even more right.

Personally, I often ignore friends' suggestions and head to the phone book and online reviews. I like to pick people with a fresh slate and make my own judgments. If you choose to follow a friend's advice, just know there's a high likelihood your friend has a blind spot.

5. You Fall for "Limited Time Only"

Every criminal training manual (or sales manual) you ever read will stress this very important point: Create a sense of urgency. Convince the consumer (or victim) that they must do something right now. The deal expires the second they leave the room, hang up the phone, shut the door or close the chat room. Never let them walk out the door -- or even talk to anyone outside the room.

Well, malarkey. Trust me, the once-in-a-lifetime deal for a new car will become a twice-in-a-lifetime deal tomorrow. The surest sign that something is wrong in any deal is pressure. If I taught personal finance classes in U.S. high schools, I would skip all the boring lessons on U.S. bonds and teach one skill, over and over, just like the firefighters taught us as little kids: Stop, drop and roll.

Stop talking, drop the pen, and roll on out of that office, or roll the mouse away from the computer, until tomorrow when you've had time to sleep on it. Don't let someone back you into a corner. Ever. Even if they say your roof is leaking.

"Rushed" leads to another concept that befalls even the cleverest of clever consumers: the "momentary lapse of reason." Often, circumstances conspire to make a very smart person temporarily dumb. We do this all the time. We eat doughnuts late at night, we buy clothes we don't need, we pay twice the price for something because we don't feel like shopping around.

Remember, you can be sensible 23 hours and 55 minutes a day, but a criminal needs only five bad minutes to raid your bank account. All a bad guy needs is one moment of weakness to exploit you. You must remain ever-vigilant.

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