Psychology of a Scam

We've all heard the timeless admonition "If it sounds too good to be true, it probably is" -- great advice, but the trick is figuring out when "good" becomes "too good." There's no bright line. Investment fraudsters make their living by making sure the deals they tout appear both good and true.

They're masters of persuasion, tailoring their pitches to match the psychological profiles of their targets. They look for your Achilles heel by asking seemingly benign questions -- about your health, family, political views, hobbies, or prior employers. Once they know which buttons to push, they'll bombard you with a flurry of influence tactics, which can leave even the savviest person in a haze. Some of the most common tactics include:

• The "Phantom Riches" Tactic -- dangling the prospect of wealth, enticing you with something you want but can't have. "These gas wells are guaranteed to produce $6,800 a month in income."
• The "Source Credibility" Tactic -- trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. "Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn't produce."
• The "Social Consensus" Tactic -- leading you to believe that other savvy investors have already invested. "This is how ___ got his start. I know it's a lot of money, but I'm in&mdashand so is my mom and half her church -- and it's worth every dime."
• The "Reciprocity" Tactic -- offering to do a small favor for you in return for a big favor. "I'll give you a break on my commission if you buy now -- half off."
• The "Scarcity" Tactic -- creating a false sense of urgency by claiming limited supply. "There are only two units left, so I'd sign today if I were you."

If these tactics look familiar, it's because legitimate marketers use them, too. But one key difference is that real deals will still be there tomorrow. So always take the time to stop and think before making a decision.  Use these key strategies to protect yourself.

Take a Peek Into the Con's Playbook

Investment fraud criminals are masters of persuasion. They are professionals -- this is what they do 24/7. And the tactics they use to try and separate you from your money are increasingly sophisticated.

In "Tricks of the Trade: Outsmarting Investment Fraud," we've uncovered the psychology of a scam and offer expert insight to help you recognize and resist the persuasion tactics used by fraud criminals.