30th August 2011 by Mindful Money
That’s actually too many points – human beings don’t react well to that amount of information, despite the biblical precedent (how many of the 10 commandments can you remember?)
Also they are talking about £200 million a year in “boiler room scams”, when, according to the Office of Fair Trading (2006), 3.2 million adults in the UK fall victim to mass marketed scams every year, and collectively lose £3.5 billion.
The OFT figure is more significant because it doesn’t matter what sort of scam you’re involved in, what matters is whether you get scammed at all.
If you’re interested in finding out about things by all means look at the FSA website.
But I’d suggest that you first read the OFT report, The psychology of scams: Provoking and committing errors of judgement, produced by the University of Exeter School of Psychology.
OK, I’m biased, it’s sound psychology, produced by professional researchers, some of whom I know.
But it tells you what you actually need to know – some of which I’ve copied word for word below and used the original emphasis:
It was striking how some scam victims kept their decision to respond private and avoided speaking about it with family members or friends.
If you find yourself keeping quiet about an investment, you probably know it is daft.
Just in case you think that you are an expert investor the report also points out that:
Scam victims often have better than average background knowledge in the area of the scam content.
If you think you’re an expert, you’re probably overconfident that you can’t be wrong.
But the thing that is more important, as far as I’m concerned is totally counter intuitive.
It’s pretty well established that humans have two main decision making systems (they are linked and there are really more than two, but for convenience, they’re referred to as two separate systems).
One is intuitive – out “gut instinct”. This is pretty effortless, quick and is what we use most of the time – like deciding which shoe to put on first, how to reach out to pick something up etc.
The other is more thoughtful – (note it is “more” thoughtful, it isn’t totally rational). This one is hard work, slower and, while still not logical or rational, has more in common with what we regard as “reasoning” than our intuitive system.
Many people, mistakenly, think that this system is totally rational and always works better.
This is a subject in itself (covered in my book!)– but in relation to scams, and quoting the OFT report again:
Scam victims report that they put more cognitive effort into analysing scam content than non-victims.
So it doesn’t sound as if people fall victim to scams because they invest too little cognitive energy, but because they put in too much – they over-use the “reason” not “intuition” system.
I can’t put it better than the conclusion of the report’s executive summary:
The research suggest that victims are often acting against their own better judgement: with some part of their minds they recognise a scam for what it is.
If you think an offer might be a scam, it almost certainly is – your gut instinct is almost invariably right.
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