NO ONE IS IMMUNE
The stereotypical image of fraud victims is that they are naïve and older. Data on fraud victims presents a very different picture, however, one that is far more nuanced. Depending on the type of fraud that researchers examine, it’s clear that sophisticated, well-educated and young people are all vulnerable to scams. Fraudsters often target a particular demographic – the well-off and well-known are targeted with scams bespoke to them.
Research has also found that overconfidence is an important factor in fraud vulnerability. People who are high achievers in one domain (for example, military expertise) may overestimate their ability to perform due diligence in a separate field (medical lab equipment). This could, for example, help explain how Bernie Madoff was able to scam wealthy, well-educated professional people who are not necessarily financial experts.
In our research, we have found that people often feel confident in their ability to detect a scam. In a series of experiments that investigated why people engage with materials that are obviously scams – such as letters apparently notifying the person of lottery winnings – we found a subgroup of people who said such letters were probably a scam but would contact the scammers to see for sure, then still back out without any losses.
A typical scam starts by exposing a victim to the fraudster’s pitch, which is designed to evoke strong emotions such as fear. Then fraudsters use persuasion tactics such as commitment (making people feel obligated to follow through on a pledge), authority (police), scarcity (time pressure), and “social proof” to engage their targets.
Social proof is a term coined by psychologist Robert Cialdini to explain the way consumers will adapt their behaviour in response to what other people are doing. Celebrity social proof can be especially powerful. Famous people may not fully understand the technology yet still convey confidence in a product or service’s effectiveness.
In October 2022, Kim Kardashian agreed to pay a US$1.26 million settlement to the US Securities and Exchange Commission (SEC) in relation to claims she failed to disclose that she had been paid US$250,000 for publishing an Instagram post touting the cryptocurrency company EthereumMax.
And a recent class action lawsuit named several A-list celebrities (Madonna, Justin Bieber, DJ Khaled, Paris Hilton, Gwyneth Paltrow, Snoop Dogg, Serena Williams and Jimmy Fallon) as part of a fraud case for endorsing luxury brand Bored Ape Yacht Club’s non-fungible token scheme.
