Is There Science Behind Scams?

Investment scams are getting more sophisticated and scammers are quite talented at deceiving people, resulting in more victims.

“It’s becoming increasingly difficult to recognize investment scams,” said Carrie Hurt, CEO for the Council of Better Business Bureaus. “Scammers are using real-life situations, faking the websites of legitimate businesses, and sharpening their skills to outwit even savvy investors. Scam artists are experienced at the art of persuasion, and know which questions to ask to make you most susceptible to their pitch.”

Ever wonder how scammers do what they do? FINRA Investor Education Foundation provides some interesting theories on the science behind scams. Here are some of the most common tactics:

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—and 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."

Never rush when making any purchasing decision, and don’t be afraid to say no and walk away. For more tips on smart buying, donating and investing, go to www.bbb.org. Also, visit www.saveandinvest.org, to view the full article.