Scam artists aren’t so much artists as they are students of human nature. The common denominator that makes us all vulnerable is not just gullibility. To sucker us into scams, crooks manipulate the same psychological biases that often harm our investing decisions. The hook is baited as soon as we meet a well-dressed, articulate pitchman. Our first reaction is that this guy must be legit and his offer worthwhile. What we don’t realize is that this impression imbeds itself surprisingly deep in our gray matter. Pat Huddleston, a former Securities and Exchange Commission enforcement officer, says that we tend to assemble facts to support that first theory. “When we get a fact that doesn’t quite fit in the puzzle, we force it in,” says Huddleston.
Scam artists know we have a “confirmation bias,” and they’re happy to provide corroborating evidence to nudge it along. For example, Marc Dreier, who is currently serving a 20-year sentence for securities fraud, would arrange for an associate to pretend to be either an independent accountant or the CEO of another company to confirm, via phone calls, that Dreier’s offer could be trusted.
