The Psychology Of Investing Scams
I found this article on ponzi scheme psychology. The reality is that its mostly based on classic persuasion tactics outline by Cialdini.
Article Introduction (Via US News)
Although the housing bust, credit crisis, and market swoon undoubtedly take center stage these days, another drama is playing out on Wall Street: high-profile investment fraud. The tally of money managers recently accused of bilking investors out of billions of dollars is growing: Bernard Madoff and his alleged Ponzi scheme; R. Allen Stanford, accused of swindling investors with high-yielding certificates of deposit; and a handful of others arrested in fraud probes. Investing con artists certainly aren’t new on the scene, but many have been flying under the radar for years, says Jeff Layman, chief investment officer of BKD Wealth Advisors, based in Springfield, Mo. “These scams are contingent on getting a continuous inflow of investor dollars,” he says. “But when those dollars stop coming in and investors are looking to withdraw, things implode.” So what makes investors fall for scams in the first place? Psychological persuasion techniques are the key, says John Gannon, senior vice president for investor education at the Financial Industry Regulatory Authority. Using actual transcripts of fraudsters in action, FINRA put together a list of five common scam tactics:
5 Tactics Used By Investing Scams:
1. The “Phantom Riches” Tactic.
2. The “Source Credibility” Tactic:
3. The “Social Consensus” Tactic
4. The “Reciprocity” Tactic:
5. The “Scarcity” Tactic: