Friday, September 16, 2016

Scam Tactics: Whip Up Fear, Provide "Solution", Take Your Money under false pretense

A lot of so-called "entrepreneurs" (read: MLM noobs) are so fond of repeating marketing speech they don't ever stop and wonder WHY are they doing what they're doing, and whether it makes any sense. One of which is the "mystery tease", where there's practically NO public info about the company, or the promoter is trying to keep things VERY VERY vague. You pretty much have to join, get the info, then consider canceling in order to get ANY information on the company.

When questioned why does the company operate this way, the rep, either stammer "so don't join" or retorts with insults such as "you're obviously not an entrepreneur".  The implication for both is "if you want to know about the company before you join, you're obviously NOT ready to join."

Isn't that just faith, i.e. "I am willing to join without knowing what I am joining"?  Does that even make sense? 

But this just reminded me of the infamous diamond scams during the late 1970's in the US. 

The scam is simple... The sellers claim to be sourcing diamonds and are offering them as investment instruments to folks who are afraid of the stock market fluctuations. The concept is simple: "everybody loves diamonds", "it only appreciates because supply is strictly controlled by a monopoly", "all diamonds are sealed with certificate guaranteeing their quality", and so on. And all of these statements are even... true. 

Sufficiently convinced, the buyer sent off a check for thousands, and in a week or so, he gets diamonds... sealed in plastic with the certificate guaranteeing their quality... Except for the caveat: the quality is only guaranteed if the plastic is NOT broken. I.e. any attempt to have it appraised means it's no longer guaranteed. And many customers did break the seal only to find the diamonds are inferior or even worthless quality. It was bad enough that New York's Attorney General has to establish a "Diamond Task Force" just to process the hundreds of complaints of fraud.

This is related to the modern "shrink-wrap contract", i.e. "if you break the seal, you accept the licensing terms", usually for software. And it's in a legal gray area. 

But these diamond hawksters also book hotel or resort ballrooms and hold "diamond investment seminars" where they prey upon fear of the audience ("at this inflation, your stocks and bonds are not keeping up"), and esp. seniors ("if you don't have some easily liquidated assets like diamonds, your kids can seize your cash assets and ship you off to a nursing home")

Doesn't that just reminds you of the modern equivalent? 

Sunday, September 11, 2016

Scam Psychology: The "Hard Work" Narrative vs. the Luck Factor

The words "hard work" often appears in the MLM supporter's arguments or narrative trying to discredit their "opponents". Any one who failed can be explained away as "they didn't work hard enough".

The problem is technology has shrunk the required competence in skills that makes a difference. It has "leveled the playing field", so luck now plays a much larger factor than any one realizes.

This is total anathema to network marketing / MLM, whichever name they choose to go by. Indeed, luck and success are almost opposites in the MLM mindset. Those who are successful and "self-made" never want to talk about luck, or even want to HEAR about luck.  This is a cognitive bias known as luck blindness. And MLM feeds into the self-made narrative directly. Most MLM pitches involves "entrepreneurial spirit" "be your own boss" "get away from the J.O.B. (just over broke)" and so on. These people are taught that any success they had is due to their "hard work" and the brilliance of the system (despite the same system, in another breath, claimed "anyone can do it")

This sort of mentality leads to some truly amazing (in a slow train wreck sort of way) claims. One of such claim is how some net winners in the ZeekRewards ponzi scheme are claiming they provided "value" to the business, and thus they are entitled to their ill-gotten gains and thus not have to hand them back to the receiver to be redistributed to the victims.

Let's forget for a moment that ZeekRewards ponzi scheme head Paul Burks was just judged guilty on all four counts in July 2016. How did these ZeekRewards Ponzi net winners claim they are working hard and thus entitled to be compensated, according to their brief, worth $50K to 80K a year? They are pasting 10 short text ads per day on anywhere they can get away with it (i.e. "spamming"). For the record, while they are required to copy the URL where they posted the ads back to ZeekRewards for "verification", no such verification was ever done. In other words, they don't even have to be done. Their work were worthless. It can be done in minutes. For this simple work, they they claim such to be worth 50-80K a year...

Right, and pigs can fly.

Friday, September 9, 2016

Scam Psychology: Cognitive Biases that leads to bad money decisions

Recently Lifehacker posted an article about cognitive biases that lead to bad money decisions. They are, obviously, perfect described the mindset of an MLMer.  Indeed, MLMskeptic here has covered most of them.

Sunk-Cost Fallacy -- if you have put money and effort in, you would not want to give up. This is also related to "Ikea Effect".

Choice-Supportive Bias -- also known as post-hoc rationalization, you made an impulsive decision NOT supported by logic, and later you tried to come up with reasons why you made that impulsive decision.  You will even rewrite your history and memory to somehow "prove" that you made the right decisions.

Anchoring Bias -- you rely too heavily on the FIRST piece of information and let that information affect your subsequent decisions, even of that first info is outrageous or wrong. Even when you are shown proof that the initial information is wrong, you fail to correct yourself and your thought process.

Bandwagon Effect -- "everybody else did it" somehow proves that it's logical, even when scams can have millions of victims. Popularity does not prove veracity or truth.

Status Quo Bias -- If you prefer the things the way they are, even though it's bad for you, you're definitely affected. Scam victims often refuse to take action to protect themselves because they believe they cannot be in a scam, and they want to "wait things out" even as the scam continue to take their money and provide one excuse after another.

But go read that article.

Tuesday, September 6, 2016

Cognitive Bias: Sunk Cost Fallacy

Answer this following question to yourself, truthfully please. Remember, it's for you and you alone. Only you would know the answer.

Q: Do you make rational decisions based on the best-estimate future value of objects, investments, and experience? 

Your answer to yourself is probably going to be: Yes, of course.

You are wrong. In reality, your decisions are based on your EMOTIONAL investment you already made and accumulated, and the more you invest, the less likely you can let it go. 

This is a cognitive bias known as "sunk cost fallacy".  In short, you are basing your decision on what has been invested, rather than what it's worth NOW (or in the future).

And it's very simple to make you feel you've invested time and effort... by making you do trivial tasks that amounts of zero importance. Zookeepers (and pet owners) know this principle well... it's called "contra-freeloading".

Contrafreeloading is a term coined in 1963 by animal psychologist Glen Jensen, who created an experiment where 200 albino rats were given a choice: unlimited food pellets in little bowl, or a mechanism where they have to learn to press a lever to release a food pellet. Logically, rats should simply gorge on the effortless food and never touch the lever. However, the opposite happened... rats actually prefer the food source where they had to press a lever, by a large margin. This was since repeated in gerbils, mice, birds, fish, monkeys, chimps... and more. (The only exception is the domestic cat). In short, animals prefer doing a little work (but not too much) for their food, rather than just take a handout.

A great example of contra-freeloading in a scam is ZeekRewards ponzi scheme (as accused by SEC and USSS), an $850 million scheme will soon go to trial. In ZeekRewards, one supposedly buy bids in the Zeekler penny auction, give away the bids to random strangers as promotion, and gets rewarded with certain amount of daily profit based on the bids purchased for the next 90 days. One also needs to post ads to random places on the Internet, and then post the URL on the ZeekRewards website as "verification" to be rewarded. In reality the vast majority of the bids were never used (i.e. the participants simply put money into the system) and expect daily "profit share" of up to 1.8% of the money they put in. The daily posting of ads were never tracked and verified, and indeed some people started a blog just to post ads... that nobody will ever read or see. It's rather obvious, in hindsight, that the "posting the ad" must be contrafreeloading... to make the participant feel they "worked" for and "earned" their share of "profit" amounting to as high as 1.8% DAILY, when the trivial task can literally be done in a few minutes, and be outsourced to some kids for pennies a day.

Yet when all these facts were pointed out to the ZeekRewards affiliates, their answers often are "you work for a competitor", "you work for the 1% to oppress us", "why don't you want us to succeed", and so on. After Zeek was shut down, several members even outright claimed "there were no victims until the government came along."

Curt Miller, on FB, soon after Zeek was closed by USSS and SEC, claiming that
"there were no victims (in ZeekRewards) until the government came along". 

They are so emotionally (and financially) invested into ZeekRewards, they can longer think rationally and see reason, even when there is NO REASON to continue to behave irrationally.

It is illogical to continue to support an alleged scam AFTER the owner made a plea deal with the government. However, hundreds of people donated money to a organization that promised to put the money toward "defending" ZeekRewards from the SEC. The owner of such organization was later jailed for defrauding the US government in an unrelated matter. The so-called defense ended up being an attorney who attended the receivership meetings, and filed several motions that was denied. He accomplished nothing useful except delay the process for the rest of the victims, and it was widely rumored (but never confirmed) that the rest of the money went to the organizer's private plane's upkeep.

They are the embodiment of sunk cost fallacy.

Friday, September 2, 2016

Scam Psychology: How Threshold of Collective Behavior Affects Victim's Mindset

Readers of this blog have remarked that they are very surprised at how a victim will refuse to acknowledge s/he is a victim, despite very clear evidence that are indisputable, repeatedly demonstrated, even by the leader of the scheme. The victim simply ignores any evidence that is "negative" and accepts any evidence that is "positive". It is... completely irrational.

Yet irrational behavior is so prevalent, even when the behavior is CLEARLY demonstrated to be irrational. The perfect example? Basketball legend Wilt Chamberlain.

Wilt Chamberlain's 100-point game
Wilt Chamberlain's 100-point game
(Photo credit: 
Wilt Chamberlain, despite his legendary status, was a HORRIBLE free throw shooter. For his entire career... his free throw shooting percentage is... 51%. However, this guy once scored 100 points in an NBA game... BY HIMSELF!!!!!!  And in this game, he made 28/32 free throws... with UNDERHANDED throw! He made the first nine free throw shots! He tried doing this underhanded throw for a while and improved to 70+% accuracy rather than 50% of his normal overhand throw. So you'd think he'd keep doing it, right? WRONG! He went back to being a BAD shooter, because... Wilt Chamberlain does NOT want to throw underhanded. He "felt silly, like a sissy."

The choice to switch back to the 50% overhand free throw is an IRRATIONAL decision.  How can one of the greatest NBA players choose to play badly... just because... he felt bad even though the results speak for itself? Even today, the underhand throw is known as a "granny shot", and there are almost NO professional or semi-pro basketball players using it (only two in NBA, IIRC).

This sort of irrational behavior is very much in evidence when it comes to scam victim's mindset. Scam victims have been known to organize rallys "in support" of their ponzi scheme, interfere in government probes and sometimes, even sue the government in attempts to "clear the name" of the scheme they were involved in.

Sociologists believe this may have something to do with "threshold of collective/group behavior", where people will choose to follow a group, despite the group is NOT something they believe in. Like Wilt Chamberlain who chose to follow other players (in order not to feel sissy) instead of improve his scoring, scam victims will follow their group until the bitter end despite they know this can only turn out badly.

Thursday, September 1, 2016

Scam Tactic: "Don't knock it until you try it" slogan is very bad advice

One of the most common arguments for income schemes is "don't knock it until you try it", i.e. "it paid me so it works". This is actually a VERY flawed argument. Recently I came across the Skeptoid episode: don't try it until you knock it. While that's about general skepticism, it works very well for financial scam debunking as well, as it destroys all the variations of the bad argument.

Don't Knock It Until You Try It?  Nah. 

Personal experience is "sample size of one". It is noise. It subject to sunk cost fallacy, subjective validation, self-superiority bias, confirmation bias, and all the other cognitive biases. Mankind invented science and scientific process to counteract such biases.  Personal observation is subjective, and therefore biased information. Advocating one to "try it" simply proves nothing.

Yet MLMers love to fly this particular argument. They value personal experience over all others, the exactly opposite of scientific process trying to filter out bad data. It is basically fully faith-based.

I was skeptical until I tried it

A true skeptic would know NOT to try it due to all the reason discussed above. The proper way to evaluate something is through scientific and statistical process from a large sample set, not through a single subjective personal experience.

Falling for a dare / lure to "try it" just makes you gullible, not skeptical. Yet MLMers selling nutritional supplements or unproven "treatments" love to fly this particular argument.  (also see "What's the harm" below)

I know it works, because it worked for me

So somehow, you're God, and what you experienced is the universal truth for everybody, eh? It's just your subjective experience, based on your circumstances at the time, and based on all your PRIOR memory and experiences. If any one else had different life history, experienced the same thing at a different time, under different circumstances, or any combination of such, the experience will be different.

What you experienced is only good for yourself. It is not a data point. It is anecdote.

Tuesday, August 23, 2016

Where do these MLMers get their "facts"? Certainly not from this reality.

In attempting to engage with some MLMers regarding their unbridled enthusiasm, I've since found out they seem to be armed with a lot of... nonsense from somewhere. They surely don't seem to have just... invented it. But where did they get such nonsense that they perceive as "facts"?

Here are a random sample of  several "not-facts" thrown out for sake of argument by these MLM supporters, all the while chanting "Worre pwn'ed Ramsey!" in the Youtube comments of a Dave Ramsey show where Ramsey provided some realistic outlook on MLM.

It makes one wonder, do they just make up "facts" as they go along?

S1. "MLM works for thousands of people around the world"

S2. "Amway Japan is the biggest company there and has been trading for over 55 years."

A1. I never said anything about "MLM doesn't work", but that's ignore that for the moment, as he did. He put up a strawman, then cited a non-sensical fact in support. "Thousands of people around world" found MLM to be working...

DSA estimates that there are 20.2 million (per 2015 fact sheet, in the US alone, and probably 100 million around the world, in MLM. If only "thousands" found it works, that would suggest TENS OF MILLIONS found it did not work, doesn't it?

Factualness rating: D, true, but not placed in context. A system that works for a tiny minority cannot be considered a working system.

A2. Even a modicum of logic should tell you this is impossible. The biggest corporations in Japan, the haibatsus are hundreds of billions big.  Toyota's revenue from 2013 was 224 BILLION dollars.  This guy seriously thinks Amway in Japan can beat 224 billion? How old did he thinks Amway is any way? Amway Wiki states clearly that Amway Japan opened in 1979. That makes it 37 years old, certainly quite a bit off from 55. And its revenue, as per Amway was 1.1 billion USD (2006) again, AmwayWiki.

Factualness rating: F, completely false in every facet