Money Matters

What we can learn from scam artists

/ 12:04 AM September 14, 2016

Question: Every year, I hear horror stories about people losing their life savings and then some to scam artists.  What is puzzling is that these scammers promise the impossible and yet people take the bait. How are they able to do that?—asked at “Ask a friend, ask Efren” free service available at and Facebook.

Answer:  You are right. People all too easily fall prey to scammers who promise ridiculously high investment returns under the guise of selling hard-to-find miracle products.


Some people engage in such nefarious activities even after knowing that those who invite or recruit other people to join or invest in such scams, which is basically offering unregistered investment contracts or securities to the public, may be held criminally liable or accordingly sanctioned or penalized.

Well, here are three of the tricks from the scam artists’ handbook that are used to persuade people to fork over hard-earned money for something that is practically useless.


First is the halo effect.

Named by psychologist Edward Thorndike, the halo effect is a cognitive bias.

According to Wikipedia, a cognitive bias is “a systematic pattern of deviation from norm or rationality in judgment, whereby inferences about other people and situations may be drawn in an illogical fashion.”

Under the halo effect, a person’s overall impression of another person, brand, company or product influences that person’s feelings and thoughts about that other person, brand, company or product’s individual character or properties.

Put another way, the halo effect is a form of confirmation bias where a person searches for information selectively to validate pre-existing beliefs or first impressions.

In the process, ambiguous or neutral traits of the other person, brand, company or product are now viewed positively.

So how do scammers take advantage of the halo effect?  They simply dress properly.


A nice-looking, neatly-combed, well made up and sharply dressed salesman has a better chance of persuading you to buy something you know nothing about than one who is shabby.

Now consider this statement: “Studies show that sleeping with your hair wet can cause blindness. To avoid such potential blindness, we have come up with a battery-operated sleeping cap that enhances neurological balance to rest your visual cortex while delivering heat to the outer hemisphere of your brain thereby drying your hair as you sleep.”

People are natural believers and not skeptics. People will for a moment believe that most things are true.

The technical terms in the previous sales script would tend to throw you off.  But before you can even begin to question, a short demonstration on how the cap heats up will lead you to apply the halo effect and come to the conclusion that the person selling the sleeping cap must be an expert.

The careful choice of words combined with the number of arguments, even when the arguments may seem far-fetched at first, makes the sleeping cap sound authentic.  This is the expert bias.

Al Ries and Jack Trout in their timeless classic, “Positioning, the Battle for Your Mind” said that in an overcommunicated world, people tend to be “unsane”.

The unsane may have their own beliefs.  But they are also ready to give them up for the beliefs of the nearest expert.

Now for the “coup de gras”.

The scammer tells you that either there is a limit to the number of sleeping caps you can buy, because it is but natural that you will want to get one for each member of the family, or that the special price (marked down or not) is for a limited time only.

The scammer might even say that there are only a few left in stock (without telling you that he can easily re-stock).

The scammer is creating artificial scarcity, leading consumers to act irrationally if they believe they will be missing out on a great deal.

If you will note, the power in the tricks used by scam artists lies in how your brain naturally thinks, how it is hardwired through evolution and how you were raised.  This hardwiring leads to the creation of mental shortcuts as discussed.

But this does not mean that you will forever be duped by scam artists.

You can apply existing easy-to-follow shortcuts whenever you encounter seemingly wild selling claims.

For example, when someone promises you a high investment return in so short a time, ask him to prove it through third party validated studies, not just from testimonies of people who had bought the product. You may even ask him if he has a secondary license to sell investment securities from the SEC.

To know more about how people easily fall prey to scammers, visit our website at for the free tools. And if you are one who wants to teach others about fighting off financial scammers, attend our Financial Planners’ Training program. Details are on

(Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-505-0709 or emailed to To learn more about personal financial planning, join the 57th RFP program on Oct 1 – Nov 19. For more details, inquire at or text <name> <email> <RFP> at 0917-9689774.)

Read Next
Don't miss out on the latest news and information.
View comments

Subscribe to INQUIRER PLUS to get access to The Philippine Daily Inquirer & other 70+ titles, share up to 5 gadgets, listen to the news, download as early as 4am & share articles on social media. Call 896 6000.

TAGS: artists, Business, economy, News, savings, scam
For feedback, complaints, or inquiries, contact us.

© Copyright 1997-2019 | All Rights Reserved

We use cookies to ensure you get the best experience on our website. By continuing, you are agreeing to our use of cookies. To find out more, please click this link.