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Psychology of Scams with Dr. Stacey Wood

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“Scammers use very complex psychological tactics.” - Dr. Stacey Wood Click To Tweet

I have always been curious as to why so many people fall for scams. What are some of the consistent elements that scammers use to hook us? In this episode, we find out. We talk about the different psychological tactics scammers use to successfully scam their victims. 

Our guest for this episode is Dr. Stacey Wood. Dr. Wood is a clinical neuropsychologist and full Professor of Psychology at Scripps College in Claremont, California. She is an expert on a number of issues related to neuropsychology including aging, decision making, and capacity issues. Dr. Wood also works on the frontline with fraud victims as a consulting neuropsychologist with Adult Protective Services on cases in Riverside and San Bernardino, California. 

Dr. Wood shares her experiences working with scam victims including the psychological tactics she sees scammers using the most. We also discuss red flags and practical tips for helping and talking with parents and grandparents.

“Scammers are like a virus. They change and mutate incredibly quickly. ” - Dr. Stacey Wood Click To Tweet 

Show Notes:

“The bad guys only have to get it right once. The good guys have to get it right 100% of the time.” - Chris Parker Click To Tweet

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I'd love to know about how you got into the psychology aspects of scams and fraud.

It goes back a while. When I was training as a neuropsychologist, I developed expertise in the assessment of different types of dementia. I've worked with older adults for most of my career and I've always really loved that. When I was still at post-doc, my uncle developed dementia and my dad had to step in to assist him—his brother as an executor.

Going through that, we realized that Uncle John has just been scammed for years—his financial adviser and other parties as well. If you've had any experience in these cases, it was just a mess. It was like a rabbit hole. One thing that led to another and I was trying to help my dad. I was like, let me go to the literature to try to understand this or make sense of it. I saw that really at that point, there was very little done on decision-making, on aging, on how it's impacted by dementia, and what made older people susceptible to fraud. I had a real-world example that piqued my interest at the same time I was developing a career. That's how I got started.

At the University of Colorado, I was working with a group and we developed a team to try to develop best practices for the assessment of decision-making. Like an older person just is starting to become forgetful and needs some formal support, at what point do you need to put formal support? We're trying to come up with tools to help us to make those clinical decisions.

I moved back to LA and I learned that LA was starting this really innovative team, an Elder Abuse Forensic Center.

Oh, sounds neat.

Yeah. It’s housed at USC and it was a partnership between the university and the law enforcement. It's a multidisciplinary team, probably some people you’d know, like people from the FTC, the FBI, those with more technical expertise in fraud but also clinicians, pediatricians. They were looking for a neuropsychologist. I was on sabbatical that year and I applied. The interview was bringing me out on a call to interview a scam victim out in the field, and I was just totally hooked. To be able to help my community, to see how things were working, really breaking it down. When you're interviewing scam victims, you start to understand the complexity of these things. That is how I started to develop my expertise as a clinician.

Right now, I'm a consulting neuropsychologist in San Bernardino and in Riverside County playing that same role. Going on calls, interviewing victims, and working with the Elder Abuse Forensic teams.

That's really an amazing background. From everyone that I talked to who's involved in doing anything on fraud awareness, everybody has some personal connection to wanting to be involved. There was a particular woman who would contact me on my website a number of years ago about having lost some money. As I started to talk to her, I found out that she had made friends with these “American contractors” in the Middle East. By contractors, I mean military contractors. They went on holiday to the UK. Told her that we want to play the lottery and the elaborate story of if we play the lottery, we can't win because we're currently under contract with the US Military, but we can put your name down and we'll split the money if we win.

Lo and behold, as these scams go, they won. How about that? Then come the fees. We need this money for this documentation. This money for that. Now we need to move the money here, move the money there. This poor woman gave them her entire life savings, got a second mortgage on her house, all that money, and then they just disappeared.

I hear stories like that and it's just totally heartbreaking, but I was amazed about how much work the scammers put in on the front-end of the story, that they groomed this poor woman for months. It wasn't like she received an email saying I'm a Nigerian prince with $50 billion. I'm going to give it to you, but she had almost daily interactions with these people for several months before anything even got remotely suspicious.

They use very complex psychological tactics. When you really look at the elements of the correspondence and the frequency. In this case, a lot of Americans are patriotic and I'm sure you see it all the time when invoking the military, it provides this veil of authority or legitimacy.

I've been hearing now that there are similar scams like Americans trapped overseas, they can't get home, but they have their money, but they just need to move it to US accounts or also these military contractor ideas. It is sad.

It's particularly disturbing. You talk a little bit about focusing on elders. I know there was a study a number of years ago, or I believe it was a study years ago, that seemed to indicate that elders were more likely to become scam victims. But I've also read some stories recently that actually millennials are now having a higher propensity towards scam victims. Is it just that there actually is a neurological reason why the elderly are more susceptible to it? Or is it just a matter of those are just the target audiences?

That's been a question we've been asking in my lab. As you summarized, there are mixed results. This is my take on the data. For older adults, if they're aging normally, they don't have dementia, they're not depressed, they're not a recent widow, they're not necessarily at higher risk. But among older people, there are certain risk factors that are more common. What I called non-normative aging. We know that a loss in the past year greatly increases the risk for fraud. The older you get, the more likely you are that that's going to happen. Cognitive impairment, even very mild cognitive impairment, is a huge risk factor for missing red flags. Most older adults don't have that, but for those that do, that increases their risk.

More generally, what we're seeing is that same trend with millennials. It comes down to targeting exposure. Our research says if I show 500 people a lottery of solicitation and ask them what they think, older adults as a group are not more likely to say this looks legitimate. We get about the same 5–10% of people who believe that looks legitimate across age.

What's happened, scammers are like a virus. They change, they mutate incredibly quickly, and they went from mailing solicitations to older people, to phishing emails, to robocalls, to social media now. There's much more exposure for people on social media and they're being targeted more, so there's going to be more victims.

Yeah, got you. You were talking about elders who have had a loss in the past year. One of the things that immediately I think of, aside from the emotion and the grief of that, is it's part of that the loss of having someone else to bounce an idea off of. A lot of the scam stories I hear, the person did not have a kind of close confidant. They weren't telling their friends I won the lottery or this thing is happening. A lot of them didn't know about it until after the fact. Do you think that is part of it? That there's the loss of sharing?

Absolutely. I think you totally hit on it. Whenever you have a loss like that, it's a huge transition in your life. It can be the loss of a sounding board in isolation, but even more than that, in a lot of couples that I work with, there is one person that manages the money and another that didn't.

Sometimes it's the wife and sometimes it's the husband. When that partner that had all that financial knowledge is lost or becomes ill, it just creates this vulnerability in an individual who's grieving and now needs to develop all these skills. It's not easy to manage money.

Yeah, especially if you haven't been doing it for 20, 30, 40 years.

Right. That opens up the door to relying on a new person. But also you mentioned, when you say things out loud and they become real, you realize how ridiculous they are. Like, “I have to go because I’ve got to go buy some gift cards for my boss. She just texted me to reimburse me later.” Wait, that could be a scam.

I've actually been talking to someone who, like someone in her office, called her on the cell phone and told her, “I'm on the way back to the office with the gift cards.” “What are you talking about? I didn't ask you to get any gift cards.” “Oh, no. You texted me half an hour ago to get some gift cards to give out those bonuses to people.” It's like, I didn't know.

I know. I actually got a spear-phishing email like that from my boss last week and it was very well done. They're professionals. We see amateurs, but they know what they're doing and I'm sure it's successful.

Yeah. It's one of those things where you almost have to always question everything, particularly this time when lots of people are working from home. When you can't just stick your head in your boss's office and say, you want me to do what?

Are there things that we can do as relatives of older adults to lessen the impact of loss and reduce that risk to them?

Yeah, I have a couple of suggestions. I think older parents, especially the current elderly generation, tend to have pretty firm boundaries with children regarding finances, but less firm with other people. It’s sort of taboo in some ways to talk about finances.

I would encourage adult children to initiate those conversations because their parents are probably not going to. As you and I both know, scammers have no shame. They'll initiate them 20 times a day. So, that's the first step is opening the door and maybe even making some suggestions. Some that I like are adding an adult child to a bank account, maybe just for monitoring. Just for another set of eyes or offering to help the older adult with their bill paying, recognizing it's a difficult time.

Older women tend to do better with these suggestions than older men. Managing finances, being the breadwinner, that's an important role. If you can evoke an emotion that allows that role to continue like we want to protect your legacy, what you've done for the family during this time, something like that could be helpful.

My wife and I's friends and the husband's father went missing and he had dementia. He just went out one day, they have no idea where he was, didn't take a cell phone with him, and they were just like, “We have no idea where we go, what do we do.” The husband was in law enforcement so they were fortunate enough to be able to get access to his credit card accounts. They could see where he was making credit card transactions.

He went on this journey and ended up down in Mexico. Luckily, they had friends down in Mexico. They saw that charge at the hotel and got their friends to get over to the hotel, talk to the front desk, and sit with the father until they were able to drive down to Mexico to pick him up. I remember hearing that. Oh, my gosh. That's just horrific. My wife and I talk about how do we broach this? How do we track where my mom and dad are going? How do we keep an eye on that?

The following weekend, we were over at my parents’ place and we told them this story. One of my grandfathers had dementia, probably Alzheimer's as he got older. He said, “Dad if we lost track of mom, how could we track her on her phone?” They both have iPhones and shared accounts. We just go in here and track. I'm like, “What happens if you get hurt? Does Mom know the password? Does she know how to do that?” He was like, “I don't know that she does.” So we sat down as a family and made sure that certain people had passwords to the accounts, knew which computer to use, how to find that out in order to be able to keep track of them.

I'm not in my 20s or 30s. I’m almost to my 50s now. That was a challenging conversation to have with my parents because it was very much a shift in the dynamic of you taking care of me and watched out for me all these years. Now, I have to start thinking about laying the groundwork of taking care of you guys as you guys age.

It sounds like you've handled it really well by having that example. I think that's a good tactic for adult children to use. This thing happened. It made me start to think about our family and how we can protect ourselves because these scammers have no shame. They'll approach people like that story you told about the man driving to Mexico. Just think how vulnerable he was the entire time.

Fortunately, nothing bad happened. He was just disoriented and was going on vacation or something like that.

Right, to a place he probably knew.

If some criminal had been observant, very much could have wiped out his bank account, taken his credit cards, hurt him, who knows what could have happened.

On that really sad note, let’s shift paces. I'm really curious about the psychology of why we've fallen for these scams. I very often talk about the emotional component and an urgency component to scams. I kind of wonder, is there a reason why that combination of things makes us more susceptible, makes us kind of lower our guard in making decisions?

Kind of drawing on basic research and decision-making. There is talk about having two modes for decision-making. I'm going to use the Daniel Kahneman framework where he talks about a system one and a system two.

System two is deliberative, analytical, slow when it involves new learning. A system two decision might be if we said interest rates are really low right now. Maybe we should refinance your house. You did the math, you got different quotes, you talked with your family, and ultimately, you make a decision.

System one, on the other hand, is more impulsive and automatic. We rely on heuristics or the algorithms in our decision-making. Most decisions we make are system one. We really don't have the resources to dig into every small decision you make during the day. Like breakfast. You probably have a heuristic of one or two go-tos, and it doesn't take a lot of cognitive resources to decide what you're going to have for breakfast. But that system one, even though it's really efficient, it's not detail-oriented. No edits, it's quick, and it doesn’t learn, so you're relying on past experience and going with your gut.

I don't know if scammers read Thinking Fast and Slow by Daniel Kahneman, but they certainly have gotten the message that putting consumers into that system one framework means more act more impulsively or automatically, and not really thinking through the decision. Tactics that they use for that are reliance on heuristics like authority. Oh, the IRS is emailing me. Oh, it's my boss. That shifts me already. If my boss is calling me or texting me, I'm going to respond. I'm using that as a heuristic.

Also that scarcity. I'm sure you've heard this before. When there is scarcity, it causes consumers to act more quickly. It's just a marketing principle, like before when you were looking for a flight, it seemed like only two seats left at this price. We have no idea if that's true, right?

That's true. Only four were left in stock.

Right. It's to shift consumers into this more impulsive automatic mode by highlighting scarcity. Now we actually have scarcity in some true scarcity and that's going to increase that stress and reliance on system one.

Are there ways that we can kind of identify when we're getting moved from a system two deliberate decision model to a system one impulsive decision? How do we see what's happening in ourselves? Is there a way to see it?

That's such a great question. When we're reacting instead of just acting, I don't know that I have a one-size-fits-all answer for that. It would probably depend on the person. I would recommend just taking time out before making a decision or finding a sounding board, running something, slowing it down so you have a chance to engage that deliberative processing. When fear is triggered, when your amygdala is activated with threats activated, it actually inhibits the brain regions responsible for decision to thinking.

That's horrible. That’s the time that we most need logic and reasoning. Our brain has turned that piece off?

Right, for speed. Imagine you're walking and you see a snake on the path in front of you. You immediately jump, right? You act. In that case, it's adaptive. It doesn't matter if you take time to identify the snake’s markings, if you're going to get bit, you can do that later. Unfortunately, the snakes that are attacking us by email and robocall are adaptive to slow down, but they're trying to create a psychology that promotes that impulsive reaction.

If the urgency, the scarcity, are red flags as this might be an attempt to move me into a quick pace, a quick response, are there other red flags that we should be looking for in addition to scarcity and urgency?

Authority. That's something else that’s used to either evoke fear or motivation. Right now, the CDC, WHO, IRS. Those are all well-known authorities, but they're also being used by scammers right now.

So it's almost sometimes circumstantial. What's in the news relating to authority, though, should almost be in some sense, red flags. I'm sure some people are if they get a phone call or a text message saying a stimulus check is on the way, you just need to go here, that's got to appeal to every one of these components of a red flag.

Right, but it's also motivating, like if I got a text message from a friend saying Stater Brothers now has toilet paper. I'm going to end our podcast.

But if you also said they've got a sale on motor oil, you're not going to respond to this at all. It really is a lot about what's currently going on.

Also in people's lives. Scammers use the firehose approach. They don't know if I'm short on toilet paper or not, or if I am expecting a stimulus check. They target everybody. Then they just hope that there are certain consumers that are going to be in an emotional state or be primed to respond to their solicitation.

Scammers target EVERYONE – its not personal.

That's something that I've learned from my research. They're not really targeting. I used to think they were trying to craft their letters to target a certain consumer, they're really not. They're just using all the stuff that they know, throwing it out there, and they're going for quantity and hoping to catch a few people.

Yeah, I think that's one of the things that I've run across repeatedly. It's when people have been scammed, they often think that it was personal. In a sense that Jennifer was the specific target of this scam when it was, “No, you're just one out of 50 million email addresses that got that, 49,999,950 of them just hit delete, but it triggered this one person and hit every button on their list.”

Exactly. We're seeing in our research and some others that there are three types of reactions from consumers. Most is delete, and then there is engaged but wary, and then there are people that are engaged but unaware.

I think the engaged but wary can be educated, that if you're worried at all, just delete. We could cut back on that subgroup. They believe they can engage and not be scammed.

I have to admit, I occasionally will take the phone calls that I know are scammers. We'll have a conversation because to me, I'm really curious about the techniques they're going to use to try to get me to do X, Y, and Z. I've gotten phone calls from the caller ID of my power company. I know I paid my bill, so when they say you didn't pay your bill…

Wow, that's good. That's a good scam because for my more forgetful clients, that might be effective.

The scam was basically, “I'm calling from your power company,” which I'm not saying what it is now, but they were saying what it was. It matched with the caller ID so if you Googled the caller ID, it looked like it was coming from that company. They basically said, “We didn't receive your last payment. I was looking through your case and I saw the guy is out on the way to your house right now to turn off your power and I want to help you prevent that from happening. If we can get this taken care of before the guy shows up at your front door, then that's great because I really want to help you. I know the last thing you want is your power to be turned off, all the food in your fridge go bad, and you won't be able to watch your favorite TV show,” and whatever the list of things he was saying.

Then it was, I just need you to go to 7-Eleven and get some iTunes gift cards. It was a really good scam until you told me to go to 7-Eleven to get gift cards. Like, nobody accepts gift cards as payment.

Right. They had everything on my list. They have the authority, the urgency—there's a person coming to your house today—and then you have that sort of complicated psychology, the negative, the threat. You're going to lose power if you don't do this, but also some reward, like your food won't go bad and you'll be able to watch TV. That's a more complicated psychological approach that they were using. That's really skillful.

I was pretty amazed and they kept calling, like three times a day, for the next week. I was like, “Wow, you guys are really persistent.” “Oh no, it's because we're real. We're not a scam. That last call was the scam.”

Yeah. I have to admit, I do like to look at transcripts of what they're doing to better understand the tactics, and occasionally I'll just stay on the line with them to waste their time. “Can you please explain it again?”

“What's an iTunes gift card? How do I get one of those?”

“I'm not really online. Can you explain?” Yes, I'm a little guilty of that, too.

Hopefully we're not the ones who are gonna fall for it as we're specifically looking for these things to happen.

But we could and that's important for the listeners to know. I think it's an unhelpful narrative to imagine a lonely, isolated widow as the only person being vulnerable to these things because scammers don't care who they cheat. It's this false narrative that makes people feel more protected than they really are.

Yeah, that's true. I remember reading in the early days of the 419 advance-fee scams, they were often sent via fax machine. (If anyone doesn't know what a fax machine is, you can Google that.) It was sent to CPAs, CFOs, and really high-level accountants at companies. It was not sent to the person who doesn't know what's going on.

These people were high-level companies and a lot of them thought, “This is just an opportunity for me to make more money for the company. I'm going to do my part to help make the company profitable,” as opposed to, “This is a scam” or “I'm not financially literate.” The scammers had the added benefit of, once these people knew that they were being scammed, they were terrified of telling anyone because they were in fear of how they would be perceived in their own companies, how they would undermine their own authority, it would make them look bad.

Then they would start, “Well, maybe I can repay it by pulling money out of my bank account.” Or, they started to look at other options like, “Maybe if I moved money from here to there.” They do just get themselves deeper and deeper into these things because they didn't want to hurt their reputation.

I see that happening with people that get involved in investment scams in general. They tend to be better educated and they tend to be people that have assets because they could get involved in an investment scam. Then, it almost becomes like a gambling addiction. Oh, I need to make this money back. They're leveraged essentially. I think that message hasn't been getting out very much. One reason people stay in these long games is their leverage and they're hoping to get that initial investment back.

They might even think that they're in the scam, but it's like, maybe it really isn't a scam. If I just wait long enough, I'll come through the other side.

Yeah, with something. They get that first amount pretty quickly and then you’re on the hook.

Yeah. Once you're on the hook, you’ve got skin in the game.

Yeah. I've interviewed scam victims with law enforcement where the scammers were calling them constantly while they're there.

Oh, wow.

Oh yeah. I've heard many phone calls like that. The psychological tactic of just constantly being in their lives, reminding them, first of all, that they're amazing. This tactic is like, “You're an amazing person and that's why we picked you to get involved with this” at a time when people may not feel valuable. If you blow it, you're out $2 million, you're out $100,000. They’re really giving both messages and it keeps people involved.

I've heard on the terrorism front is the bad guys only have to get it right once. The good guys have to get it right 100% of the time. It's almost that way with the scams. You can live your life avoiding 99% of them, but you could lose everything to that 1%. We've got to get it right every single time. Whereas the scammers, “I'm going to try to do 50 million people. I only need to get one of them to give me their life savings and then I'm set for my life.” Of course, they keep doing it for some reason.

They do.

Is there any last bit of advice that you would give people in either talking to their parents, their grandparents, or maybe even their kids about scams and how to protect themselves?

I think having an open family dialog about these issues is really helpful. Being aware right now, I am sure you've been covering this on your podcast. It's like a golden age for scammers. There's so much uncertainty and ambiguity right now that people are especially at risk and they're also feeling financially strapped.

That's very unfortunate. That always makes me frustrated when it's most often seen as the people that are the most vulnerable, that are most in need, end up becoming victims of these horrible things. Not that I would feel better if some rich person lost all their money.

No, but they could recover. There's more potential for a better outcome.

When you're living paycheck to paycheck and someone scams one paycheck, that has a much more dire impact on a person's ability to take care of themselves and their families.

I definitely like the idea of talking about just being more willing to talk about things. To me, I remember a while back my parents gave us, the kids, their estate planning. I think that was really helpful on their part—the parents opening the dialog, as opposed to the kids having to go to the parents and say, “What's going on with the finances, how are you doing?” And the parents being able to say, “Hey, we're the parents, we're going to open up our lives. We're going to show you what we're doing, that way you're aware of it so you're not left kind of wondering.”

Yeah, I think that's ideal. But if parents are not willing to do that, bringing up something common in the news, like the grandparents scam or something else, it's just an opportunity to discuss it.

Another approach might be if you're thinking about, yourself, refinancing or looking to make a purchase, going to your parents, and talking about that, it can open the door to a broader discussion. Like, “What do you think about it? Do you think it's a good idea?” Again, it may help to foster a better conversation in general.

It gives you the opportunity to say, “Are you guys facing anything that I can help you with?”

Right. In a way that may not make them defensive.

Most people don't like people randomly coming up to them and saying, “How are your finances?”

Definitely. Again, especially in our culture, where there's this older cohort that tends to have firm boundaries around those discussions.

Yeah. Let's figure out how to lower those boundaries in a good way, not a bad way, with the scammers. Well, I really appreciate you coming on the podcast. If anyone wants to learn more about you and what you do is there a place we can send them?

I have a website, drstaceywood.com. I'm a professor at Scripps College, too. So just googling me, Dr. Stacey Wood, Scripps College, you should be able to find me.

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