Episode 2: Let's Talk FinCrime and the Psychology of Fraud

In this episode of NICE Actimize's Let's Talk FinCrime podcast, we'll talk to Dr. Matthew Goldberg. As a scientist, Dr. Goldberg has been investigating what people believe, why they believe it, and what influences people’s beliefs and behavior. Issues of persuasion and communication are not just of interest to social scientists, but also to businesses, nonprofits, and public figures. To this end, Dr. Goldberg co-founded XandY Analytics so he and his team could design and deliver custom research solutions.

Listen in as we apply his research to common financial crime fraud schemes- and why these schemes are so often successful.

You can hear more of our conversation with Dr. Goldberg by visiting actimize.nice.com/podcast

To get in touch with Dr. Goldberg, contact him at xandy.analytics@gmail.com

Transcript

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Welcome back to let's talk fin crime, the show where we explain not only what compliance and financial crime are, but most importantly, what it means to you and how it affects your daily life. As always, I'm your host, Dave Ackerman. I'm a lawyer, former Chief Compliance Officer, and financial regulation expert based in New York City. I'm thrilled to bring you conversations with some of the most interesting people we could find. All designed to help you understand what is happening in the financial world. We have another exciting guest today. So let's get started. Every day scammers from all over the world wake up with one goal in mind to separate you from your money or your personal information. And we've all seen them an email from a Nigerian prince offering you a million dollars, a message from the IRS about your tax return. A social media post for a job paying 15 $100 a week, or my personal favorite a phone call about my last chance to extend the warranty on my car. ironic considering I live in New York City and I don't own a car. They're ridiculous, annoying, and directly counter to that age old adage. If it's too good to be true, it probably isn't. And yet, the scams work. Every day, someone somewhere is handing over their money, their retirement or their bank account information to a complete stranger. And have you ever asked yourself why? Why do people fall for this? Well, that's what our next guest is going to tell us. Dr. Matt Goldberg is an associate research scientist at Yale University and co founder of x&y analytics, Dr. Goldberg looks at the human condition to unlock the secrets of persuasion, influence and communication. He tries to understand at a fundamental level, what people believe and why they believe it, how to influence people's beliefs and behavior. So with that, I'm excited to introduce Dr. Goldberg. Matt, thanks so much for joining us today. This is really exciting. Thanks so much for having me. So I kind of want to dig right into this. I mean, what is it that these scammers are tapping into that make them so successful? Yeah, you have their individual strategy and also individual psychology. So going to their strategy, they don't need to get everybody or even a reasonable number of people to fall for their scams, they just need to have enough volume to get the weakest link in order to in order to get people to fall for them. Psychologically there, there are a lot of things at play, that make people more likely to fall for these things. One is that we don't walk around skeptical of everything. It's just not the way we're built. We usually rely on intuition and day to day conversations. And we generally accept that the other person is being truthful. So we usually need to override that in order to disconfirm. That initial inclination. I never thought in a million years, I would hear someone who was raised in Brooklyn say that we don't walk around constantly skeptical. That's just that's a completely new concept to me. But so but that makes sense, though, right? Like, because your brain can only process a certain amount of information at once, right? So if you were constantly on the alert, then you go mad. Exactly. Or you wouldn't even have like the cognitive resources to dedicate to it. So okay, one thing that I've noticed throughout the course of my career is the most successful scams, the ones that companies like mine are hired to really pursue, really deal with emotion. And the two that I see popping up the most are greed, you're going to get rich immediately, or fear. And it's interesting to me because it's it's not necessarily fear of harm to oneself or loved ones. It's fear of making the wrong decision. So almost like high pressure sales tactics. If you don't do this right now, then you're gonna miss out on this opportunity. Is that is that connected in some way to the research that you've done you what you've seen over the years? Absolutely. One of the most popular themes in social psychology is like, it's kind of this continuous continuum, from reliance on intuition to reliance on deliberation. So you have like this gut feeling and reaction versus like, careful thought about things. And all of those tactics that you mentioned rush People or doing some kind of misdirection that nudges people more towards intuition. Because you want people to be able to not think carefully if you want them to fall for these things. So that's that lines up perfectly with a lot of what we know about human psychology. Which to me is absolutely fascinating. So it seems like whether it's whether it's through almost a social experiment of their own, these fraudsters all over the world kind of tapped into that idea, speed up the process, make people think quickly. And so is that necessarily a bad thing? relying on intuition? I mean, we're almost programmed to do so. You know, you'll look at every action movie ever created throughout the history of movies. It's like, okay, the hero is gonna go grab three guns and go with his gut. And, you know, does that that doesn't necessarily match up with the reality of best practice, though, is it? Well, I kind of would draw, like some shades of gray there with intuition, because a lot of the focus in psychology is on where intuition goes wrong. And there's just there's so much work to show all the ways in which it does, but in there are a lot of good reasons why we have it and rely on it so much. It's it saves cognitive resources and allows for us to navigate everyday life. So intuition is often a, you know, it can guide us in the right direction a lot of the time. So I don't want to say that it's never correct. It's just that sometimes it takes us astray. And when it does, it can be highly consequential. That's actually fantastic. And that's a great segue into the next part of this conversation that I want to have there is something in in fraud, especially on the compliance side from where I am, they're called mules. And essentially, they're money launderers that are tricked into laundering money for fraudster. So think about like a social media post, or even if you go into an article in the comment section underneath, you see it constantly. 15 $100 a week, no experience needed something like that. And we've noticed with the power of social media, and also combined with the current predicament that we find ourselves in with so many people out of work, there's an uptick in this type of fraud. And what they do is they take the ill gotten gains from from a different scam. And they need to launder that somehow. So the mule, in this case, the individual who wants the job is going to give banking information over to a fraudster in a foreign country, perhaps or even locally, in the domestic us. And that fraudster is going to take money deposited into their account. And then the individual who is getting caught up in the scam, takes the money, and then deposit it deposited somewhere else, and then keeps a percentage for himself. So if they're doing what's a 10,000 at a time, you get 400 bucks. And it's, it is very, very common. But what I'm kind of curious is like, maybe this is tapping into the greed piece, or there's not enough time to really think about it, but what is it that why do people fight the angel on their shoulder? So they they're, at some point, someone's got to realize this can't be right, this is this is definitely illegal activity, you know, the guy or the person who is instituting this constantly saying, don't tell anybody about this, this is just an arrangement, tell your bank that you're you're winning money from a from a rich relative or something like that. So, what is it about not just getting involved in the scam, but then what keeps them there? Yes, you have the those two separate elements of getting involved and what keeps them there, getting them involved, I think you kind of look at it in like a goal framework. So we have all different kinds of goals. So one might be, you know, to to earn more money, and another would be to stay out of jail. So in those cases in this specific situation, or to stay out of any kind of legal trouble. In this situation, those are competing. And there are there are various moments in one's life or the pandemic is a good example of driving people and raising the importance of certain goals, in this case, financial ones that make them more vulnerable to these things. If they feel like you know, it's it's this or my my family, you know, not being able to pay the bills, they're they're able to justify it way, way better. Staying staying in it is is a whole range of psychological phenomena. A lot of it is some cost. So I've already come this far, or I've already invested this amount of I've already done something illegal. So doing anything additional beyond that, in their minds, probably doesn't afford any additional risk in their in their mind. So it's it's so much easier to justify to keep going because why not? So is that is that kind of like, the first time you run a stop sign in your neighborhood? You really, really nervous. And then three years later you do a rolling stop through that stop sign with no problem because you like I've already done it 100 times. Yeah, so you have the like, descent to getting desensitized to it. But in this case, you also have the if you've already committed the crime, and of course, like not, not all this is created equal, but you've already gone down that path, individual stops at a stop sign, because like each be their individual ticket. But usually, if you've come across the line, it's hard to go back with this kind of level of crime. It's almost, I mean, to me this, this is the aspect of it. That's fascinating, because you're, you're talking about individuals, millions of individuals who get caught up in these types of scams. with very different backgrounds, very different ethnicities, like there's really there's no one profile that I could say, would be more susceptible than another. And yet, it sounds like these are pretty consistent, measurable types of phenomenon that are happening to these individuals. So is that something that you've seen over the course of, of your research? Yeah, I think people's goals, like I was saying, are tapping into it a lot. So yeah, you'll probably get, you know, there's no one that's, you know, not vulnerable to these kinds of things, but they're they're situational. And life constraints can certainly play a lot into it. So, you have there, you have like just literacy of these kinds of, of scams. So growing up in Brooklyn, I had learned a lot about the various scams from my parents, because they have been attempted on them so many times where it's like, they let some air out of one of your tires, you go around to check it and then they steal your briefcase from the passenger seat. And that or they put something on your shoulder, you turn around, they pickpocket you. And I learned a lot of those things. So you kind of have this. So and we call it pre bonking often in, in the communication space where you want to preemptively teach people about some of these things so they can see it when the critical situation arrives. So you have that mixed in with the situational motivations, like badly being in a being in a bad financial situation, that can coalesce to create the right situation for the scammer. And it's interesting that I think banks, financial institutions, they're trying to help people with that, by letting them know what the consequences are. Perhaps it's easier to justify that goal oriented approach that you were talking about. If If you don't think it's as serious as it actually is. So so in that case of the mule that we were talking about, you become a money launderer, and that is an insanely serious crime in the US in most democratic nations around the world. Money Laundering is a massive, massive offense. And for people like me, we are we're building processes, procedures, training compliance professionals, to find you. So it's not like people aren't looking. And it's not like there aren't consequences, that the part that upsets me a little bit is in those situations, the fraudsters usually go free, because you can't find them, you find the person who's doing the money laundering domestically, because they're so much easier to find. And then they're caught essentially holding the bag. So a lot of these financial institutions I've noticed are trying to increase the education of the average person. So that as you said, when you see this, when you see this pattern, don't do it, like almost a practice before you go. So you don't need to use that conscious mind all that extra brainpower. Over time, do you think that's going to have an effect? I think so. Then, of course, any intervention will be imperfect. So even if you substantially reduce the proportion of people that get caught in the scam, you could still have a very substantial treatment effect you so you could have a substantial treatment effect, but still have a lot of people that still fall for it. So it'll be imperfect. But you also have to draw the distinction between learning about it and actually doing it. So to use a sports analogy, you could learn about playing basketball or football. But actually doing it is is a very unique experience in the learning process. So being able to say no or getting practice in avoiding the scams is, is another step forward and the intervention. So still, though, there'll be people that end up falling for it, we want to get that number as low as possible through a variety of interventions. So that's a perfect, perfect place to stop for a moment. We have to take a quick break. But when we come back with Matt, we're going to talk about those interventions. What are things that we can do in order to combat seemingly our own self nature? For years, financial crime prevention tools have taken a the best offense is a good defense approach. What if you could gain timely and actionable intelligence on what the bad guys are planning? Enter q six cyber, the leading provider of E crime intelligence to financial institutions worldwide to six cyber monitors the digital underground to proactively identify threats before they materialize into fraud losses and other crimes. The company's targeted intelligence produces high ROI, three significant reduction of account takeovers, payment card fraud, and many other financial crimes. Learn more at q six cyber.com. Welcome back. We're here with Dr. Matt Goldberg, an associate research scientist at Yale University, who studies the art of persuasion and influence. We're talking about scammers fraudsters no good NICs, but more specifically why the scams are successful and swindling so many people out of their money and personal information. So where we left off the conversation, Matt, you just mentioned a great analogy, this idea of you can learn how to play sports from watching a video or watching it online. But it's very, very different. When you try to attempt that for the first time. There is. So I have done a training a number of times over my career on cybersecurity on on various different techniques that people can utilize. And 10 times out of the last 10 that I have done it, I take a USB drive and I put employee salary data on a little label and I stick it right on the USB drive and I drop it outside the door of the exit of the training. Guess how many times people have picked up that a USB drive and stuck it into a work computer every time every damn time. And when I tell you because it's got a certain point, I wish I could say I get desensitized to it, I don't actually I get viscerally angry every single time. And in in two cases, we had to let traders go off the trading floor. So you kind of get that tap on the shoulder and guys walk up behind you with boxes, because they need to walk you off. So the consequences are dire. But if if I'm doing a training, and or in this case, if we are trying to educate the population about the scammers to try to give them a little bit of that, hey, this is what to look for. So you don't have to use as much brainpower to recognize that what's the point if it's still going to happen. So we can still, you could still get a lot of people to avoid it. And there and you also don't want to entirely rely on one intervention. So you can do some kind of combination where you do a training, and then also some practice or even in the in the case of dropping the USB outside. That's a perfect example of, of someone falling for it right after they've, they've learned it But still, it's it's a great lesson because you they've actually gone through the steps, they did them in the wrong way and ended up picking up the USB drive. But still, you could those kinds of experiences are memorable. So if I'm just sitting through a lecture, I'm not actively engaged. Whereas if I actually practice the thing, then I can get it more, you know, more linked to my everyday behavior and kind of build a habit out of it. So you call these interventions. I'm hoping that there are more ways to intervene than allowing a bunch of people to get scammed for the first time so that they know not to do it again. kitsuke can you give us like, how do people fight this because it almost feels like you're fighting against your own instincts and your own emotions. And that is an insanely difficult thing to do. I mean, I can't even stop myself from an impulse buy at Costco. So, you know, what are other things other than being victims of a fraud or knowing someone who is a victim of a fraud that they can do in order to combat these influences that they are being bombarded with, there are a couple different general approaches. One is to to get as specific as possible with linking a critical situation to critical outcome. So when x happens, I do why just a simple one have never give your social security number to anyone who calls you. So when someone does x, you do y and that helps automate the response. So once you've done it a few times, or practice it a few times, you can, it could be a case where you don't have to expend a lot of cognitive resources or deep thinking for it to automatically happens, you want to kind of create a habit out of it. And then you have more involved interventions, ones that my colleagues and I have seen in fighting misinformation, where they've even gamified it where you act as like the head of this, you know, fake news Empire, and you try to play on people's emotions, and you try to gain a bigger following. And by acting out the, by taking the perspective of the criminal, in this case, you end up familiarizing yourself with how they get you. And by doing that being on the receiving end, you're better able to pick up on it before they get you. And, I mean, that's amazing. So I kind of want to in closing, I just want to kind of tie this all back together, because the the emotional and psychological, different aspects that you're talking about, it seems like they all fit together like people. People are afraid of making the wrong decision, or they are they have this compelling need, because they they need money or they need a job. And then then they rationalize, right? And then they, oh, it's a it's a victimless crime, who am I hurting? That is something that we see in financial crime, often? And is there a way that people can maybe give themselves a moment to think about this is not necessarily a victimless crime, there is real risk here. Other than obviously, the interventions that you mentioned before about practicing putting yourself in that situation, learning from others or learning from campaigns that are going on? If people find themselves in this situation, where they are rationalizing to themselves, is there something generally that they can do in order to take a step back and rethink? Yeah, so if if they have the presence of mind to step back and think about it, that usually is already a big enough step forward. But the kinds of rationalizations could happen with reducing the perceived risk of getting caught and reducing the perceived harm that it will cause. So you could intervene on on both of those beliefs, or go more heavy handedly on on one or the other. Because saying it's a victimless crime, we could revert that, and reducing the perceived risk, we can change that by highlighting how easily and quickly and prolifically, these folks are caught. So that's kind of one that people wrestle with, when they're thinking when they're, when they're trying to wrestle with these competing goals of, I don't want to be in legal trouble, but I need money. And here's an opportunity. It's it's easy to rationalize one and then go more into the other. But if you if you raise one through an intervention, like, oh, you're probably going to get caught pretty easily. If you do this, then it just stops people from going down that path to begin with. That's, that's amazing. And I think, hopefully, that is a takeaway that I that my industry has, that we can help people understand. When when these people get caught and they do get caught quite often. I mean, I used to work for FINRA, we used to investigate crimes like this all the time, or people who were misleading the average mom and pop investor. So So here's some practical tips. I this is from trainings that I have done over the years, not just to financial professionals, but to individuals, individual investors, just people just like you listening. These are some skills that you can use right now in order To help you prevent yourself from being defrauded. In the UK, they have something called the take five program, where if you find these very high pressure sales tactics, if you don't act, now you're going to make the wrong decision or do this right away, or your payment is going to be in jeopardy. Take five, take five minutes to sit and think about it, come back to it turn the TV on. If it is a problem that needs an immediate resolution, five minutes is not going to change anything. However, if it's something that's not quite right, that five minutes is going to give your brain time to catch up, and essentially do what Matt was talking about before. In addition, talk to someone isolated decision making is one of the single greatest areas that we see in compliance, where people go wrong on the financial crime side, and not just being victim of victims of it, but actually engaging in it, talk to an individual because it There is something about talking something out that if it sounds that stupid, when you're talking it out, it probably is. And it'll give you a chance to kind of catch up a little bit. And the last tactic I want to give you is verify, verify, verify. Matt made an incredible point earlier in the conversation. If we walked around thinking everybody was out to get us, our brains would melt. We just don't have that that cognitive ability to maintain that level of heightened awareness at all times. However, there are some very simple ways that you can verify someone's information. So for example, if your bank calls or your mortgage company calls, there are 100,000 reasons why they would legitimately call you to get information or to determine whether or not you actually made a move in your account or with your bank, ask for their name, ask for their phone number and ask for their extension, then call the bank back, asked for that individual. If they work at the bank, they should be easily found through the automated banking system. This is a very simple and effective way to ensure the person on the other end of the phone actually is who they say they are. So with that, I would like to wrap up this episode. Dr. Goldberg is the co founder of x&y analytics, where they use scientific methods to help businesses, nonprofits and public figures better understand and influence human behavior and public opinion. So Matt, if you could please tell people how to get in touch with you or learn more about your company. We'd appreciate it. Yeah, absolutely. You can find us on at x&y analytics comm or you can email us at x and y dot analytics@gmail.com. Fantastic. Thanks again for listening. And please don't forget to subscribe. If you have an idea for a show or if you're interested in being a guest, we would love to hear from you. So drop us a line at podcast at nice, atomized calm. Don't forget we have bonus content for every episode available@atomise.nice.com forward slash podcast. I want to thank Dr. Goldberg again for being with us and we will see you on the next episode of Let's talk Finn.