Abstract
Being a victim of a financial fraud is a form of gullibility, which can be described as induced social risk-awareness. A four-factor explanatory model of gullibility is described, with one of these factors (Situation) being external to the victim, and three (Cognition, Personality and State) being internal to the person. A linear (neo-psychodynamic) interactive model is proposed, in which a gullible financial outcome is described as the sum of all of these factors operating on a specific victim. A non-linear and transactional “cusp-catastrophe” version of this model is also described, but for now use of the model remains descriptive and rooted in a static linear mode. Three case studies are used to illustrate the model and its possible utility: (a) a case in Montreal in which an unlicensed financial advisor named Earl Jones took advantage of the social vulnerability and naïve trust of elderly women; (b) a case involving an internet inheritance scheme associated with Nigerian “419” scams; and (c) the massive Bernard Madoff scandal. In addition to being used to analyze the gullible investing behavior of individuals, the model is also used to shed light on the gullible actions of financial institutions, with particular focus on René-Thierry Magon de La Villehuchet, the head of one of the victimized Madoff feeder funds, who tragically took his own life after his fund was wiped out.
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Greenspan, S., Woods, G.W. (2016). Personal and Situational Contributors to Fraud Victimization: Implications of a Four-Factor Model of Gullible Investing. In: Dion, M., Weisstub, D., Richet, JL. (eds) Financial Crimes: Psychological, Technological, and Ethical Issues. International Library of Ethics, Law, and the New Medicine, vol 68. Springer, Cham. https://doi.org/10.1007/978-3-319-32419-7_7
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