Nigerian frauds decoded: Why the success of scamsters lies in their dumbness

think like a freak

The following email just popped into my mailbox. Have you ever received a similar email?

My Dearest Friend,
I am MR. PAUL ARUNA, The chief auditor in bank of Africa (boa) Burkina Faso West African, One of our customers, with his entire family was among the victims of plane crash and before his death, he has an account with us valued at $27.2million us dollars(twenty-seven million two hundred thousand us dollars) in our bank and according to the Burkina Faso law, at the expiration of Ten years if nobody applies to claim the funds a grace of one year also will be given before the money will revert to the ownership of the Burkina Faso government.
My proposals is that i will like you as a foreigner to stand in as the next of kin or distant cousin for us to claim this money, so that the fruits of this old man’s labour will not get into the hands of some corrupt government officials who will later use the money to sponsor war in Africa and kill innocent citizens in the search for political power.
As a foreign partner which this money will be transfer into your account, you are entitle to 40% of the total money while 55% will be for me as the moderator of this transaction and 5% will be mapped out for any expenditure that may be incur during the course of this transaction. Please note that there will be no problem as my bank has made all effort through to reach for any of his relation but all was fruitless.
My position as the chief auditor in this bank guarantees the successful execution of this (deal) transaction.

Please send the following:
1) Your full name…..
2) Sex…..
3) Age…..
4) Country…..
5) Passport or photo…..
6) Occupation…..
7) Personal Mobile number…..
8) Personal fax number…..
9) Home & office address…..

Chances are you receive an email along these lines almost everyday or maybe even more than one a day. Instead of a chief auditor, as is the case with the above email, you might get an email from the widow of a billionaire or a deposed prince. While the details might change, the overall theme of such emails continues to remain the same.
As Steven D Levitt and Stephen J Dubner write in Think Like a Freak—How to Think Smarter About Almost Everything “In each case, the author[of the email] has rights to millions of dollars but needs help extracting it from a rigid bureaucracy or uncooperative bank.”
And this is where you come in. You will need to share your bank-account information along with other personal information. This will help the sender of the email “to park the money in your account until everything is straightened out”. As Levitt and Dubner write “There is a chance you will need to travel to Africa to handle the sensitive paperwork. You may also need to advance a few thousand dollars to cover up some up-front fees. You will of course be richly rewarded for your trouble.”
Does any of this tempt you to reply to your email? Most of us delete such an email as soon as we see the subject of the email. We don’t even bother to read it, before it goes into the junk box of our email account. This fraud is known as the Nigerian letter fraud (even though the email that I share at the beginning of this article has come from Burkina Faso.)
In fact, this is a scam that has survived the test of time. “An early version was known as the Spanish Prisoner. The scammer pretended to be a wealthy person who’d been wrongly jailed and cut off from his riches. A huge reward awaited the hero who would pay for his release. In the old days, the con was played via a postal letter or face-to-face meetings; today it lives primarily on the Internet,” write Levitt and Dubner.
Since the advent of the internet, the Nigerian scam has taken on a life of its own. But the question is all these years later, when the scam is pretty well known, do people really fall for it? Further, why haven’t these scammers gone around fine tuning their story? Why does almost everyone who uses an email continue to get emails with the same basic “sob” story when it comes to the Nigerian scam? And why does almost every scammer who sends out an email claim to be from Nigeria or some other West African country?
Cormac Herley of Microsoft Research decided to investigate this question. As he asks it in a research paper titled Why do Nigerian Scammers Say They are from Nigeria? “An examination of a web-site that catalogs scam emails shows that 51% mention Nigeria as the source of funds, with a further 34% mentioning Cˆote d’Ivoire, Burkina Faso, Ghana, Senegal or some other West African country…Why so little imagination? Why don’t Nigerian scammers claim to be from Turkey, or Portugal or Switzerland or New Jersey?”
Stupidity can’t be an answer. As Herley puts it “Stupidity is an unsatisfactory answer: the scam requires skill in manipulation, considerable inventiveness and mastery of a language that is non-native for a majority of Nigerians. It would seem odd that after lying about his gender, stolen millions, corrupt officials, wicked in-laws, near-death escapes and secret safety deposit boxes that it would fail to occur to the scammer to lie also about his location. That the collection point for the money is constrained to be in Nigeria doesn’t seem a plausible reason either. If the scam goes well, and the user is willing to send money, a collection point outside of Nigeria is surely not a problem if the amount is large enough.”
So what can possibly explain this? The Nigerian (or any other West African for that matter) scammer carrying out this fraud needs to send out many emails initially. Hence, the cost of contacting a possible victim is very low. But at the same time his chances of getting hold of a possible victim who he can engage in a conversation over email, are also very low.
“An email with tales of fabulous amounts of money and West African corruption will strike all but the most gullible as bizarre. It will be recognized and ignored by anyone who has been using the Internet long enough to have seen it several times. It will be figured out by anyone savvy enough to use a search engine and follow up on the auto-complete suggestions…It won’t be pursued by anyone who consults sensible family or fiends, or who reads any of the advice banks and money transfer agencies make available,” writes Herley.
That being the case why go through so much trouble? The Nigerian sending the email cannot know in advance “who is gullible who is not?”. As Levitt and Dubner put it “Gullibility is in this case an unobservable trait.” So what explains this?
Herley provides the answer. As he writes “Those who remain are the scammers ideal targets. They represent a tiny subset of the overall population…The initial email is effectively the attacker’s classifier: it determines who responds, and thus who the scammer attacks (i.e., enters into email conversation with). The goal of the email is not so much to attract viable users as to repel the non-viable ones, who greatly outnumber them.”
To put it in simple English, the scammer essentially wants to identify individual(s) who haven’t heard o
f the Nigerian scam. As Herley told Levitt and Dubner “The scammer wants to find the guy who hasn’t heard of it…Anybody who doesn’t fall off their chair laughing is exactly who he wants to talk to.”
Such a gullible individual is most likely to send across thousands of dollars to someone he does not know based just on an email about a lost fortune. And this is why the Nigerian scam continues to look so do dumb. Its dumbness is what makes it so successful.
As Herley puts it in his research paper “A less outlandish wording that did not mention Nigeria would almost certainly gather more total responses and more viable responses, but would yield lower overall profit. Recall, that viability requires that the scammer actually extract money from the victim: those who are fooled for a while, but then figure it out, or who balk at the last hurdle are precisely the expensive false positives that the scammer must deter.”

The article appeared on on August 17, 2014


(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)


Investing lessons from football penalties

goalkeeperVivek Kaul 

By the time you get around to reading this, the football World Cup would have already started. And hopefully the referees would have awarded a few penalty kicks by then as well.
A penalty kick is by far the easiest way to score a goal in football. As Steven D. Levitt and Stephen J. Dubner write in
Think Like a Freak “75 percent of penalty kicks at the elite level are successful.”
In fact, the goalkeeper cannot wait for the footballer taking the penalty to kick the ball. The ball takes around 0.2 seconds to reach the goal after it is kicked. Hence, this does not give enough time to goalkeeper to figure out the direction in which the ball is kicked. He has to take a guess in which direction the ball will be kicked and jump (either to his right or his left). If he gets the direction wrong, then the chances of a goal being scored “rise to about 90 percent”.
Given this, which direction do goalkeepers jump in? As Levitt and Dubner write “If you are a right-footed kicker, as most players are, going left is your “strong” side. That translates to more power and accuracy—but of course the keeper knows this too. That’s why keepers jump toward the kicker’s left corner 57 percent of time, and to the right only 41 percent.”
What does this mean? It means that they stay in the centre only 2 percent of the time. Hence, the for a footballer taking the penalty it makes immense sense to aim for the centre of the goal. He is more likely to succeed in scoring a goal. But only 17 percent of kicks are aimed for the centre of the goal.
Now why is that the case? Why don’t kickers hit the ball towards the centre of the goal where the chances of scoring the goal are the highest? A simple reason is kickers want to maintain some mystery instead of doing the same thing all the time (i.e. aim towards the centre of the goal). If every kicker started kicking the ball towards the centre of the goal all the time, goalkeepers would soon figure out what is happening and factor that in.
But there is a more important reason than just trying to be unpredictable. As Levitt and Dubner point out “Picture yourself standing over the ball. You have just mentally committed to aiming for the center. But wait a minute—what if the goalkeeper
doesn’t dive? What if for some reason he stays at home and you kick the ball straight into his gut and he saves [the goal]…without even having to budge? How pathetic will you seem!”
So you decide to take the “traditional route” and aim for one corner of the goal. If the goalkeeper saves the goal, then so be it. At least you won’t seem pathetic and be accused of doing a dumb thing.
At a more general level what this means is that people feel more comfortable being a part of a “herd” and doing things that everybody else around them seems to be doing. And this applies to the investment industry as well.
An excellent example of this comes from the dot-com bubble. By the end of 1999, even though the stock market had reached astonishingly high levels, the Wall Street analysts were still recommending that investors should continue to buy stocks. According to data from Zack Investment Research, only about one percent of the recommendations on some 6,000 companies were sell recommendations. The remaining 99 percent was divided between 69.5 percent buy recommendations and 29.9 percent hold recommendations (i.e., don’t buy more shares but don’t sell what you already own). The dot-com bubble started losing steam March 2000 onwards.
Bob Swarup explains this phenomenon in
Money Mania in the context of investment managers.As he writes “Don’t stick your head above the parapet. Run with the pack. There is safety in numbers, especially in bad times. It may not the rational human’s choice but it is the sensible human’s choice.”
Running with the herd is a sensible human’s choice due to two reasons. “First, the notion of inclusivity is powerful and can create perverse economic incentives that encourage crowding. Second, having decided to go with the flow, we are good at convincing ourselves that there are strong rational bases for what is essential a primal urge to belong and conform.”
An excellent recent example of this phenomenon is the current upgrading of the Sensex/Nifty targets by almost all stock brokerages. Targets as high as the Sensex reaching 35,000 points by December 2015, have been bandied around. This is not to say that the Sensex will not reach the target. It may. It may not. That time will tell and I really don’t know.
But the point is that there is not one stock brokerage out there which has a different point of view. How is that possible? Every stock brokerage is telling us that the economic problems of this country are over because a new government which “seems” to be reform oriented will deliver and set everything right. And happy days will be here again.
But as we all know, hope as an investment strategy, can be a pretty dangerous thing. Shouldn’t at least one brokerage be discounting for that? But they are not. As Swarup explains “no financial institution wants to be an outlier.”
Further, it needs to be pointed out here that investment managers are not the only ones who like to move in a herd. Economists do that as well, specially the ones who work on the policy side with the government. Given this, it limits their ability to spot bubbles and financial crises. In order to that they need to move against the herd. And that is a huge risk to take.
As Alan Greenspan writes in
The Map and the Territory —Risk, Human Nature and the Future of Forecasting “In my experience, if policy makers are in a minority and wrong, they are politically pilloried. If they are in a majority, and wrong, they are tolerated and the political consequences are far less dire.”
To conclude, John Maynard Keynes explained this phenomenon brilliantly when he said “Worldly wisdom teaches that it is better for the 
reputation to fail conventionally than to succeed unconventionally.”
The article originally appeared in the Mutual Fund Insight magazine July 2014  

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected]