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Cracking the code: why people fall for scams

Analysis | 9 July 2023

Kam-Fung Cheung

Lecturer

As scam losses surge in Australia, UNSW Business School experts shed light on the psychological factors behind falling for scams and offer essential protection measures

Australians lost a staggering $3 billion to scammers last year, surpassing any previous year. That's equivalent to the cost of rebuilding three new hospitals. The latest Targeting Scams report from the Australian Competition and Consumer Commission (ACCC) highlights the urgency of the issue.

In 2022, investment scams accounted for the highest losses at $1.5 billion, followed by remote access scams ($229 million) and payment redirection scams ($224 million). Small and micro businesses experienced a substantial 95 per cent increase in losses, reaching $13.7 million, primarily due to payment redirection scams. Overall, there was a 73 per cent rise in scam losses across the Australian business community, totalling $23.2 million, underscoring the urgency to understand the reasons behind scam victimisation and implement proactive measures against fraud.

In an interview with the UNSW Business School, Dr Kam-Fung (Henry) Cheung, Lecturer in the School of Information Systems and Technology Management (ISTM), and Shesha J. Maheshwari, a research student in the School of ISTM, emphasised the importance of understanding the psychological factors that make people vulnerable to scams. The experts said financial desperation and a lack of awareness about evolving scam techniques contribute to why so many individuals today are for scams.

Dr Kam-Fung (Henry) Cheung.jpg — UNSW Business School's Dr Kam-Fung (Henry) Cheung says awareness is a shield against scams that equips individuals with the knowledge to identify and avoid fraud. Photo: Supplied

Why do people fall for scams?

According to Dr Cheung and Ms Maheshwari, there are six key reasons why people fall victim to scams.

Financial desperation: One significant factor contributing to individuals falling prey to scams is financial desperation. When faced with financial difficulties or a desire for quick financial gains, people become more vulnerable to scams promising easy money or high investment returns. In such circumstances, the desperation to improve one's financial situation can cloud judgment and lead to susceptibility to fraudulent schemes.
Social engineering: Scammers excel at social engineering, exploiting personal relationships and connections to manipulate victims. By leveraging information gathered from social media and other sources, scammers personalise their scams, making them appear more legitimate and trustworthy. Victims deceived by this false sense of trust are likelier to fall victim to scams.
Lack of awareness: Scammers employ sophisticated tactics to deceive their victims, and many people are simply unaware of the various scams. A lack of awareness regarding evolving scam techniques, such as those involving cryptocurrencies and blockchain, makes individuals more vulnerable. People inadvertently increase their chances of falling victim to scams by staying uninformed.
Emotional triggers: Scammers frequently exploit emotional triggers to manipulate their targets. By creating a sense of urgency, fear, or excitement, scammers impair rational thinking and compel individuals to make impulsive decisions. Heightened emotions make it difficult for victims to evaluate the situation objectively, leading to unfortunate outcomes.
Trust and authority: Masquerading as trusted individuals or authoritative figures is a common tactic employed by scammers. By posing as government officials, company representatives, or law enforcement officers, scammers exploit trust to convince victims to share personal information, provide access to financial accounts, or make financial transactions. Trusting these impostors increases the risk of falling victim to scams.
Lack of vigilance: Busy lifestyles and constant distractions contribute to a lack of vigilance, causing individuals to overlook warning signs or suspicious behaviours. Neglecting to conduct proper research, failing to verify the authenticity of communications or offers, and inadequate protection of personal information can leave individuals vulnerable to scams.

Importantly, Dr Cheung explained that awareness acts as a shield against scams that equips individuals with the knowledge to identify and avoid fraudulent activities. “It promotes a vigilant mindset that is essential in today's world where scams continue to evolve and adapt to changing circumstances,” he said.

But it is also crucial to remember that anyone can fall victim to a scam regardless of their age, education, or background, added Ms Maheshwari, whose work focuses on phishing attack with a particular focus on smishing attacks – a type of phishing attack that is conducted via Short Message Service (SMS) or instant messaging on a mobile device. "Scammers are skilled at exploiting vulnerabilities and manipulating people's emotions and trust,” she said.

Ms Maheshwari also noted she has observed younger generations, driven by curiosity and a propensity for risk-taking, often hold the belief that scams will not affect them personally, which renders them more vulnerable. To promote online safety, she suggested a shift in mindset from “it won't happen to me” to “it could happen to me, so I must remain aware and vigilant.”

She said: “Awareness and vigilance play an important role in safeguarding against frauds and scams. Staying informed and maintaining a sceptical mindset empower individuals to make informed decisions and protect themselves from falling victim to scams.”

Scams can often be present in work emails.jpg — Stay cautious with emails, especially from unfamiliar sources or seeking personal/financial data; be wary of typos, suspicious links, and mismatched email addresses. Photo: Getty

How to avoid falling victim to scams

According to Dr Cheung and Ms Maheshwari, falling victim to scams does not reflect personal weakness or naivety, as scammers are highly skilled manipulators, capable of deceiving anyone. And to better protect themselves against potential scams, individuals can take the following precautions.

Stay informed: Educate yourself about common scam tactics, emerging fraud schemes, and evolving technologies used by scammers.
Maintain skepticism: Approach unexpected or unsolicited offers with caution. Question the legitimacy of claims or promises that seem too good to be true. Avoid clicking on suspicious links, even if they appear to be from a “legitimate source.”
Scrutinise emails: Be vigilant when handling emails, particularly those from unknown senders or requesting personal or financial information. Watch out for spelling errors, suspicious links, and email addresses that don't match the claimed source.
Guard personal information: Be cautious about sharing personal information online or over the phone. Only provide sensitive details to trusted and verified sources. Enable multi-factor authentication for accounts that offer this feature, and change passwords regularly for added security. Verify the websites before entering login details and consider using a longer passphrase instead of passwords.
Exercise caution with financial decisions: Conduct thorough research before making any financial decisions. Seek advice from trusted professionals and verify the legitimacy of investment opportunities. Never give out personal information, including bank account details, passwords, or OTPs, over email or phone. Legitimate financial institutions do not ask for personal information via these channels and usually communicate through secure portals.

How do I report being the victim of a scam?

In addition to these proactive measures, the Australian government and ACCC have taken steps to address the issue of scams. Establishing the National Anti-Scams Centre, which launched July 1, 2023, is a significant initiative to combat scams. Over the next three years, the centre will build its information-sharing capabilities and bring together government and private sector experts to tackle harmful scams head-on.

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Finally, Dr Cheung and Ms Maheshwari reiterated that falling for a scam doesn't reflect a personal weakness or naivety. “Highly skilled scammers are manipulators who exploit psychological vulnerabilities and use sophisticated tactics to deceive people from all walks of life, including highly educated and cautious individuals.

“Acknowledging this fact can help victims overcome any feelings of self-blame or shame and instead focus on reporting the scam, seeking support, and learning from the experience to prevent future occurrences.”

To report a scam or seek assistance, you can visit the National Scam Centre website. You can also report scams to ReportCyber and ScamWatch.

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<h1>Cracking the code: why people fall for scams</h1>

<figure><img src="https://assets-us-01.kc-usercontent.com:443/4df0558d-5779-0012-00f2-b3fa06d6c950/311f494a-a896-4f07-a45a-5a78d52ee450/Cracking%20the%20code_why%20people%20fall%20for%20scams.mp4?w=1320" alt="Cracking the code: why people fall for scams" /><figcaption>Cracking the code: why people fall for scams</figcaption></figure>
 Australians lost a staggering $3 billion to scammers last year, surpassing any previous year. That's equivalent to the cost of rebuilding <a href="https://www.nepeanredevelopment.health.nsw.gov.au/#:~:text=The%20NSW%20Government%20has%20committed,being%20delivered%20in%20two%20stages." data-new-window="true" target="_blank" rel="noopener noreferrer">three new hospitals</a>. The latest <a href="https://www.accc.gov.au/media-release/accc-calls-for-united-front-as-scammers-steal-over-3bn-from-australians">Targeting Scams report from the Australian Competition and Consumer Commission (ACCC)</a> highlights the urgency of the issue.
In 2022, investment scams accounted for the highest losses at $1.5 billion, followed by remote access scams ($229 million) and payment redirection scams ($224 million). Small and micro businesses experienced a substantial 95 per cent increase in losses, reaching $13.7 million, primarily due to payment redirection scams. Overall, there was a 73 per cent rise in scam losses across the Australian business community, totalling $23.2 million, underscoring the urgency to understand the reasons behind scam victimisation and implement proactive measures against fraud.
In an interview with the UNSW Business School, <a href="https://www.unsw.edu.au/staff/kf-cheung" data-new-window="true" target="_blank" rel="noopener noreferrer">Dr Kam-Fung (Henry) Cheung</a>, Lecturer in the School of Information Systems and Technology Management (ISTM), and <a href="https://www.unsw.edu.au/hdr/shesha-j-maheshwari" data-new-window="true" target="_blank" rel="noopener noreferrer">Shesha J. Maheshwari</a>, a research student in the School of ISTM, emphasised the importance of understanding the psychological factors that make people vulnerable to scams. The experts said financial desperation and a lack of awareness about evolving scam techniques contribute to why so many individuals today are for scams. 
<figure class="figure"><img src="https://assets-us-01.kc-usercontent.com:443/4df0558d-5779-0012-00f2-b3fa06d6c950/68a5844b-b627-4b08-8314-cd0a1771364c/Dr%20Kam-Fung%20%28Henry%29%20Cheung.jpg" class="figure-img" alt="Dr Kam-Fung (Henry) Cheung.jpg"><figcaption class="figure-caption">UNSW Business School's Dr Kam-Fung (Henry) Cheung says awareness is a shield against scams that equips individuals with the knowledge to identify and avoid fraud. Photo: Supplied</figcaption></figure>
<h2>Why do people fall for scams?</h2>
According to Dr Cheung and Ms Maheshwari, there are six key reasons why people fall victim to scams.
<ol>
 <li>Financial desperation: One significant factor contributing to individuals falling prey to scams is financial desperation. When faced with financial difficulties or a desire for quick financial gains, people become more vulnerable to scams promising easy money or high investment returns. In such circumstances, the desperation to improve one's financial situation can cloud judgment and lead to susceptibility to fraudulent schemes.</li>
 <li>Social engineering: Scammers excel at social engineering, exploiting personal relationships and connections to manipulate victims. By leveraging information gathered from social media and other sources, scammers personalise their scams, making them appear more legitimate and trustworthy. Victims deceived by this false sense of trust are likelier to fall victim to scams. </li>
 <li>Lack of awareness: Scammers employ sophisticated tactics to deceive their victims, and many people are simply unaware of the various scams. A lack of awareness regarding evolving scam techniques, such as those involving cryptocurrencies and blockchain, makes individuals more vulnerable. People inadvertently increase their chances of falling victim to scams by staying uninformed.</li>
 <li>Emotional triggers: Scammers frequently exploit emotional triggers to manipulate their targets. By creating a sense of urgency, fear, or excitement, scammers impair rational thinking and compel individuals to make impulsive decisions. Heightened emotions make it difficult for victims to evaluate the situation objectively, leading to unfortunate outcomes.</li>
 <li>Trust and authority: Masquerading as trusted individuals or authoritative figures is a common tactic employed by scammers. By posing as government officials, company representatives, or law enforcement officers, scammers exploit trust to convince victims to share personal information, provide access to financial accounts, or make financial transactions. Trusting these impostors increases the risk of falling victim to scams.</li>
 <li>Lack of vigilance: Busy lifestyles and constant distractions contribute to a lack of vigilance, causing individuals to overlook warning signs or suspicious behaviours. Neglecting to conduct proper research, failing to verify the authenticity of communications or offers, and inadequate protection of personal information can leave individuals vulnerable to scams.</li>
</ol>
<a class="o-btn o-btn--primary" href="https://www.businessthink.unsw.edu.au/articles/decentralised-identity-cybersecurity" target="_self">Read more: Could decentralised identities stop cybersecurity breaches? </a>
Importantly, Dr Cheung explained that awareness acts as a shield against scams that equips individuals with the knowledge to identify and avoid fraudulent activities. “It promotes a vigilant mindset that is essential in today's world where scams continue to evolve and adapt to changing circumstances,” he said.
But it is also crucial to remember that anyone can fall victim to a scam regardless of their age, education, or background, added Ms Maheshwari, whose work focuses on phishing attack with a particular focus on smishing attacks – a type of phishing attack that is conducted via Short Message Service (SMS) or instant messaging on a mobile device. "Scammers are skilled at exploiting vulnerabilities and manipulating people's emotions and trust,” she said.
Ms Maheshwari also noted she has observed younger generations, driven by curiosity and a propensity for risk-taking, often hold the belief that scams will not affect them personally, which renders them more vulnerable. To promote online safety, she suggested a shift in mindset from “it won't happen to me” to “it could happen to me, so I must remain aware and vigilant.” 
She said: “Awareness and vigilance play an important role in safeguarding against frauds and scams. Staying informed and maintaining a sceptical mindset empower individuals to make informed decisions and protect themselves from falling victim to scams.” 
<figure class="figure"><img src="https://assets-us-01.kc-usercontent.com:443/4df0558d-5779-0012-00f2-b3fa06d6c950/b47c258b-8bef-45fd-8d07-bb0aa2e38d4c/Scams%20can%20often%20be%20present%20in%20work%20emails.jpg" class="figure-img" alt="Scams can often be present in work emails.jpg"><figcaption class="figure-caption">Stay cautious with emails, especially from unfamiliar sources or seeking personal/financial data; be wary of typos, suspicious links, and mismatched email addresses. Photo: Getty</figcaption></figure>
<h2>How to avoid falling victim to scams</h2>
According to Dr Cheung and Ms Maheshwari, falling victim to scams does not reflect personal weakness or naivety, as scammers are highly skilled manipulators, capable of deceiving anyone. And to better protect themselves against potential scams, individuals can take the following precautions.
<ol>
 <li>Stay informed: Educate yourself about common scam tactics, emerging fraud schemes, and evolving technologies used by scammers.</li>
 <li>Maintain skepticism: Approach unexpected or unsolicited offers with caution. Question the legitimacy of claims or promises that seem too good to be true. Avoid clicking on suspicious links, even if they appear to be from a  “legitimate source.”</li>
 <li>Scrutinise emails: Be vigilant when handling emails, particularly those from unknown senders or requesting personal or financial information. Watch out for spelling errors, suspicious links, and email addresses that don't match the claimed source.</li>
 <li>Guard personal information: Be cautious about sharing personal information online or over the phone. Only provide sensitive details to trusted and verified sources. Enable multi-factor authentication for accounts that offer this feature, and change passwords regularly for added security. Verify the websites before entering login details and consider using a longer passphrase instead of passwords.</li>
 <li>Exercise caution with financial decisions: Conduct thorough research before making any financial decisions. Seek advice from trusted professionals and verify the legitimacy of investment opportunities. Never give out personal information, including bank account details, passwords, or OTPs, over email or phone. Legitimate financial institutions do not ask for personal information via these channels and usually communicate through secure portals.</li>
</ol>
<a class="o-btn o-btn--primary" href="https://www.businessthink.unsw.edu.au/articles/microsoft-lee-hickin-digital-resilience-cybersecurity" target="_self">Read more: Microsoft’s Lee Hickin on digital resilience beyond cybersecurity
</a>
<h2>How do I report being the victim of a scam?</h2>
In addition to these proactive measures, the Australian government and ACCC have taken steps to address the issue of scams. Establishing the National Anti-Scams Centre, which launched July 1, 2023, is a significant initiative to combat scams. Over the next three years, the centre will build its information-sharing capabilities and bring together government and private sector experts to tackle harmful scams head-on.
<a class="o-btn o-btn--primary" href="https://www.businessthink.unsw.edu.au/subscribe" target="_self">Subscribe to BusinessThink for the latest research, analysis and insights from UNSW Business School</a>
Finally, Dr Cheung and Ms Maheshwari reiterated that falling for a scam doesn't reflect a personal weakness or naivety. “Highly skilled scammers are manipulators who exploit psychological vulnerabilities and use sophisticated tactics to deceive people from all walks of life, including highly educated and cautious individuals. 
“Acknowledging this fact can help victims overcome any feelings of self-blame or shame and instead focus on reporting the scam, seeking support, and learning from the experience to prevent future occurrences.”
To report a scam or seek assistance, you can visit the <a href="https://www.accc.gov.au/national-anti-scam-centre">National Scam Centre website</a>. You can also report scams to <a href="https://www.cyber.gov.au/report-and-recover/report">ReportCyber</a> and <a href="https://www.scamwatch.gov.au/protect-yourself/what-to-do-if-youve-been-scammed">ScamWatch</a>.

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