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The FTC To Rigorously Study Fraud

In his Bizop News blog, attorney Michael Webster wrote:

"The FTC has finally decided to start studying fraud and not simply rely upon the discredited notion of disclosure for prevention. The FTC held a workshop earlier in the year about consumer fraud. From that workshop, the FTC made a decision to try empirically understand the determinants of consumer fraud."

The FTC program was announced in the U.S. Federal Register (PDF). This is clearly good news since:

"The [FTC] Commission has also conducted telephone surveys in 2003 and 2005 designed to measure the proportion of the U.S. adult population that has fallen victim to various consumer frauds. Despite this, surprisingly little is known about what determines consumers' susceptibility to fraud. For example, the 2003 and 2005 FTC Consumer Fraud surveys found that education was not a significant predictor of fraud victimization. Understanding when and why people are vulnerable to fraud would better inform the FTC's substantial, ongoing efforts to fight fraud through law enforcement and consumer education... study results may aid the FTC's efforts to better target its enforcement actions and consumer education initiatives, and improve future fraud surveys."

The FTC's approach towards a rigorous study of fraud:

"Economic and psychological experiments have identified several decision-making biases, such as impulsivity, over-confidence, overoptimism, and loss aversion, that can cause inaccurate assessments of the risks, costs, and benefits of various choices. FTC staff proposes to conduct an economic laboratory experiment to study whether these types of decision biases are related to consumer susceptibility to fraudulent or deceptive marketing claims. Staff intends to study consumers’ assessment of potentially deceptive advertisements... The FTC proposes to conduct an experiment in a university’s economics laboratory with 250 subjects drawn from the campus community. A sampling of 250 persons enables random assignment of subjects into different experimental conditions..."

According to the Federal Register, interested consumers and companies can submit written comments
electronically or in paper form about proposed study approach. Comments should refer to the "Fraud Susceptibility Experiment, FTC File No. P095501," and include your name and state. You can submit comments online at the FTC Web site on or before August 10, 2009. Comments will be made public so do not disclose any sensitive personal or financial information.


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