A study funded by FINRA and AARP found that anger and excitement have an impact on decision-making
A new Stanford University study funded by the Financial Industry Regulatory Authority’s (FINRA) Investor Education Foundation and AARP’s Fraud Watch Network states that financial fraudsters who evoke strong emotions in their victims can more easily convince older adults to purchase their investments. The study has implications for individuals who want to protect themselves or their loved ones from financial fraud, as well as for those who have been defrauded.
Anger and excitement: Do they increase fraud susceptibility?
The Stanford study attempted to determine whether anger and excitement increased susceptibility to fraud in younger adults (30-40) and older adults (60-85). In one group, participants performed a neutral task, while in another, they performed a task designed to evoke strong emotions. Both groups were then shown eight investments labeled as misleading by the Federal Trade Commission.
The difference between younger and older adults
The study found that older adults were significantly more likely to purchase misleading investments if they were emotionally excited when the investment was presented. However, younger adults were no more likely to want to purchase an investment if they were excited or angry.
Believability doesn’t matter
The results of the study suggest that older adults’ desire to purchase a misleading investment is not correlated with whether they thought the investment had a believable chance of turning a profit. Instead, older adults were more likely to purchase based on their emotional state. According to researchers, this concept was reinforced by the fact that it didn’t matter whether the older adults’ emotional state was negative or positive – if their emotions were heightened in either direction, they were more likely to purchase a misleading investment.
What you can do
Whether you’re an older investor, or you have friends, parents, or other family members who are senior citizens, there are many precautions that can be taken to avoid being defrauded. These include:
• Never make a quick decision when it comes to serious investments
• Be suspicious of telemarketers and high-pressure sales tactics
• Be wary of ‘too-good-to-be-true’ investments, especially if brokers claim guaranteed profits or returns of more than 20-30% a year
• Never give out financial information like bank account numbers, credit card information, or social security card numbers over the phone
• Never work with unlicensed brokers or unregistered financial firms
• Use FINRA’s BrokerCheck service and do other online research to make sure a broker is licensed, registered, and has a good reputation
If you’re trying to protect someone other than yourself from fraud, it’s a good idea to have regular conversations with that person about taking measures to protect themselves. And if you think that you or a family member has been defrauded by a broker or financial advisor, you may be able to recover losses through securities arbitration.
The attorneys at Silver Law Group are leaders in the field of FINRA and securities arbitration. We represent individual and institutional investors across the United States who have lost money at the hands of a trusted financial advisor. Our services are provided on a contingency-fee basis, which means we are only compensated if there is a recovery of losses. For more information, contact us for a complimentary consultation.