Funded by IPA’s Consumer Protection Research Initiative and in collaboration with IPA Philippines, researchers are conducting a study to assess whether different mental strategies can help investors evaluate fraudulent investment opportunities and if these interventions affect real-world behavior.

The Challenge

Investment fraud is a significant and growing concern worldwide, particularly in countries with low rates of financial market participation. In the Philippines, 67 percent of individuals report being approached every month with scam offers, and 38 percent report having been victims of fraud.¹ In contrast, only 0.3 percent of households report owning formal financial assets.² Such experiences with scams and fraud can permanently erode consumers’ trust in the financial system.

Many fraudulent investment schemes have features that distinguish them from legitimate offerings, yet individuals continue to fall victim to these scams. While previous studies examine the characteristics of individuals who fall for investment scams and seek to improve their resilience through financial education,³ this requires significant time commitments and has a mixed record of success. Additionally, little is known about the characteristics or thresholds that trigger investors to identify fraudulent investment opportunities. This leaves open two research questions:  First, why do people participate in investment frauds that offer characteristics no legitimate investment would provide, such as implausibly high returns? Second, can simple interventions targeting people’s mental decision-making reduce susceptibility to fraud without requiring significant time commitments?

The Intervention

In collaboration with IPA Philippines, researchers are conducting a study to assess whether different mental strategies can help investors evaluate fraudulent investment opportunities and if these interventions affect real-world behavior.

To do this, researchers will conduct an online survey with 5,000 urban residents in the Philippines recruited via Facebook. In the first stage, participants view 10 randomized investment advertisements featuring a mix of legitimate and fraudulent offerings. For each advertisement, participants indicate their interest in each and whether they thought the offerings were fraudulent. In the second stage, participants are randomly assigned to the following groups:

• Standard fraud prevention: Participants receive a standard Philippines SEC checklist for fraud prevention.
• “Too good to be true”: Participants receive an infographic with rules of thumb about unrealistically high returns. This intervention addresses the concern that participants might be unaware that certain levels of expected returns are very unlikely in legitimate investments.
• “Asking for a friend”: Participants receive an "asking for a friend" prompt encouraging them to consider whether they would recommend an investment to a friend. The hope is that, when considering an investment on behalf of a close friend or family member, participants will be more deliberative and consider the investment carefully instead of being led by their emotions.

In Stage 3, conducted about one month later, the researchers will conduct a real-world test of these interventions (combined with an immediate debriefing). This test provides a contrast to the existing literature on fraud prevention strategies, which has generally focused on tests conducted within the scope of the experiment, limiting external validity.

Results

Results will be available in 2027.

Sources

^1. Tyrone Jasper C. Piad, “‘Alarming’: P460B lost to scams in PH, says study,” Philippine Daily Inquirer, October 17, 2024, http://newsinfo.inquirer.net/1993340/alarming-p460b-lost-to-scams-in-ph-says-study

^2. Consumer Finance Survey 2021, Bangko Sentral Ng Pilipinas, https://www.bsp.gov.ph/Media_And_Research/Consumer%20Finance%20Survey/CFS_2021.pdf

^3. Chung, Edwin Ka Hung, and Dannii Yuen-lan Yeung. "Reducing older people’s risk of fraud victimization through an anti-scam board game." Journal of Elder Abuse & Neglect 35, no. 2-3 (2023): 121-138.