Investment scams: the effect of bias-induced gullibility on victimization propensity

Abstract

This study examines the factors contributing to victimization propensity related to investment scams. A bias-induced gullibility model was proposed and empirically tested in this study using a quantitative approach. Bias-induced gullibility is postulated to mediate the influence of age, sex, financial literacy, and income on victimization propensity. The findings show that bias-induced gullibility fully mediates the relationship between financial literacy and victimization propensity, explaining why individuals fall victim to financial scams, even among those who are financially literate. Financial literacy does not guarantee that one will be safeguarded against investment scams. Individuals can fall prey to investment scams due to preexisting biases that make them more susceptible. Prevention of investment scam victimization should focus on increasing financial literacy and reducing bias-induced gullibility by correcting misconceptions about investments and the expected returns.