Defeating Fraud

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Fraud, scams and cons are pernicious threats that prey on the best intentions of innocent market participants. The key to defeating fraud is to understand the defining feautres of fraud and continuing vigilance. There is no reliable comprehensive list of rules for defeating fraud. While certainly there are numerous hallmarks of a fraudulent listing, which will be detailed below, it would be foolhardy to believe that fraudsters are foolish or shortsighted and that they do not adapt their strategies. For this reason the best and only guaranteed way to completely defeat fraud is to understand it.

The marketplace is a remarkable institution. Every civilisation and culture has an institution similar to the marketplace. A central locus for the exchange of goods. Where the needs of buyers are reconciled with the offers of sellers. All markets have certain rules, explicit and otherwise, that govern transaction, participants and procedures. The best and most efficient markets are those that are open. An open market is one where there are low barriers to participating in the market. eBay is a supreme example of this type of openness. There are virtually no requirements to creating an account and access is free and easy. This is why eBay has flourished and become so popular as the first and sometimes only stop for sellers and buyers alike. An open market, however, is one that is also susceptible to attacks from fraudsters, scams and con artists. The reason these people proliferate and target eBay is precisely because of its strengths, its openness and high number of transactions. Fraudsters, just like buyers and sellers, come in all sizes and varieties. Some are clearly incompetent (and generally give other fraudsters a bad name, if such a thing were possible). Others are much more sophisticated. They all however share some key characteristics:

1. Fraudsters succeed by appealing to a buyer or sellers best hopes. If you've listed something on eBay and it hasn't recieved any attention but at the last minute you get a generous bid, think twice. Consider why this person has bid when no one else did. Think rationally about the item you're selling. Is it actually worth this much? It's all to easy to be swept up by the excitement of finally finding a buyer.

2. Fraudsters succeed when the balance of information is in their favour. In a marketplace information is power. A fraudster can only succeed if he has more information that you do. As in nature, sunlight is the best disinfectant. Never hessitate to demand information from the person with whom you are transacting. A legitimate buyer or seller would rarely have an incentive to conceal relevant information.

3. Humans are naturally adept at bargaining, if you feel suspicious, don't hesitate to try to confirm or deny your suspicions. Humans are social creatures, we are good at bargaining and spotting good deals and finding flaws. Intuition is a natural defense against fraud. If you feel suspicious there is probably a reason, Discover that reason before you transact. Don't let the excitement of a good deal blunt your intuition.

4. Price is a powerful signal. The price of a good often coveys more information than people notice. In an auction type market, this is doubly true. Consider the nature of auctions. Every time someone makes a bid, the price changes to reflect the information in that bid. A bid is like a person standing up and saying "I trust this seller, and believe this is the value of the good he is selling". The first part is just as important as the second. A wide array of bidders means that you can act with increased confidence, because many people have examined the same listing and found it trustworthy. A wider range of bidders means more collective information is aggregated into the price of the item. If you find an auction near expiry withour a reserve and without any bids, be cautious. Consider how many thousands of people probably saw that auction and decided not to bid for it. Ask yourself why they chose not to bid. Similarly though fraudsters can exploit this by creating false bids. So check the bidders, see if the names seems odd or repeated often without justification. Read the bidders feedback, check which other items they have bid on. Comparing prices is also crucial.

5. Feedback is a useful tool, not a perfect measure of trust. eBay's feedback system is designed to encourage positive feedback and to discourage negative feedback, regardless of the true experience of the parties. In most cases though feedback will accurately reflect reputation, but always treat it with a hint of skepticism.

The best way to defeat fraud is healthy skepticism. There is no such thing as a money machine. It is well known in capital markets that all returns (profits) are calibrated to risk. The same is true of eBay. If it seems like your getting outstanding value on an item your buying or incredible price for an item your selling remember that this is probably because your taking a greater risk. It's up to you to decide how much risk you want to take, but always be aware of the fact that it is there.

Finally if you are unfortunate enough to be defrauded or scammed always report it. Make others aware of your experience. No matter how insignificant the loss may be to you always report fraud. Fraudsters count on people being too lazy or disaffected to report their scams. Even if reporting on fraud doesn't help you immediately it increases awareness of fraud and can help others. This in turn makes eBay a safer more efficient market. More efficient markets mean lower prices for buyers, better profits for sellers and greater welfare for all participants.

I leave you with a well known joke:

Two economists are walking down a busy street. They see a wad of money lying in the middle of the street in plain view. People are passing it by. They both stoop to pick it up, but then catch each other and agree that it can't be real. If it was someone else would've picked it up already. This may seem odd. But in the context of eBay is particularly apt. eBay is like the busy street, thousands of people browse it's listings every day. If you find the equivalent of the wad of money always stop to consider why no one else has picked it up yet.

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