Industries that Rely on the Illusion of Causality

I've been intrigued (and somewhat disgusted) by industries that sell worthless products to people who desperately want to find a cure for some condition in their life. These types of products are rampant in the multi-level-marketing industry (see our other posts on MLMs) but also can be found in the nutritional supplement industry. Often, amazing, too-good-to-be-true claims are made because the government doesn't regulate these industries or they make their outrageous claims off the record in private conversations, etc. Well, psychologists have a name for the illusion that these industries rely on. Read on to see what I'm talking about...

My experience with Asea

After my first post on Asea (see this link), my friend asked me to try four bottles with a money-back guarantee if I didn't see significant gains in my cycling performance. She asked me to try all four bottles and keep track of my wattage and performance to see if it made any difference. I could then decide if I saw any improvement and pay her cost of $30 per bottle if I did.

How about a legal performance enhancing drink...

After yesterday's post about Floyd Landis and the sad state of affairs in professional sports, I received an offer that is so far into the "too good to be true" category that I had to blog about it. Before I tell you what the offer was, I should give some context.

First, I posted a link to the Wall Street Journal article on Floyd Landis' emails on my Facebook page and had several comments. In the comments, we discussed how these illegal drugs are used to boost performance and have been found to do amazing things such as increase cyclists' power output by 20%. We also discussed how athletes involved in these drugs are committing fraud as I blogged about yesterday on Fraudbytes. One of my friends that was participating in this dialogue made the following comment on his Facebook status:

Anyone want to buy some snake oil?

Today I got an email from a neighbor who is promoting a new product that is supposed to relieve pain. The "amazing product" shown in the picture is touted as an energy wand that uses "breakthrough amized fusion technology." The claim is that the wand will "turn on your body's own source energy within" so you can "experience your aches and pains leaving your body."

In the email, the wand is said to be responsible for immediately relieving the pain of a man whose ribs were sore for three years since his second open heart surgery. Sounds pretty good, right? Well, additionally, the wand was able to make lemons taste sweeter and make bitter olive oil lose its bitterness and become “quite pleasant.”

Now, these claims were only the beginning. Migraines went away; knee pain vanished, back pain immediately gone, broken noses healed, nasal steroids were no longer needed! I know that some people will actually find relief when using it. Why?

Why so much fraud?

With the many Ponzi schemes, financial statement frauds and various schemes that keep coming to light, I've been asking myself why our society has so much fraud. I've come to the conclusion that it probably has something to do with the claim I've heard before that you can sell anything to 3% of the population. I don't know if it's 3% or some other percent but it seems like some people will buy anything. Like take the Pontiac Aztek. Who bought those cars anyway?! Perhaps a better question is who hired those designers and engineers to begin with?!

I believe that in certain segments of business the percentage of people who will buy anything is much higher than 3%. For example, fad diets and get rich quick schemes are sold to about 30% of the people I know. It seems that any product that claims to circumvent established laws of health and economics can be sold to a much higher percentage of the population than 3%. Why is that? Do these people think to themselves: "Never mind that science says that a balanced diet and exercise is the key to health, this diet says if I eat nothing but meat then I can play video games all day and still have washboard abs!" Or maybe they think to themselves: "I don't think economists know what their talking about since a friend of mine is able to make 12% per day by clicking on 7 websites!" Don't they ask themselves: "Why don't these people just employ all the population of India to click day and night and keep the profit themselves?!"

I'm convinced that when it comes to fad diets and get rich quick schemes, much more than 3% of the population will buy anything. The perfect recipe for a fraud seems to be to couple a fictitious health or diet claim with a get-rich-quick scheme. Many successful "entrepreneurs" do this with business models that aren't "technically" fraudulent. For example, how many multi-level-marketers are there who sell an unproven nutritional supplement at a price that is at least one order of magnitude higher than what you would pay for an equivalent product at Walmart?

Actually, many of these companies don't sell their products to end users; instead, they sell their products to other "distributors" who want to be a distributor so they can make their friends and family their downline. Yes, for many, the promise of getting rich quick is just too hard to resist.