It is hard to do business. However, you can make life easier for you when you make fraud part of your business. You probably still cannot be as successful as the CEO of Goldman Sachs, but you can earn more money than a first year employee in Goldman. Sounds sweet? This blog will show you how.
Background
There has never been a more favorable environment for fraud. The legal breakthrough came after the landmark supreme court case of Ben Edelman vs. Ran Duan, which established as the supreme legal principle that in US, businesses operate under the court of public opinion, not rule of law. It is a huge triumph for us potential defrauders. Hurray.
Principles of Successful Fraud
1. Make it small
There is good economics behind it. When you defraud a small amount, you can count on being successful: 1)It is unlikely that your prey will notice it. 2)Even if he notices, he will correctly understand that it is not worth it to fight such a small amount. 3)Even if he is crazy and decides to fight it, the court of public opinion will deem him to be a cheapo and rule in your favor. This is bullet-proof.
2. Combine it with a small business
The key insight is that under the new legal paradigm, we operate with the court of public opinion, which is sympathetic towards small businesses. With a mom-and-pop fraud business, you have higher chance of success.
3. Target High-end consumers
This might sound weird, but it is full of wisdom. When you defraud a high-end customer, who should "have better things to do", it is less likely he would care. Even if he cares, remember, you are more likely to win, because think about it, how awful it sounds: a rich jerk (the court will impose that name for you) fight a small mom-and-pom fraud business for a small amount. Now you recognize that our three principles work all together right?
FAQ
1. Would I make enough money from your scheme?
Absolutely. You need to realize that you make a kill from volume. The most successful fraud is never a grand one, it is "death by a thousand cuts". If you make it big, you will be transported to the normal court. Stay with the court of public opinion, it is your safe-harbour. I would like to perform the following calculation. Each time your defraud 4 dollars. Even in a small town of population around 6000, you can get about 100 people per day (see link). That adds up to 12K a month and 144K a year. Very decent money! That is more than a business school professor makes after spending so many years working harder than a slave as a graduate student, then as assistant professor.
2. How should I respond when my customer fight back?
This should be extremely rare. If one customer fight back, do offer to compensate him the amount over-charged, but nothing more. Be courteous (as this might be used as evidence in court). He will back off. Since this will be rare, it will not affect your profitability. Remember, your target is high-end customers, who are much less likely to fight back. If he demands more, turn it to the court of public opinion, like Boston.com.
3. Can you give some specific examples?
I would love to. Our most successful case involves a restaurant whose online menu shows lower price than actually charged. After customers look at price and put effort into choosing the food, they would find it too costly to leave for another restaurant and remake the food decision. The case protagonist ingeniously posted "all prices subject to changes" and get immune from any legal charges, at least in the court of public opinion. Indeed the case was such a blast, that you can see more and more businesses are adopting similar tactics with huge success. In fact, I would like to point out that there is no reason to limit this to online menu. I advise you do the same with physical menu. After all, changing physical menu is more costly---you need to reprint the menu (so called menu cost). Just do add the line on your physical menu "All prices subject to change".
Conclusion
As I noted, there has never been a better than to build a business around fraud. You can do it and achieve your American Dream! But do remember the clock is tickling, and you should make your fortune before the public opinion swings. May the odds ever be in your favor.
Friday, December 12, 2014
Wednesday, December 10, 2014
Fighting Against Public Opinion
There is a reason we need laws---public opinion is so fickle and we cannot rely on it to make the correct judgement. an important characteristic of law is anonymity, that is regardless of who commits an action against whom, it is the action that determines whether it is legal, not the identity of the parties involved.
I blogged about the incident of Ben Edelman and the Sichuan Restaurant in my previous blog. As I check the matter this morning, it seemed to got worse than ever. Lots of media outlet reported this, and if they share anything in common, it is these media kept stressing the Harvard identity of Ben and family business nature of the restaurant. This is despicable behavior characteristic of "yellow journalism". In the realm of law, it does not matter whether it is a rich guy fraud a poor man, or a poor man fraud a rich person. It is fraud. The identity of the parties involved is irrelevant. Why the heck does those new media stress the identity so much?
the public likes to think of itself as a grand jury. It is laughable that it think it is capable of doing so when it exhibits such lack of understanding of what justice is. In course, a piece of evidence that is not probative (tend to prove the proposition for which it is proffered) is inadmissible, and the rules of evidence permit it to be excluded from a proceeding. In fact, even relevant evidence could be excluded if it causes unfair prejudice, are misleading, etc. If we look at the public court of this incident. It is close to a farce. Irrelevant evidence is being stressed and people get all excited about them. Sounds like a rogue attorney with a bunch of underqualified jury.
I went to Yelp. And as expected, tons of people went to give raving reviews just to support the restaurant. When I checked, there are 20 reviews created just in response to this incident (I know they are in response to this event because they either mentioned "Edelman" or "Harvard", or both, and are created after 12/9/2014). Of course, all but 1 give 5 start review. Unfortunately, even with the flood of biased reviews, the overall rating of the restaurant is still only 3.5. (I took screenshots).
This really made me suspect the intention of the restaurant owner. First, he broke the law. Instead of abiding by the law and compensate for only 12 dollars, he tried to make up excuses to pay less. Second, he tried to and successfully hijacked the public opinion. This is much more unacceptable for me. I saw too many jerks and nations trying to take the moral high ground to cover up their selfish dealings.
Finally, I want to point out, when it comes to fraud, regardless of the amount, it is always a crime. As I pointed out before, small amounts do add up. Online advertising fraud, always involve much smaller amounts (like 20 cents), add up to millions. In fact, that is what Ben Edelman usually go after. I see nothing inappropriate that he gets upset by similar tactics in the offline world.
Long live true justice. Short live public opinion.
I blogged about the incident of Ben Edelman and the Sichuan Restaurant in my previous blog. As I check the matter this morning, it seemed to got worse than ever. Lots of media outlet reported this, and if they share anything in common, it is these media kept stressing the Harvard identity of Ben and family business nature of the restaurant. This is despicable behavior characteristic of "yellow journalism". In the realm of law, it does not matter whether it is a rich guy fraud a poor man, or a poor man fraud a rich person. It is fraud. The identity of the parties involved is irrelevant. Why the heck does those new media stress the identity so much?
the public likes to think of itself as a grand jury. It is laughable that it think it is capable of doing so when it exhibits such lack of understanding of what justice is. In course, a piece of evidence that is not probative (tend to prove the proposition for which it is proffered) is inadmissible, and the rules of evidence permit it to be excluded from a proceeding. In fact, even relevant evidence could be excluded if it causes unfair prejudice, are misleading, etc. If we look at the public court of this incident. It is close to a farce. Irrelevant evidence is being stressed and people get all excited about them. Sounds like a rogue attorney with a bunch of underqualified jury.
I went to Yelp. And as expected, tons of people went to give raving reviews just to support the restaurant. When I checked, there are 20 reviews created just in response to this incident (I know they are in response to this event because they either mentioned "Edelman" or "Harvard", or both, and are created after 12/9/2014). Of course, all but 1 give 5 start review. Unfortunately, even with the flood of biased reviews, the overall rating of the restaurant is still only 3.5. (I took screenshots).
This really made me suspect the intention of the restaurant owner. First, he broke the law. Instead of abiding by the law and compensate for only 12 dollars, he tried to make up excuses to pay less. Second, he tried to and successfully hijacked the public opinion. This is much more unacceptable for me. I saw too many jerks and nations trying to take the moral high ground to cover up their selfish dealings.
Finally, I want to point out, when it comes to fraud, regardless of the amount, it is always a crime. As I pointed out before, small amounts do add up. Online advertising fraud, always involve much smaller amounts (like 20 cents), add up to millions. In fact, that is what Ben Edelman usually go after. I see nothing inappropriate that he gets upset by similar tactics in the offline world.
Long live true justice. Short live public opinion.
Tuesday, December 9, 2014
Time to Let Logic to Replace Empathy and some game theory
As I wrote, the web is pretty excited about the story of a harvard business school professor Ben Edelman got legalistic with a Chinese restaurant that over-charged him $4. I get it. It seems no one can get over with the sympathy they feel for that poor restaurant owner. As I mentioned in my previous blog, empathy, the very attributes we seem to think so highly of, lead to awful judgement errors.
Many businesses take it as a strategy to "mistakenly" over-charge customers. Since the amount is small, most people will not complain other than frowning at it. These little sums, when coupled with volume, accumulates to a big number. 4 dollars is no big deal, but do this to 100 customers a day, that will lead to 12K a month. Pretty good money, I would say. In fact, those stupid banks do it all the time. This charge and that charge. When you call their customer service, you wait half an hour on the line, and got told that it is a "mistake" and get refunded. Sure, I can get refunded, but how many of us will get around to do it. I still remember TDbank over-charged me 12 bucks that I meant to call them for. But it has been a year and I have not called them yet. Telecommunication companies like AT&T also employ this ploy.
When it comes to banks, we feel we are justified to be angry. Because banks are jerks. The very same act, when committed by seemingly innocent restaurant owner, we blame Ben. How logical is that? Take this to the next logical step, empathy is the rule upon which we judge. We need no laws.
I am a selfish guy. When this happens, I do the cost benefit analysis, and mostly just get over with it and never pursue it further. In economics, we call it "Rational Inattention". It is the optimal strategy for each one of us. However, when taken collectively, we sow the seeds for businesses to take advantage of us and incentivize them to be dishonest "incrementally". In the end, we all got worse off. This is the well-known "prisoners' dilemma". It is because there are "irrational" agents who are willing to go after such jerks who abuse our rational inattention that puts such behavior in check. In fact, I wish everyone is like Ben, so that I can free-ride on that vigilance---as it becomes unprofitable for businesses to be dishonest. How does that help? When enough people refuse to let it go, business's revenue from such fraud diminishes, and they have less incentive to be dishonest. Furthermore, if each time a customer stands out like Ben, the business incurs a loss, the expected profit for being dishonest will go negative. This is when business no longer wishes to be dishonest. In fact, that is why the law requires the business to suffer a penalty larger than the amount of the overcharge. Gary Becker got this a long time ago---when enforcement is costly, we will make punishment higher.
Friend or Foe, it is a question of logic, not empathy.
Many businesses take it as a strategy to "mistakenly" over-charge customers. Since the amount is small, most people will not complain other than frowning at it. These little sums, when coupled with volume, accumulates to a big number. 4 dollars is no big deal, but do this to 100 customers a day, that will lead to 12K a month. Pretty good money, I would say. In fact, those stupid banks do it all the time. This charge and that charge. When you call their customer service, you wait half an hour on the line, and got told that it is a "mistake" and get refunded. Sure, I can get refunded, but how many of us will get around to do it. I still remember TDbank over-charged me 12 bucks that I meant to call them for. But it has been a year and I have not called them yet. Telecommunication companies like AT&T also employ this ploy.
When it comes to banks, we feel we are justified to be angry. Because banks are jerks. The very same act, when committed by seemingly innocent restaurant owner, we blame Ben. How logical is that? Take this to the next logical step, empathy is the rule upon which we judge. We need no laws.
I am a selfish guy. When this happens, I do the cost benefit analysis, and mostly just get over with it and never pursue it further. In economics, we call it "Rational Inattention". It is the optimal strategy for each one of us. However, when taken collectively, we sow the seeds for businesses to take advantage of us and incentivize them to be dishonest "incrementally". In the end, we all got worse off. This is the well-known "prisoners' dilemma". It is because there are "irrational" agents who are willing to go after such jerks who abuse our rational inattention that puts such behavior in check. In fact, I wish everyone is like Ben, so that I can free-ride on that vigilance---as it becomes unprofitable for businesses to be dishonest. How does that help? When enough people refuse to let it go, business's revenue from such fraud diminishes, and they have less incentive to be dishonest. Furthermore, if each time a customer stands out like Ben, the business incurs a loss, the expected profit for being dishonest will go negative. This is when business no longer wishes to be dishonest. In fact, that is why the law requires the business to suffer a penalty larger than the amount of the overcharge. Gary Becker got this a long time ago---when enforcement is costly, we will make punishment higher.
Friend or Foe, it is a question of logic, not empathy.
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