Temper intuition with rationality to avoid scams

Hardly a month goes by without the exposure of yet another financial scam ("Investors left in the lurch as diamond firm folds up"; Monday).

While we commiserate with the unfortunate people who have been taken in by fraudsters, we pat ourselves on the back that we did not fall for such shenanigans.

However, nobody is invulnerable.

Studies have shown that smart, well-educated and financially savvy investors are just as likely, if not more so, to fall for exotic financial products that offer eye-popping but still realistic returns.

Humans have a propensity to accept a good story if convincingly told - inconvenient facts that get in the way notwithstanding.

We also have a tendency to use intuition instead of logical reasoning in making on-the-spot decisions.

There is a fair bit of difference between intelligence and rationality.

Our intelligence tells us that we are witness to a premium, high-yielding, money-generating deal, and our trust in the glib and convincing presenter makes us gullible.

This is where the compulsory cooling-off period is useful.

Spouses, adult children and friends can then come in to pour cold water and offer hard-headed advice, away from the impressively plush sales office.

They can temper our intuition with a healthy dose of rationality, which can save us from financial ruin.

Yik Keng Yeong (Dr)

A version of this article appeared in the print edition of The Straits Times on April 07, 2016, with the headline 'Temper intuition with rationality to avoid scams'. Subscribe