A.B.C.'s of Behavioral Forensics: Applying Psychology to Financial Fraud Prevention and Detection

Introduction

This is a book about fraud. To be more precise, it is a book about the psychology of fraud. It focuses on human behavior, because the central fact behind all fraud is the existence of one or more individuals and their questionable, egregious, unethical, or even illegal, behavior.

This book is largely unlike any other you may have ever read on this topic. It covers an important aspect of fraud, for even though we think we know fraud, in reality we know only part of it. It is like the old analogy about the iceberg: What is known is usually visible, seen above the surface, but most of it remains hidden beneath the surface. Unfortunately, it is what is beneath and unseen that causes the most harm.

More than a century ago, Sigmund Freud brought our attention to the fact that the conscious part of ourselves is like the tip of an iceberg.1 The unconscious part is what lies underneath. Although unconscious motivation was first introduced by Freud as part of his psychoanalytic theory, more recently, neuroscientists have done extensive research on how consciousness and emotions drive decision making. It is not a case of “What you see is what you get” (WYSIWYG), but rather it's “What you don't see is what you get.” Think of fraud, then, as a two-sided coin. On one side is the economics of fraud. Fraud has enormous consequences, economically speaking, so this is what we usually focus on: the numbers, the losses, the techniques, the forged documents, the wire transfers, the shady ...