When it comes to avoiding scams, schemes and other rip-offs, there is no more universal piece of advice than: “if it’s too good to be true it probably isn’t.” This is usually said after someone has been victimized.
Most everyone is familiar with this pithy observation - an aphorism with a ring of truth to it - but it is familiar only because the warning so persistently fails to prevent people from jumping into the quicksand.
In hindsight, it is easy to see that relative to the cost and risk involved, the expected gain was unrealistic. In the rear view mirror, it is obvious that the promises were extravagant, false and empty. To know whether something is true and to be trusted, we are told that all you have to do is measure how good it is.
The problem is that “goodness” is not a valid or reliable measure of truth.
If you won the Super Lotto (for real), that would be about as good as it gets. Still, the only thing determining whether it is true or not are the numbers on your ticket. If you actually won (for real), it would be both unbelievably good and true.
Could you be a millionaire someday? Yes, you too can be a millionaire - if you save enough for enough years. Having that much would be good, and if you achieved it, it would be true.
It is not true that you can get-rich quick, unless you have improbable luck, exceptional talent, or remarkable skill. All other routes to a fast fortune involve substantial risk. This holds true, irrespective of “how good” any particular opportunity might appear.
The time-honored aphorism provides little protection from sorrow and disappointment.
What actually matters is not whether something is too good to be true, but whether it is true enough to be good. What needs to be judged is not the “goodness,” but the truth of the representation.
It is not true that you just won a vacation. What is true is that someone is willing to bet money that they can successfully pitch you a costly investment. They know exactly what that bet is worth and will profit as reliably as a casino.
It is not true that anyone has any hot tips or investment secrets to share with you. Markets are efficient. The only “special opportunities” are things like insider trading and the first rungs on a pyramid-Ponzi scheme.
It is not true that real estate investing is ever low risk. The get-rich theory is that you can buy on margin (i.e., borrow) and leverage up, because bubbles never burst.
It is true that a get-rich seminar will cost you dearly. For the promoters, it is better than running a casino. They are betting that over the course of a weekend, they can upsell you on the whole banana. You pay them for the privilege of being prey for the pitchman - and there is no free vacation. It is not true that the value of a get-rich seminar could ever exceed the cost of a few textbooks or a local course.
It is not true that selling overpriced snake-oil to friends and family will lead to anything good. If you are trying to enlist every customer as a salesperson, you are part of a pyramid. The profit comes from turning prey into predator.
Fraudulent schemes depend on the victim’s failure to know what is knowable.
The gold watch dangles, the audience is mesmerized - doubt, reason, and access to knowledge are suspended. People believe something is true because it feels so good.
Psychologist Daniel Kahneman received the Nobel Prize in Economics for exploring irrational forces in human decision making. In his formulation, decisions can either be fast and emotional or slow and thoughtful.
Truth can be tested against fact and observation, but not against feelings and impulses. In that sense, the perceived goodness measure is relative and subjective. Goodness does not necessarily correlate with either truth or consequences - even at the “too good” end of the scale.
Flim-flam artists depend on outright lies convincingly told, implausible assertions supported by improbable facts, and erroneous conclusions founded on irrelevant information - and the dangling gold watch. The aphorism serves only to assign blame to the victim, without being curative or prophylactic.
No one wants to be fooled once, twice or again. To avoid the proverbial shame, forget about whether it feels too good to be true, and think about whether it is true enough to be good.