Car Scams

Since I'm reasonably sure that our car will be totaled (not totally, but I'd put 10/1 odds on it being the case, after looking at the car), it looks like I'll be buying a new one. So, I started looking around on the various sites. On CraigsList, they warned about "Ebay scams".

There was a 2009 Nissan Altima with 29,000 miles listed for $2900. Too good to be true, so I figured it was phony. Just in case, I figured I'd send an email. Here's my response (highlighting is mine, to point out the "fishy" parts.

Hello,

This 2009 Nissan Altima 2.5 S, automatic with 26,000 miles, runs and drives excellent(VIN: 1N4AL21E49N522850). This car has been extremely well maintained and it is fully paid. No accident, clear title, free of liens.
I have dropped my price to $2900 since this is an urgent sale and I need to sell it before 22 March, when I will be deployed in Afghanistan replacing the troops scheduled to come home.
(Note: appeal to sympathy - it's the military. Also, the chance to get something at a bargain))

I have decided to use ebay for this sale (the car isn't listed on ebay, only the payment process will be done through them). The car is already at our Military Logistic Department form Fort Bliss, TX, packed for shipping to a new owner. The Logistic Department will deliver the car to your home address in 3 days and the shipping is free for you. Since the car is in a military base, with no access you can't go there and take it, only the Logistic Department can deliver it. I will offer a 10 days period to inspect the car from the moment you receive it, before I will have your money.
(in other words, you can't see the car - just trust me).

If you agree with my price $2900, I need your FULL NAME AND COMPLETE ADDRESS, so I can inform ebay motors that I have a buyer! I will forward your details to them and then you will receive an invoice(with no further obligations or fees). Like this you'll be able to talk with them directly and ask all you want to know.
(eventually, he'll ask me to send it through Western Union, and poof goes my cash).

Hope to hear from you soon,
Sgt. XXX

Here's the info on the scam from eBay motors. I may play this jerk around for a while just on general principles. I know enough military folks that I could probably tie him in knots.

UPDATED 3/18 - so far, I've come across this scam three times in the last week. I haven't bought a car yet, but I have had some fun with the turkeys at the other end. Once said he was in Great Falls, and he ran for the hills when I told him I had a cousing stationed at Malmstrom AFB.

Good times, good times.

Spam, Spam, Spam, Spam

A couple of years back, I was on the train (coming back from a consulting gig), and, being an extrovert, I started talking with a guy sitting next to me. He was a "stock tout". In other words, he was one of those guys who sent out emails pushing one stock or another. He claimed it was a pretty profitable business.

Now I have some evidence backing him up.
Here's a pretty interesting piece on the market effects of internet stock spam spam. A couple of years ago, Well, Frieder and Zittrain did a study titled Spam Works: Evidence from Stock Touts and Corresponding Market Activity. They found that on spammers "touting" (i.e. pushing) a stock has some pretty significant effects on the touted stock's price and trading volume. Here's the abstract (emphasis mine):

We assess the impact of spam that touts stocks upon the trading activity of those stocks and sketch how profitable such spamming might be for spammers and how harmful it is to those who heed advice in stock-touting e-mails. We find convincing evidence that stock prices are being manipulated through spam. We suggest that the effectiveness of spammed stock touting calls into question prevailing models of securities regulation that rely principally on the proper labeling of information and disclosure of conflicts of interest as means of protecting consumers, and we propose several regulatory and industry interventions.

Based on a large sample of touted stocks listed on the Pink Sheets quotation system and a large sample of spam emails touting stocks, we find that stocks experience a significantly positive return on days prior to heavy touting via spam. Volume of trading responds positively and significantly to heavy touting. For a stock that is touted at some point during our sample period, the probability of it being the most actively traded stock in our sample jumps from 4% on a day when there is no touting activity to 70% on a day when there is touting activity. Returns in the days following touting are significantly negative. The evidence accords with a hypothesis that spammers "buy low and spam high," purchasing penny stocks with comparatively low liquidity, then touting them - perhaps immediately after an independently occurring upward tick in price, or after having caused the uptick themselves by engaging in preparatory purchasing - in order to increase or maintain trading activity and price enough to unload their positions at a profit. We find that prolific spamming greatly affects the trading volume of a targeted stock, drumming up buyers to prevent the spammer's initial selling from depressing the stock's price. Subsequent selling by the spammer (or others) while this buying pressure subsides results in negative returns following touting. Before brokerage fees, the average investor who buys a stock on the day it is most heavily touted and sells it 2 days after the touting ends will lose close to 5.5%. For those touted stocks with above-average levels of touting, a spammer who buys on the day before unleashing touts and sells on the day his or her touting is the heaviest, on average, will earn 4.29% before transaction costs. The underlying data and interactive charts showing price and volume changes are also made available.

If you're not convinced (or even if you are), I have a couple of names of people who are related to the former finance minister of Nigeria who need your help getting money out of the country (and are willing to share the profits with you). I'll give them to you for a small finder's fee. Just send me the routing number on your bank account and I'll take care of it electronically.

HT: The Psi-Fi Blog

Of course, with a title like that, it was inevitable

Winner's (and Loser's) Curse with Swoopo.com

Winner's curse is the well-known phenomenon where the winner of an auction is often just the person who's most likely to have overpaid for the item in question. So, often the winner is the loser.

Then I heard about Swoopo.com. It's been called "pure distilled evil in a business plan". Here's their setup:

• Bidding for an item starts at $0.15
• Each bid raises the price by $0.15
• Bids cost $0.75 to make.
• Here's the kicker - a bid in the final seconds extends the auction for 15 seconds. So, auctions can go on and on.
  

Of course, they post the "savings" you would receive if you bought the item at the current price as a prod for people to continue betting.

They also hold "penny auctions" on their front page - a bid only increments the price by a penny. I recently saw a TomTom GPS sold for about $12. That means 1200 bids at $0.75 per bid, for revenue of $900, on something that costs them between $300 and $500. Not too shabby.

This is a behavioral economist's dream - it has bidders focusing on sunk costs (I have to make back my bids, and if I win, I get the savings), hubris, and endowment effects (the bidders start viewing the item as "theirs", and therefore value it more highly). And if I thought about it a bit, I could probably come up with other behavioral biases.

It has some similarities to a "dollar auction". In this setting, individuals bid on a dollar. But the catch is that the second highest bidder must also pay their bid, but without getting the dollar in exchange. So, the second place bidder continues to escalate to cut their losses. In Swoopo's setup, the 2nd place bidder isn't obligate to pay, but once they're in the game, they continue bidding to recoup their already-paid bids (that is, if they can get the item at a discount).

It's not a scam per se, because everything is disclosed up front - the rules are clearly stated. But the only advice I can give you about using Swoopo comes from War Games (the 1983 movie starring a very young Matthew Broderick):



UPDATE: Here's a perfect example of how the irrational bidding that can take place - a person "won" an auction for a Sharp 42 inch LCD TV. According to the website, it was "worth up to" $1,199. The "winning" bidder paid $3,360. Assuming that this was a "normal" auction with bid increments of $0.15, this means that Swoopo received total bids of (3,360/0.15) x $0.75 = $16,800 in total bids (including $1,512 from the "winner" alone), in addition to the winning bid of $3,360, for a total of $20,160 -- all for an item worth at most $1200.

UPDATE2: as pointed out by a reader, the auction above was a "fixed price" one where the "winner" got to purchase the item for $119. So, the buyer could have potentially gotten it for a very nice proice. However, they ended up spending over $1500 in bids, plus the $119 winning price, all for a TV that was worth at most $1200. So, the winner endend up overpaying by at least $400, and Swoopo made total revenue of almost $17,000 for the cost of a $1200 TV.

One part of me wishes I'd thought of this - in about a couple of days time I'd have made back all the money my retirement accounts lost this past year. But I'd feel a little bad getting that money from stupid people. Not to say I wouldn;t do it, but I'd feel a little bad.