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Investments That Are Too Good to Be True?

“There’s a sucker born every minute.”
–P.T. Barnum


I enjoy messing with scammers. I like to select some scam e-mails that I receive from “Nigerian princes” and “oil barons” and “SAEREAGEANT MEKE SMEETH” and string them along to believe that they’re going to actually get money out of me. I figure that if they’re going on wild fantasies and goose chases to the Western Union with fake receipts, then they’ll have that much less time to scam Grandma. (Note: if you’d like to learn how to do this, go to to learn more).

Yet, there are people who fall for these schemes and other too-good-to-be-true investments (Madoff Ponzi scheme? The great idea for a northern Bhutanese cricket restaurant that your 8th cousin emerged from the blue with? No offense intended to the Bhutanese, who are the happiest people in the world). Furthermore, they make themselves believe that these are legitimate, viable opportunities despite their brains providing a clear and present signal that they are just what they seem – too good to be true.

How the Brain Forewarns You About Outlandish Investments

How the Brain Forewarns You About Outlandish Investments

According to the University of Iowa’s Erik Asp, Kenneth Manziel, and others, a part of the brain called the ventromedial prefrontal cortex creates a “false tag” on an idea when it is presented with it. According to their research, we actually really do believe everything that we hear at first, and it’s up to the prefrontal cortex to sort out the lies from the truth. If you’ve ever heard the phrase “If it seems too good to be true, then it probably is,” you’re seeing the prefrontal cortex in action in the first part of that phrase. The prefrontal cortex is what makes you think that something seems too good to be true.

As we get older, the ability of our prefrontal cortex to tag what we see as unbelievable lessens. As we age, it takes us longer and longer to come to what was one the snap conclusion of “now…that can’t be true!”

Furthermore, our prefrontal cortex is where our rational mind lives. It’s not the realm of the limbic system, where Monkey Brain likes to play. Monkey Brain wants immediate gratification and loves get-rich-quick schemes. As a result, when he sees an investment that the prefrontal cortex might tag as outlandish, he’s going to come up with rationalizations for why it’s a good investment.

YOU: “I don’t know about this cricket restaurant. It doesn’t seem like a great idea.”


YOU: “Do you really think that there’s a market for cricket restaurants?”


So, particularly as you get older, you’re going to be facing a war against incredulity on two fronts: the loss of zippiness from your prefrontal cortex and Monkey Brain’s relentless assault on your good senses against get-rich-quick investments.

How do you fight this battle?

  • Intentionally and consciously doubt what you hear at first. Remember, your brain’s first reaction to every piece of stimulus it receives is to believe it’s true. It’s up to the prefrontal cortex to create the flags which mark input as false. While it usually does this automatically, you can help it along by intentionally being skeptical. That isn’t to say that you should be intentionally contrarian and be that person that says “No, it’s orange!” when someone says “The sky is blue,” but a little dose of skepticism goes a long way.
  • Work backward. In order for you to get the return on that fantastic “investment” that people are promising, start from the end (you getting a wad of cash) and work backward to develop a reasonable scenario for how you could get from the present to the end state. If you can’t come up with a viable and realistic scenario for how you get to the promised land (6 million customers to the cricket restaurant or the son of a rich Nigerian prince actually coming to your front door – of all people – with a trunk full of money), then chances are, it’s not a good investment and it’s too good to be true.

For my married male readers, you’ll know what this reaction is every time you see it in your wife when she says “I don’t know about this…” as you elaborate on some bright idea that you’ve had.

Use those “I don’t know about this” moments as your indicator that an investment or an opportunity is too good to be true.

What was the most “too good to be true” investment opportunity you’ve ever heard about? Tell us in the comments below!

Author Profile

John Davis
John Davis is a nationally recognized expert on credit reporting, credit scoring, and identity theft. He has written four books about his expertise in the field and has been featured extensively in numerous media outlets such as The Wall Street Journal, The Washington Post, CNN, CBS News, CNBC, Fox Business, and many more. With over 20 years of experience helping consumers understand their credit and identity protection rights, John is passionate about empowering people to take control of their finances. He works with financial institutions to develop consumer-friendly policies that promote financial literacy and responsible borrowing habits.

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