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###### Federal Trade Commission

# AGENCY:

Federal Trade Commission (“FTC” or “Commission”).

# ACTION:

Notice.

# SUMMARY:

                        The FTC intends to conduct two exploratory studies on consumer susceptibility to fraudulent and deceptive marketing. This research will be conducted to further the FTC's mission of protecting consumers from unfair and deceptive marketing. Before gathering this information, the FTC is seeking public comments on its proposed research. This notice seeks comments on the Fraud Susceptibility Experiment Study, one of the two studies. The Commission is also seeking comments on the other study in a separate                         **Federal Register**                         notice. Comments will be considered before the FTC submits a request for Office of Management and Budget (OMB) review under the Paperwork Reduction Act (PRA).                    

# DATES:

Comments must be submitted on or before August 10, 2009.

# ADDRESSES:

                        Interested parties are invited to submit written comments electronically or in paper form. Comments should refer to “Fraud Susceptibility Experiment, FTC File No. P095501” to facilitate the organization of comments. Please note that your comment—including your name and your state—will be placed on the public record of this proceeding, including on the publicly accessible FTC Website, at (                        *http://www.ftc.gov/​os/​publiccomments.shtm*).                    

                        Because comments will be made public, they should not include any sensitive personal information, such as an individual’s Social Security Number; date of birth; driver’s license number or other state identification number, or foreign country equivalent; passport number; financial account number; or credit or debit card number. Comments also should not include any sensitive health information, such as medical records or other individually identifiable health information. In addition, comments should not include any “[t]rade secret or any commercial or financial information which is obtained from any person and which is privileged or confidential. . . .,” as provided in Section 6(f) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). Comments containing material for which confidential treatment is requested must be filed in paper form, must be clearly labeled “Confidential,” and must comply with FTC Rule 4.9(c), 16 CFR 4.9(c).1

                        Because paper mail addressed to the FTC is subject to delay due to heightened security screening, please consider submitting your comments in electronic form. Comments filed in electronic form should be submitted by using the following weblink: (                        *https://secure.commentworks.com/​ftc-fraudexperiment*) (and following the instructions on the web-based form). To ensure that the Commission considers an electronic comment, you must file it on the web-based form at the weblink: (                        *https://secure.commentworks.com/​ftc-fraudexperiment*). If this Notice appears at (                        *http://www.regulations.gov/​search/​index.jsp*), you may also file an electronic comment through that website. The Commission will consider all comments that regulations.gov forwards to it. You may also visit the FTC Website at                         *http://www.ftc.gov*                         to read the Notice and the news release describing it.                    

A comment filed in paper form should include the “Fraud Susceptibility Experiment, FTC File No. P095501”reference both in the text and on the envelope, and should be mailed or delivered to the following address: Federal Trade Commission, Office of the Secretary, Room H-135 (Annex J), 600 Pennsylvania Avenue, NW, Washington, DC 20580. The FTC is requesting that any comment filed in paper form be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

                        The FTC Act and other laws the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. The Commission will consider all timely and responsive public comments that it receives, whether filed in paper or electronic form. Comments received will be available to the public on the FTC Website, to the extent practicable, at (                        *http://www.ftc.gov/​os/​publiccomments.shtm*). As a matter of discretion, the Commission makes every effort to remove home contact information for individuals from the public comments it receives before placing those comments on the FTC Website. More information, including routine uses permitted by the Privacy Act, may be found in the FTC’s privacy policy, at (                        *http://www.ftc.gov/​ftc/​privacy.shtm*).                    

# FOR FURTHER INFORMATION CONTACT:

                        Requests for additional information should be addressed to Patrick McAlvanah, Economist, Bureau of Economics, Federal Trade Commission, 600 Pennsylvania Avenue, NW, Mail Stop NJ-4136, Washington, DC 20580. Telephone: (202) 326-2974; e-mail:                         *fraudexperiment@ftc.gov*.                    

# SUPPLEMENTARY INFORMATION:

## I. Background

                    As part of its consumer protection mission, the FTC has brought hundreds of cases targeting fraud, and has committed significant resources to educational initiatives designed to protect consumers. The Commission                           ( print page 27795)                        hosted a Fraud Forum 2                     on February 25-26, 2009 to examine fraud in the market place. The Commission has also conducted telephone surveys in 2003 and 2005 designed to measure the proportion of the U.S. adult population that has fallen victim to various consumer frauds.3                     Despite this, surprisingly little is known about what determines consumers’ susceptibility to fraud. For example, the 2003 and 2005 FTC Consumer Fraud surveys found that education was not a significant predictor of fraud victimization. Understanding when and why people are vulnerable to fraud would better inform the FTC’s substantial, ongoing efforts to fight fraud through law enforcement and consumer education. Any additional insights into how and why people fall victim to fraud could also help improve any future fraud surveys the Commission may undertake. The study announced in this notice is a preliminary and exploratory step toward facilitating those efforts. The study is not intended to lead to enforcement actions; rather, study results may aid the FTC’s efforts to better target its enforcement actions and consumer education initiatives, and improve future fraud surveys.                

Economic and psychological experiments have identified several decision-making biases, such as impulsivity, over-confidence, over-optimism, and loss aversion, that can cause inaccurate assessments of the risks, costs, and benefits of various choices. FTC staff proposes to conduct an economic laboratory experiment to study whether these types of decision biases are related to consumer susceptibility to fraudulent or deceptive marketing claims. Staff intends to study consumers’ assessment of potentially deceptive advertisements, in addition to their assessment of non-deceptive advertisements. Staff seeks to understand which characteristics of individuals and advertisements predict consumers’ ability to differentiate between apparently fraudulent materials and apparently legitimate materials.

## II. Paperwork Reduction Act

As required by Section 3506(c)(2)(A) of the PRA, 44 U.S.C. 3501-21, the FTC is providing this opportunity for public comment before requesting that OMB approve the study. Under the PRA, federal agencies must obtain OMB approval for each collection of information they conduct or sponsor. “Collection of information” means agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. 44 U.S.C. 3502(3); 5 CFR 1320.3(c).

                    Specifically, the FTC invites comments on: (1) whether the proposed collection of information is necessary for the proper performance of the functions of the FTC, including whether the information will have practical utility; (2) the accuracy of the FTC’s estimate of the burden of the proposed collection of information; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of collecting information on those who respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,                     *e.g.*, permitting electronic submission of responses. All comments should be filed as prescribed in the                     **ADDRESS**                     section above, and must be received on or before August 10, 2009.                

### A. Description of the Collection of Information and Proposed Use

                    The FTC proposes to conduct an experiment in a university’s economics laboratory with 250 subjects drawn from the campus community.4                     A sampling of 250 persons enables random assignment of subjects into different experimental conditions of sufficient size for analytic power. The sample is not intended to be nationally representative, but will still provide useful insights into consumer susceptibility to fraud.                

                    The study will gauge consumer attitudes towards legitimate and potentially fraudulent or deceptive advertisements. Staff plans to ask subjects to examine advertisements or other descriptions of fraudulent products and report their opinion about the credibility of product claims. Staff also plans to ask participants to rate the credibility of advertisements for apparently legitimate products to gauge how participants distinguish between apparently fraudulent product claims and legitimate product claims. Staff plans to measure consumer knowledge, risk attitudes, impulsivity, and skepticism using existing methods from economics and psychology research. Staff may measure consumer knowledge using consumer literacy and financial literacy surveys 5                     in order to test subjects’ marketplace understanding and sophistication. Staff seeks to determine if people with such knowledge deem fraudulent advertisements to be less credible than legitimate advertisements. Staff plans to measure subjects’ risk attitudes through a series of choices between smaller certain amounts of money or larger risky amounts.6                     Staff may describe the product to some subjects as creating benefits, while presenting to other subjects nearly identical information depicted as a reduction in harm. Staff would then test whether risk-averse and loss-averse subjects are particularly susceptible to fraudulent claims framed as opportunities to escape losses.7                     Staff may measure subjects’ impulsivity through a series of choices between smaller monetary amounts received sooner or larger amounts but received later.8                     Staff would then test to see if impulsive subjects are more susceptible to fraudulent claims. Staff plans to elicit measures of optimism 9                     and skepticism 10                     to determine their roles in deeming advertisements, both of fraudulent and legitimate products, as credible. In addition, staff anticipates collecting demographic information from the surveyed subjects. The FTC has contracted with the faculty of a university-run experimental economics                           ( print page 27796)                        laboratory to locate and recruit subjects and conduct the experiments.                

Staff will pre-test the experimental procedures with 9 subjects to ensure that the instructions provided to participants are clear and comprehensible, and that the experimental procedures are workable. Pre-test subjects will be drawn from FTC staff not involved with the study.

### B. Estimated Hours Burden

The FTC plans to seek information from up to 250 respondents for approximately 90 minutes each; thus, approximately 375 hours in total. Pre-testing hours are not included in the estimated burden because the pre-test subjects will be FTC employees.

### C. Estimated Costs Burden

The cost per respondent should be negligible. Participation will not require start-up, capital, or labor expenditures by respondents. The above-noted contractor will recruit the student and community member subjects to participate in this study; subjects will be asked to respond to an initial recruitment email to participate voluntarily. Staff will compensate all subjects for their participation in the 90-minute study. Subjects will receive approximately $8 as a show-up fee; in addition, they will be compensated according to their choices for some of the tasks. Staff expects subjects to earn on average $22 for these tasks, with a range of approximately $12-$32, based on expectations of possible experimental outcomes. As such, subjects will receive approximately $20-$40 for the 90-minute study.

By direction of the Commission.

Donald S. Clark,

Secretary

# Footnotes

1.                                 The comment must be accompanied by an explicit request for confidential treatment, including the factual and legal basis for the request, and must identify the specific portions of the comment to be withheld from the public record. The request will be granted or denied by the Commission’s General Counsel, consistent with applicable law and the public interest.                             *See*                             FTC Rule 4.9(c), 16 CFR 4.9(c).                        
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2.                             Information on the Fraud Forum is available at: (                        *http://www.ftc.gov/​bcp/​workshops/​fraudforum/​index.shtm*).                    
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3.                             The Commission has published two staff reports describing the results of these surveys —                         *Consumer Fraud in the United States: An FTC Survey*                         (published August 2004 and available at (                        *http://www.ftc.gov/​reports/​consumerfraud/​040805confraudrpt.pdf*)) and                         *Consumer Fraud in the United States: The Second FTC Survey*                         (published in October 2007 and available at (                        *http://www.ftc.gov/​opa/​2007/​10/​fraud.pdf*).                    
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4.                             Staff has contracted with a faculty member of George Mason University who will recruit the study subjects and oversee and administer the experiment.                    
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5.                                                      *See*                         Annamaria Lusardi,                         *Financial Literacy: An Essential Tool for Informed Consumer Choice?*, Working Paper, Joint Center for Housing Studies, Harvard University (2008), for examples of financial literacy questions similar to those the FTC is considering.                    
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6.                             Staff anticipates using standard risk aversion measurement methodologies akin to those in Charles Holt and Susan Laury,                         *Risk Aversion and Incentive Effects*,                         *American Economic Review*, December 2002, 1644-1655.                    
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7.                             Several academic articles report that people are more willing to take identical risks over monetary gambles if the risk is presented as an opportunity to escape losses rather than as a chance to gain. Our “framing” methodologies may emulate those in Amos Tversky and Daniel Kahneman,                         *The Framing of Decisions and the Psychology of Choice*, Science, Vol. 211, No. 4481 (Jan. 30, 1981), 453-458.                    
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8.                             Staff anticipates using methodology similar to that in Stephan Meier and Charles Sprenger,                         *Impatience and Credit Behavior: Evidence from a Field Experiment*, Working Papers 07-3, Federal Reserve Bank of Boston (2007).                    
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9.                             Staff plans to use standard questions similar to those in Manju Puri and David Robinson,                         *Optimism and Economic Choice*,                         *Journal of Financial Economics*, 2007, Vol. 86, 71-99.                    
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10.                             Staff may use the scale developed in Carl Obermiller and Eric Spangenberg,                         *Development of a Scale to Measure Consumer Skepticism toward Advertising*,                         *Journal of Consumer Psychology*, Vol. 7, No. 2, 1998, 159-186.                    
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[FR Doc. E9-13642 Filed 6-10-09: 8:45 am]

[BILLING CODE 6750-01-S]