3 levels of fraud: One-time, Linear, and Exponential

In a one-time fraud, you do it, you get it over with, and you move on. Kind of like that saying, “The secret of a great success for which you are at a loss to account is a crime that has never been found out, because it was properly executed.” One-time frauds occur where for some reason the victim of the fraud is in no position to do anything about it, and the fraudster has no need to keep doing more of it.

In a linear fraud, you do it, and then you need to keep doing it, or you need to keep covering for it. An example is if you do fraudulent research to get an academic job, and then you’re expected to continue producing amazing results if you want promotion. So what do you do? You keep on doing what it takes to get those amazing results. Remember the Armstrong Principle: if you’re pushed to promise more than you can deliver, you’re motivated to cheat. Or, for another example, Lance Armstrong himself: he didn’t need to keep doping—retirement from competitive cycling was an option at any point—but he did need to continue to lie, and to intimidate others from lying, because these doping investigations kept happening. The system of laws and rules in cycling did not allow his cheating to be grandfathered in, so he had to keep on frauding.

In an exponential fraud, as time goes on you have to do larger and larger frauds. As we discussed in the context of Dan Davies’s book, Lying for Money, this exponential property is characteristic of financial fraud, where you have to keep scamming or borrowing more money to cover your past losses. At no point can you just close out, because if you don’t keep covering what you’d already promised, your creditors would close in. This also happens with people who try to resolve their gambling debts by making it all back at the track: they need to bet more and more until eventually they go bust. It’s worse than the classic gambler’s ruin problem, because the bets get bigger and bitter.

The above-linked post discussed linear and exponential frauds, but I hadn’t thought to include one-time fraud. As I wrote at the time, Maradona didn’t have to keep punching balls into the net; once was enough, and he still got to keep his World Cup victory. If Brady Anderson doped, he just did it and that was that; no escalating behavior was necessary.