

I've found the same story told all over the place; e.g. in the introduction to I've found the same story told all over the place; e.g. in the introduction to this paper , scam #1 on this page , and as the set-up for this blog post . And it's easy to find many more examples of the same story. But I can't find anything that refers to an actual case of this scam being carried out. Was it ever actually done in practice? If not, is there an origin point for this story, or is it just economics folklore with an origin lost in the distant past?

A crooked stockbroker sends newsletters to 1000 people; half the newsletters say stock A will go up, half say it goes down. Stock A goes down. He sends 500 new newsletters to the people who got a correct prediction about stock A; half of the new newsletters say stock B is going up, half say it's going down. He then sends 250 more newsletters... etc. Eventually there's a handful of people who've gotten eight straight correct picks from him, and those suckers invest their life savings. Has this scam ever been carried out in real life, or is it just a story?