On February 7, 1910, an odd event occurred in the British town of Weymouth. A group of five arrived for a tour of the HMS Dreadnought, a battleship that was the pride of Britain’s navy. The five were welcomed with fanfare, their staff having communicated in advance that they were members of the Abyssinian royal family. Their appearance was impressive: flowing robes, great jewels and turbans. Through an interpreter, the Abyssinian emperor offered military honors to the ship’s crew. The sailors then led the royal delegation on a private tour.

It was an enjoyable visit for all. The only problem: The “Abyssinians” were pranksters. They were a group of Englishmen. One of them, in fact, was the author Virginia Woolf. The language they appeared to be speaking was gibberish, a mix of Greek and Latin that they threw together. When news of the hoax hit the papers, the lapse in security caused embarrassment for the Royal Navy. Most notable was the fact that the commander of the Dreadnought, William Fisher, didn’t recognize that two of the fake Abyssinians were his own cousins.

I was reminded of this incident a few weeks back when my phone rang one morning. On the other end, an authoritative-sounding voice let me know that I was the subject of an investigation. The government, this fellow said, had seized a package addressed to me. It contained cash, weapons and other contraband, and he wanted to know whether I had ordered these materials. This call would have been unnerving if it hadn’t been so obviously a scam.

I’m not sure how this particular scheme works, but it seems to be the latest in a line of similar scams. You’ve probably heard, for example, of the “Nigerian prince” scheme. Out of the blue, someone receives a call from an individual pretending to be a wealthy Nigerian. His money is locked up, he says. But if you send him $1,000 today, he’ll gladly repay you $10,000 when his funds are released. These sorts of schemes seem like they shouldn’t work—but unfortunately they do. I personally have seen someone fall for the Nigerian prince scheme and send money to the scammer. And though it was clearly a fraud, it was very difficult for the victim to see.

Why does this sort of thing happen? How can people be so gullible? The most obvious explanation, of course, is profit—or the promise of profit. In an article earlier this year, Jason Zweig of The Wall Street Journal discussed the popularity of Regulation D private offerings. These investments are illiquid, speculative, susceptible to conflicts of interest and typically carry high fees. In short, Zweig characterizes these investments as “dreck,” and yet, despite the risks, he notes that investors have plowed nearly $1 billion into these funds over the past two years. Why? While each fund is different, these private offerings promised investors returns in the neighborhood of 10%—not unlike Madoff—with little downside.

Why don’t investors look at these investments more critically? In The Confidence Game, Maria Konnikova offers another explanation. Human beings, she says, “have a strong bias toward misperceiving the world.” Citing the research of psychologist Shelley Taylor, Konnikova explains that even pessimists have a built-in bias toward positivity. We generally believe that things will go well for us. Research has quantified this. In 1990, psychologist Robert Vallone conducted an experiment among university students. He asked them to make a set of short-term predictions—about their grades and other aspects of their lives—then followed up with them at the end of the semester. The students almost uniformly overestimated how well things would go. About 70% of the predictions were overly optimistic. So when fraudsters approach us with appealing opportunities, most people’s tendency is not to assume that it’s a trap.

Still, people aren’t completely gullible. As Konnikova explains, scammers know they need to offer “evidence” that what they’re promoting will work out. A famous early Ponzi scheme, for example—which predated Ponzi himself—was one perpetrated by William Franklin Miller in 1889. Miller began by offering investors a return of 10% per week. While that seems absurd, the nature of a Ponzi scheme is that it does work out for early investors. Miller took on his first investor in March 1889, and sure enough, began paying out the promised 10% per week. That drew in other investors, of course, such that, within months, he had accumulated more than $1 million of investor money.

Ponzi schemes, fortunately, are rare. More common, though, are the sorts of investments Zweig described: They aren’t criminal, but they’re speculative. They’re able to draw people in, though, by cherry-picking some attractive past returns, or by highlighting some past success of the manager. As with a Ponzi scheme, that “evidence” helps investors look past any red flags.

What can you do to avoid these kinds of traps? I recommend a two-part approach:

First, keep your investments simple. Wherever possible, opt for investments that are publicly-traded, broadly-diversified, passively-managed and carry low costs. Follow that formula, and you’ll almost certainly avoid the Ponzis and the Madoffs. You’ll also be in a good position to avoid the “dreck” that Zweig describes.

Second, guard against scammers. This step is a bit harder because crooks, unfortunately, can be creative. There are, however, relatively easy steps we can all take to batten down the hatches of our finances. These include:

• Start with good digital security. Be sure the hard drive on your computer is encrypted, use a password manager, and opt for two-factor authentication whenever possible. When traveling, don’t connect your laptop to a public WiFi network. Instead, use the hotspot feature on your cell phone to get your computer online.
• If you can’t pay a bill online, minimize the risk of “check washing” by using only a Sharpie or a gel pen to write checks. And avoid mailboxes. Bring any envelope with a check in it to the post office.
• If you receive a call that seems like a scam, but you aren’t sure, don’t share any information. Just hang up. More often than not, that will be the end of it. If you’re concerned, though, that the call might have been legitimate, call back, but using a phone number you locate yourself, either on the company’s website online, on the back of a bank card or on a statement you have. That will ensure you’re speaking with someone legitimate, and you can ask them whether there really is an open inquiry.
• You should be wary of incoming calls even from people you know, such as a grandchild calling for help. The “grandparent scam” has been around for years, but now with artificial intelligence, scammers are able to better replicate voices.
• Don’t use your bank card as a debit card. Use it only at ATMs, and use a credit card everywhere else. That will help to protect crooks from accessing your bank account in the event of a data breach.
• And finally, if you’d like to have a bit of fun, you can try Jolly Roger, a new service that, as The Wall Street Journal put it, can “torture telemarketers.”