Algorithms are the essence of data mining and machine learning – the two processes 60% of organizations utilize to streamline their operations. Businesses can choose from several algorithms to polish their workflows, but the decision tree algorithm might be the most common.
This algorithm is all about simplicity. It branches out in multiple directions, just like trees, and determines whether something is true or false. In turn, data scientists and machine learning professionals can further dissect the data and help key stakeholders answer various questions.
This only scratches the surface of this algorithm – but it’s time to delve deeper into the concept. Let’s take a closer look at the decision tree machine learning algorithm, its components, types, and applications.
What Is Decision Tree Machine Learning?
The decision tree algorithm in data mining and machine learning may sound relatively simple due to its similarities with standard trees. But like with conventional trees, which consist of leaves, branches, roots, and many other elements, there’s a lot to uncover with this algorithm. We’ll start by defining this concept and listing the main components.
Definition of Decision Tree
If you’re a college student, you learn in two ways – supervised and unsupervised. The same division can be found in algorithms, and the decision tree belongs to the former category. It’s a supervised algorithm you can use to regress or classify data. It relies on training data to predict values or outcomes.
Components of Decision Tree
What’s the first thing you notice when you look at a tree? If you’re like most people, it’s probably the leaves and branches.
The decision tree algorithm has the same elements. Add nodes to the equation, and you have the entire structure of this algorithm right in front of you.
- Nodes – There are several types of nodes in decision trees. The root node is the parent of all nodes, which represents the overriding message. Chance nodes tell you the probability of a certain outcome, whereas decision nodes determine the decisions you should make.
- Branches – Branches connect nodes. Like rivers flowing between two cities, they show your data flow from questions to answers.
- Leaves – Leaves are also known as end nodes. These elements indicate the outcome of your algorithm. No more nodes can spring out of these nodes. They are the cornerstone of effective decision-making.
Types of Decision Trees
When you go to a park, you may notice various tree species: birch, pine, oak, and acacia. By the same token, there are multiple types of decision tree algorithms:
- Classification Trees – These decision trees map observations about particular data by classifying them into smaller groups. The chunks allow machine learning specialists to predict certain values.
- Regression Trees – According to IBM, regression decision trees can help anticipate events by looking at input variables.
Decision Tree Algorithm in Data Mining
Knowing the definition, types, and components of decision trees is useful, but it doesn’t give you a complete picture of this concept. So, buckle your seatbelt and get ready for an in-depth overview of this algorithm.
Overview of Decision Tree Algorithms
Just as there are hierarchies in your family or business, there are hierarchies in any decision tree in data mining. Top-down arrangements start with a problem you need to solve and break it down into smaller chunks until you reach a solution. Bottom-up alternatives sort of wing it – they enable data to flow with some supervision and guide the user to results.
Popular Decision Tree Algorithms
- ID3 (Iterative Dichotomiser 3) – Developed by Ross Quinlan, the ID3 is a versatile algorithm that can solve a multitude of issues. It’s a greedy algorithm (yes, it’s OK to be greedy sometimes), meaning it selects attributes that maximize information output.
- 5 – This is another algorithm created by Ross Quinlan. It generates outcomes according to previously provided data samples. The best thing about this algorithm is that it works great with incomplete information.
- CART (Classification and Regression Trees) – This algorithm drills down on predictions. It describes how you can predict target values based on other, related information.
- CHAID (Chi-squared Automatic Interaction Detection) – If you want to check out how your variables interact with one another, you can use this algorithm. CHAID determines how variables mingle and explain particular outcomes.
Key Concepts in Decision Tree Algorithms
No discussion about decision tree algorithms is complete without looking at the most significant concept from this area:
Entropy
As previously mentioned, decision trees are like trees in many ways. Conventional trees branch out in random directions. Decision trees share this randomness, which is where entropy comes in.
Entropy tells you the degree of randomness (or surprise) of the information in your decision tree.
Information Gain
A decision tree isn’t the same before and after splitting a root node into other nodes. You can use information gain to determine how much it’s changed. This metric indicates how much your data has improved since your last split. It tells you what to do next to make better decisions.
Gini Index
Mistakes can happen, even in the most carefully designed decision tree algorithms. However, you might be able to prevent errors if you calculate their probability.
Enter the Gini index (Gini impurity). It establishes the likelihood of misclassifying an instance when choosing it randomly.
Pruning
You don’t need every branch on your apple or pear tree to get a great yield. Likewise, not all data is necessary for a decision tree algorithm. Pruning is a compression technique that allows you to get rid of this redundant information that keeps you from classifying useful data.
Building a Decision Tree in Data Mining
Growing a tree is straightforward – you plant a seed and water it until it is fully formed. Creating a decision tree is simpler than some other algorithms, but quite a few steps are involved nevertheless.
Data Preparation
Data preparation might be the most important step in creating a decision tree. It’s comprised of three critical operations:
Data Cleaning
Data cleaning is the process of removing unwanted or unnecessary information from your decision trees. It’s similar to pruning, but unlike pruning, it’s essential to the performance of your algorithm. It’s also comprised of several steps, such as normalization, standardization, and imputation.
Feature Selection
Time is money, which especially applies to decision trees. That’s why you need to incorporate feature selection into your building process. It boils down to choosing only those features that are relevant to your data set, depending on the original issue.
Data Splitting
The procedure of splitting your tree nodes into sub-nodes is known as data splitting. Once you split data, you get two data points. One evaluates your information, while the other trains it, which brings us to the next step.
Training the Decision Tree
Now it’s time to train your decision tree. In other words, you need to teach your model how to make predictions by selecting an algorithm, setting parameters, and fitting your model.
Selecting the Best Algorithm
There’s no one-size-fits-all solution when designing decision trees. Users select an algorithm that works best for their application. For example, the Random Forest algorithm is the go-to choice for many companies because it can combine multiple decision trees.
Setting Parameters
How far your tree goes is just one of the parameters you need to set. You also need to choose between entropy and Gini values, set the number of samples when splitting nodes, establish your randomness, and adjust many other aspects.
Fitting the Model
If you’ve fitted your model properly, your data will be more accurate. The outcomes need to match the labeled data closely (but not too close to avoid overfitting) if you want relevant insights to improve your decision-making.
Evaluating the Decision Tree
Don’t put your feet up just yet. Your decision tree might be up and running, but how well does it perform? There are two ways to answer this question: cross-validation and performance metrics.
Cross-Validation
Cross-validation is one of the most common ways of gauging the efficacy of your decision trees. It compares your model to training data, allowing you to determine how well your system generalizes.
Performance Metrics
Several metrics can be used to assess the performance of your decision trees:
Accuracy
This is the proximity of your measurements to the requested values. If your model is accurate, it matches the values established in the training data.
Precision
By contrast, precision tells you how close your output values are to each other. In other words, it shows you how harmonized individual values are.
Recall
Recall is the number of data samples in the desired class. This class is also known as the positive class. Naturally, you want your recall to be as high as possible.
F1 Score
F1 score is the median value of your precision and recall. Most professionals consider an F1 of over 0.9 a very good score. Scores between 0.8 and 0.5 are OK, but anything less than 0.5 is bad. If you get a poor score, it means your data sets are imprecise and imbalanced.
Visualizing the Decision Tree
The final step is to visualize your decision tree. In this stage, you shed light on your findings and make them digestible for non-technical team members using charts or other common methods.
Applications of Decision Tree Machine Learning in Data Mining
The interest in machine learning is on the rise. One of the reasons is that you can apply decision trees in virtually any field:
- Customer Segmentation – Decision trees let you divide customers according to age, gender, or other factors.
- Fraud Detection – Decision trees can easily find fraudulent transactions.
- Medical Diagnosis – This algorithm allows you to classify conditions and other medical data with ease using decision trees.
- Risk Assessment – You can use the system to figure out how much money you stand to lose if you pursue a certain path.
- Recommender Systems – Decision trees help customers find their next product through classification.
Advantages and Disadvantages of Decision Tree Machine Learning
Advantages:
- Easy to Understand and Interpret – Decision trees make decisions almost in the same manner as humans.
- Handles Both Numerical and Categorical Data – The ability to handle different types of data makes them highly versatile.
- Requires Minimal Data Preprocessing – Preparing data for your algorithms doesn’t take much.
Disadvantages:
- Prone to Overfitting – Decision trees often fail to generalize.
- Sensitive to Small Changes in Data – Changing one data point can wreak havoc on the rest of the algorithm.
- May Not Work Well with Large Datasets – Naïve Bayes and some other algorithms outperform decision trees when it comes to large datasets.
Possibilities are Endless With Decision Trees
The decision tree machine learning algorithm is a simple yet powerful algorithm for classifying or regressing data. The convenient structure is perfect for decision-making, as it organizes information in an accessible format. As such, it’s ideal for making data-driven decisions.
If you want to learn more about this fascinating topic, don’t stop your exploration here. Decision tree courses and other resources can bring you one step closer to applying decision trees to your work.
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From the same author
Read the articleThe world is rapidly changing. New technologies such as artificial intelligence (AI) are transforming our lives and work, redefining the definition of “essential office skills.”
So what essential skills do today’s workers need to thrive in a business world undergoing a major digital transformation? It’s a question that Alan Lerner, director at Toptal and lecturer at the Open Institute of Technology (OPIT), addressed in his recent online masterclass.
In a broad overview of the new office landscape, Lerner shares the essential skills leaders need to manage – including artificial intelligence – to keep abreast of trends.
Here are eight essential capabilities business leaders in the AI era need, according to Lerner, which he also detailed in OPIT’s recent Master’s in Digital Business and Innovation webinar.
An Adapting Professional Environment
Lerner started his discussion by quoting naturalist Charles Darwin.
“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”
The quote serves to highlight the level of change that we are currently seeing in the professional world, said Lerner.
According to the World Economic Forum’s The Future of Jobs Report 2025, over the next five years 22% of the labor market will be affected by structural change – including job creation and destruction – and much of that change will be enabled by new technologies such as AI and robotics. They expect the displacement of 92 million existing jobs and the creation of 170 million new jobs by 2030.
While there will be significant growth in frontline jobs – such as delivery drivers, construction workers, and care workers – the fastest-growing jobs will be tech-related roles, including big data specialists, FinTech engineers, and AI and machine learning specialists, while the greatest decline will be in clerical and secretarial roles. The report also predicts that most workers can anticipate that 39% of their existing skill set will be transformed or outdated in five years.
Lerner also highlighted key findings in the Accenture Life Trends 2025 Report, which explores behaviors and attitudes related to business, technology, and social shifts. The report noted five key trends:
- Cost of Hesitation – People are becoming more wary of the information they receive online.
- The Parent Trap – Parents and governments are increasingly concerned with helping the younger generation shape a safe relationship with digital technology.
- Impatience Economy – People are looking for quick solutions over traditional methods to achieve their health and financial goals.
- The Dignity of Work – Employees desire to feel inspired, to be entrusted with agency, and to achieve a work-life balance.
- Social Rewilding – People seek to disconnect and focus on satisfying activities and meaningful interactions.
These are consumer and employee demands representing opportunities for change in the modern business landscape.
Key Capabilities for the AI Era
Businesses are using a variety of strategies to adapt, though not always strategically. According to McClean & Company’s HR Trends Report 2025, 42% of respondents said they are currently implementing AI solutions, but only 7% have a documented AI implementation strategy.
This approach reflects the newness of the technology, with many still unsure of the best way to leverage AI, but also feeling the pressure to adopt and adapt, experiment, and fail forward.
So, what skills do leaders need to lead in an environment with both transformation and uncertainty? Lerner highlighted eight essential capabilities, independent of technology.
Capability 1: Manage Complexity
Leaders need to be able to solve problems and make decisions under fast-changing conditions. This requires:
- Being able to look at and understand organizations as complex social-technical systems
- Keeping a continuous eye on change and adopting an “outside-in” vision of their organization
- Moving fast and fixing things faster
- Embracing digital literacy and technological capabilities
Capability 2: Leverage Networks
Leaders need to develop networks systematically to achieve organizational goals because it is no longer possible to work within silos. Leaders should:
- Use networks to gain insights into complex problems
- Create networks to enhance influence
- Treat networks as mutually rewarding relationships
- Develop a robust profile that can be adapted for different networks
Capability 3: Think and Act “Global”
Leaders should benchmark using global best practices but adapt them to local challenges and the needs of their organization. This requires:
- Identifying what great companies are achieving and seeking data to understand underlying patterns
- Developing perspectives to craft global strategies that incorporate regional and local tactics
- Learning how to navigate culturally complex and nuanced business solutions
Capability 4: Inspire Engagement
Leaders must foster a culture that creates meaningful connections between employees and organizational values. This means:
- Understanding individual values and needs
- Shaping projects and assignments to meet different values and needs
- Fostering an inclusive work environment with plenty of psychological safety
- Developing meaningful conversations and both providing and receiving feedback
- Sharing advice and asking for help when needed
Capability 5: Communicate Strategically
Leaders should develop crisp, clear messaging adaptable to various audiences and focus on active listening. Achieving this involves:
- Creating their communication style and finding their unique voice
- Developing storytelling skills
- Utilizing a data-centric and fact-based approach to communication
- Continual practice and asking for feedback
Capability 6: Foster Innovation
Leaders should collaborate with experts to build a reliable innovation process and a creative environment where new ideas thrive. Essential steps include:
- Developing or enhancing structures that best support innovation
- Documenting and refreshing innovation systems, processes, and practices
- Encouraging people to discover new ways of working
- Aiming to think outside the box and develop a growth mindset
- Trying to be as “tech-savvy” as possible
Capability 7: Cultivate Learning Agility
Leaders should always seek out and learn new things and not be afraid to ask questions. This involves:
- Adopting a lifelong learning mindset
- Seeking opportunities to discover new approaches and skills
- Enhancing problem-solving skills
- Reviewing both successful and unsuccessful case studies
Capability 8: Develop Personal Adaptability
Leaders should be focused on being effective when facing uncertainty and adapting to change with vigor. Therefore, leaders should:
- Be flexible about their approach to facing challenging situations
- Build resilience by effectively managing stress, time, and energy
- Recognize when past approaches do not work in current situations
- Learn from and capitalize on mistakes
Curiosity and Adaptability
With the eight key capabilities in mind, Lerner suggests that curiosity and adaptability are the key skills that everyone needs to thrive in the current environment.
He also advocates for lifelong learning and teaches several key courses at OPIT which can lead to a Bachelor’s Degree in Digital Business.
Read the articleMany people treat cyber threats and digital fraud as a new phenomenon that only appeared with the development of the internet. But fraud – intentional deceit to manipulate a victim – has always existed; it is just the tools that have changed.
In a recent online course for the Open Institute of Technology (OPIT), AI & Cybersecurity Strategist Tom Vazdar, chair of OPIT’s Master’s Degree in Enterprise Cybersecurity, demonstrated the striking parallels between some of the famous fraud cases of the 18th century and modern cyber fraud.
Why does the history of fraud matter?
Primarily because the psychology and fraud tactics have remained consistent over the centuries. While cybersecurity is a tool that can combat modern digital fraud threats, no defense strategy will be successful without addressing the underlying psychology and tactics.
These historical fraud cases Vazdar addresses offer valuable lessons for current and future cybersecurity approaches.
The South Sea Bubble (1720)
The South Sea Bubble was one of the first stock market crashes in history. While it may not have had the same far-reaching consequences as the Black Thursday crash of 1929 or the 2008 crash, it shows how fraud can lead to stock market bubbles and advantages for insider traders.
The South Sea Company was a British company that emerged to monopolize trade with the Spanish colonies in South America. The company promised investors significant returns but provided no evidence of its activities. This saw the stock prices grow from £100 to £1,000 in a matter of months, then crash when the company’s weakness was revealed.
Many people lost a significant amount of money, including Sir Isaac Newton, prompting the statement, “I can calculate the movement of the stars, but not the madness of men.“
Investors often have no way to verify a company’s claim, making stock markets a fertile ground for manipulation and fraud since their inception. When one party has more information than another, it creates the opportunity for fraud. This can be seen today in Ponzi schemes, tech stock bubbles driven by manipulative media coverage, and initial cryptocurrency offerings.
The Diamond Necklace Affair (1784-1785)
The Diamond Necklace Affair is an infamous incident of fraud linked to the French Revolution. An early example of identity theft, it also demonstrates that the harm caused by such a crime can go far beyond financial.
A French aristocrat named Jeanne de la Mont convinced Cardinal Louis-René-Édouard, Prince de Rohan into thinking that he was buying a valuable diamond necklace on behalf of Queen Marie Antoinette. De la Mont forged letters from the queen and even had someone impersonate her for a meeting, all while convincing the cardinal of the need for secrecy. The cardinal overlooked several questionable issues because he believed he would gain political benefit from the transaction.
When the scheme finally exposed, it damaged Marie Antoinette’s reputation, despite her lack of involvement in the deception. The story reinforced the public perception of her as a frivolous aristocrat living off the labor of the people. This contributed to the overall resentment of the aristocracy that erupted in the French Revolution and likely played a role in Marie Antoinette’s death. Had she not been seen as frivolous, she might have been allowed to live after her husband’s death.
Today, impersonation scams work in similar ways. For example, a fraudster might forge communication from a CEO to convince employees to release funds or take some other action. The risk of this is only increasing with improved technology such as deepfakes.
Spanish Prisoner Scam (Late 1700s)
The Spanish Prisoner Scam will probably sound very familiar to anyone who received a “Nigerian prince” email in the early 2000s.
Victims received letters from a “wealthy Spanish prisoner” who needed their help to access his fortune. If they sent money to facilitate his escape and travel, he would reward them with greater riches when he regained his fortune. This was only one of many similar scams in the 1700s, often involving follow-up requests for additional payments before the scammer disappeared.
While the “Nigerian prince” scam received enough publicity that it became almost unbelievable that people could fall for it, if done well, these can be psychologically sophisticated scams. The stories play on people’s emotions, get them invested in the person, and enamor them with the idea of being someone helpful and important. A compelling narrative can diminish someone’s critical thinking and cause them to ignore red flags.
Today, these scams are more likely to take the form of inheritance fraud or a lottery scam, where, again, a person has to pay an advance fee to unlock a much bigger reward, playing on the common desire for easy money.
Evolution of Fraud
These examples make it clear that fraud is nothing new and that effective tactics have thrived over the centuries. Technology simply opens up new opportunities for fraud.
While 18th-century scammers had to rely on face-to-face contact and fraudulent letters, in the 19th century they could leverage the telegraph for “urgent” communication and newspaper ads to reach broader audiences. In the 20th century, there were telephones and television ads. Today, there are email, social media, and deepfakes, with new technologies emerging daily.
Rather than quack doctors offering miracle cures, we see online health scams selling diet pills and antiaging products. Rather than impersonating real people, we see fake social media accounts and catfishing. Fraudulent sites convince people to enter their bank details rather than asking them to send money. The anonymity of the digital world protects perpetrators.
But despite the technology changing, the underlying psychology that makes scams successful remains the same:
- Greed and the desire for easy money
- Fear of missing out and the belief that a response is urgent
- Social pressure to “keep up with the Joneses” and the “Bandwagon Effect”
- Trust in authority without verification
Therefore, the best protection against scams remains the same: critical thinking and skepticism, not technology.
Responding to Fraud
In conclusion, Vazdar shared a series of steps that people should take to protect themselves against fraud:
- Think before you click.
- Beware of secrecy and urgency.
- Verify identities.
- If it seems too good to be true, be skeptical.
- Use available security tools.
Those security tools have changed over time and will continue to change, but the underlying steps for identifying and preventing fraud remain the same.
For more insights from Vazdar and other experts in the field, consider enrolling in highly specialized and comprehensive programs like OPIT’s Enterprise Security Master’s program.
-
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Related posts
The world is rapidly changing. New technologies such as artificial intelligence (AI) are transforming our lives and work, redefining the definition of “essential office skills.”
So what essential skills do today’s workers need to thrive in a business world undergoing a major digital transformation? It’s a question that Alan Lerner, director at Toptal and lecturer at the Open Institute of Technology (OPIT), addressed in his recent online masterclass.
In a broad overview of the new office landscape, Lerner shares the essential skills leaders need to manage – including artificial intelligence – to keep abreast of trends.
Here are eight essential capabilities business leaders in the AI era need, according to Lerner, which he also detailed in OPIT’s recent Master’s in Digital Business and Innovation webinar.
An Adapting Professional Environment
Lerner started his discussion by quoting naturalist Charles Darwin.
“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”
The quote serves to highlight the level of change that we are currently seeing in the professional world, said Lerner.
According to the World Economic Forum’s The Future of Jobs Report 2025, over the next five years 22% of the labor market will be affected by structural change – including job creation and destruction – and much of that change will be enabled by new technologies such as AI and robotics. They expect the displacement of 92 million existing jobs and the creation of 170 million new jobs by 2030.
While there will be significant growth in frontline jobs – such as delivery drivers, construction workers, and care workers – the fastest-growing jobs will be tech-related roles, including big data specialists, FinTech engineers, and AI and machine learning specialists, while the greatest decline will be in clerical and secretarial roles. The report also predicts that most workers can anticipate that 39% of their existing skill set will be transformed or outdated in five years.
Lerner also highlighted key findings in the Accenture Life Trends 2025 Report, which explores behaviors and attitudes related to business, technology, and social shifts. The report noted five key trends:
- Cost of Hesitation – People are becoming more wary of the information they receive online.
- The Parent Trap – Parents and governments are increasingly concerned with helping the younger generation shape a safe relationship with digital technology.
- Impatience Economy – People are looking for quick solutions over traditional methods to achieve their health and financial goals.
- The Dignity of Work – Employees desire to feel inspired, to be entrusted with agency, and to achieve a work-life balance.
- Social Rewilding – People seek to disconnect and focus on satisfying activities and meaningful interactions.
These are consumer and employee demands representing opportunities for change in the modern business landscape.
Key Capabilities for the AI Era
Businesses are using a variety of strategies to adapt, though not always strategically. According to McClean & Company’s HR Trends Report 2025, 42% of respondents said they are currently implementing AI solutions, but only 7% have a documented AI implementation strategy.
This approach reflects the newness of the technology, with many still unsure of the best way to leverage AI, but also feeling the pressure to adopt and adapt, experiment, and fail forward.
So, what skills do leaders need to lead in an environment with both transformation and uncertainty? Lerner highlighted eight essential capabilities, independent of technology.
Capability 1: Manage Complexity
Leaders need to be able to solve problems and make decisions under fast-changing conditions. This requires:
- Being able to look at and understand organizations as complex social-technical systems
- Keeping a continuous eye on change and adopting an “outside-in” vision of their organization
- Moving fast and fixing things faster
- Embracing digital literacy and technological capabilities
Capability 2: Leverage Networks
Leaders need to develop networks systematically to achieve organizational goals because it is no longer possible to work within silos. Leaders should:
- Use networks to gain insights into complex problems
- Create networks to enhance influence
- Treat networks as mutually rewarding relationships
- Develop a robust profile that can be adapted for different networks
Capability 3: Think and Act “Global”
Leaders should benchmark using global best practices but adapt them to local challenges and the needs of their organization. This requires:
- Identifying what great companies are achieving and seeking data to understand underlying patterns
- Developing perspectives to craft global strategies that incorporate regional and local tactics
- Learning how to navigate culturally complex and nuanced business solutions
Capability 4: Inspire Engagement
Leaders must foster a culture that creates meaningful connections between employees and organizational values. This means:
- Understanding individual values and needs
- Shaping projects and assignments to meet different values and needs
- Fostering an inclusive work environment with plenty of psychological safety
- Developing meaningful conversations and both providing and receiving feedback
- Sharing advice and asking for help when needed
Capability 5: Communicate Strategically
Leaders should develop crisp, clear messaging adaptable to various audiences and focus on active listening. Achieving this involves:
- Creating their communication style and finding their unique voice
- Developing storytelling skills
- Utilizing a data-centric and fact-based approach to communication
- Continual practice and asking for feedback
Capability 6: Foster Innovation
Leaders should collaborate with experts to build a reliable innovation process and a creative environment where new ideas thrive. Essential steps include:
- Developing or enhancing structures that best support innovation
- Documenting and refreshing innovation systems, processes, and practices
- Encouraging people to discover new ways of working
- Aiming to think outside the box and develop a growth mindset
- Trying to be as “tech-savvy” as possible
Capability 7: Cultivate Learning Agility
Leaders should always seek out and learn new things and not be afraid to ask questions. This involves:
- Adopting a lifelong learning mindset
- Seeking opportunities to discover new approaches and skills
- Enhancing problem-solving skills
- Reviewing both successful and unsuccessful case studies
Capability 8: Develop Personal Adaptability
Leaders should be focused on being effective when facing uncertainty and adapting to change with vigor. Therefore, leaders should:
- Be flexible about their approach to facing challenging situations
- Build resilience by effectively managing stress, time, and energy
- Recognize when past approaches do not work in current situations
- Learn from and capitalize on mistakes
Curiosity and Adaptability
With the eight key capabilities in mind, Lerner suggests that curiosity and adaptability are the key skills that everyone needs to thrive in the current environment.
He also advocates for lifelong learning and teaches several key courses at OPIT which can lead to a Bachelor’s Degree in Digital Business.
Many people treat cyber threats and digital fraud as a new phenomenon that only appeared with the development of the internet. But fraud – intentional deceit to manipulate a victim – has always existed; it is just the tools that have changed.
In a recent online course for the Open Institute of Technology (OPIT), AI & Cybersecurity Strategist Tom Vazdar, chair of OPIT’s Master’s Degree in Enterprise Cybersecurity, demonstrated the striking parallels between some of the famous fraud cases of the 18th century and modern cyber fraud.
Why does the history of fraud matter?
Primarily because the psychology and fraud tactics have remained consistent over the centuries. While cybersecurity is a tool that can combat modern digital fraud threats, no defense strategy will be successful without addressing the underlying psychology and tactics.
These historical fraud cases Vazdar addresses offer valuable lessons for current and future cybersecurity approaches.
The South Sea Bubble (1720)
The South Sea Bubble was one of the first stock market crashes in history. While it may not have had the same far-reaching consequences as the Black Thursday crash of 1929 or the 2008 crash, it shows how fraud can lead to stock market bubbles and advantages for insider traders.
The South Sea Company was a British company that emerged to monopolize trade with the Spanish colonies in South America. The company promised investors significant returns but provided no evidence of its activities. This saw the stock prices grow from £100 to £1,000 in a matter of months, then crash when the company’s weakness was revealed.
Many people lost a significant amount of money, including Sir Isaac Newton, prompting the statement, “I can calculate the movement of the stars, but not the madness of men.“
Investors often have no way to verify a company’s claim, making stock markets a fertile ground for manipulation and fraud since their inception. When one party has more information than another, it creates the opportunity for fraud. This can be seen today in Ponzi schemes, tech stock bubbles driven by manipulative media coverage, and initial cryptocurrency offerings.
The Diamond Necklace Affair (1784-1785)
The Diamond Necklace Affair is an infamous incident of fraud linked to the French Revolution. An early example of identity theft, it also demonstrates that the harm caused by such a crime can go far beyond financial.
A French aristocrat named Jeanne de la Mont convinced Cardinal Louis-René-Édouard, Prince de Rohan into thinking that he was buying a valuable diamond necklace on behalf of Queen Marie Antoinette. De la Mont forged letters from the queen and even had someone impersonate her for a meeting, all while convincing the cardinal of the need for secrecy. The cardinal overlooked several questionable issues because he believed he would gain political benefit from the transaction.
When the scheme finally exposed, it damaged Marie Antoinette’s reputation, despite her lack of involvement in the deception. The story reinforced the public perception of her as a frivolous aristocrat living off the labor of the people. This contributed to the overall resentment of the aristocracy that erupted in the French Revolution and likely played a role in Marie Antoinette’s death. Had she not been seen as frivolous, she might have been allowed to live after her husband’s death.
Today, impersonation scams work in similar ways. For example, a fraudster might forge communication from a CEO to convince employees to release funds or take some other action. The risk of this is only increasing with improved technology such as deepfakes.
Spanish Prisoner Scam (Late 1700s)
The Spanish Prisoner Scam will probably sound very familiar to anyone who received a “Nigerian prince” email in the early 2000s.
Victims received letters from a “wealthy Spanish prisoner” who needed their help to access his fortune. If they sent money to facilitate his escape and travel, he would reward them with greater riches when he regained his fortune. This was only one of many similar scams in the 1700s, often involving follow-up requests for additional payments before the scammer disappeared.
While the “Nigerian prince” scam received enough publicity that it became almost unbelievable that people could fall for it, if done well, these can be psychologically sophisticated scams. The stories play on people’s emotions, get them invested in the person, and enamor them with the idea of being someone helpful and important. A compelling narrative can diminish someone’s critical thinking and cause them to ignore red flags.
Today, these scams are more likely to take the form of inheritance fraud or a lottery scam, where, again, a person has to pay an advance fee to unlock a much bigger reward, playing on the common desire for easy money.
Evolution of Fraud
These examples make it clear that fraud is nothing new and that effective tactics have thrived over the centuries. Technology simply opens up new opportunities for fraud.
While 18th-century scammers had to rely on face-to-face contact and fraudulent letters, in the 19th century they could leverage the telegraph for “urgent” communication and newspaper ads to reach broader audiences. In the 20th century, there were telephones and television ads. Today, there are email, social media, and deepfakes, with new technologies emerging daily.
Rather than quack doctors offering miracle cures, we see online health scams selling diet pills and antiaging products. Rather than impersonating real people, we see fake social media accounts and catfishing. Fraudulent sites convince people to enter their bank details rather than asking them to send money. The anonymity of the digital world protects perpetrators.
But despite the technology changing, the underlying psychology that makes scams successful remains the same:
- Greed and the desire for easy money
- Fear of missing out and the belief that a response is urgent
- Social pressure to “keep up with the Joneses” and the “Bandwagon Effect”
- Trust in authority without verification
Therefore, the best protection against scams remains the same: critical thinking and skepticism, not technology.
Responding to Fraud
In conclusion, Vazdar shared a series of steps that people should take to protect themselves against fraud:
- Think before you click.
- Beware of secrecy and urgency.
- Verify identities.
- If it seems too good to be true, be skeptical.
- Use available security tools.
Those security tools have changed over time and will continue to change, but the underlying steps for identifying and preventing fraud remain the same.
For more insights from Vazdar and other experts in the field, consider enrolling in highly specialized and comprehensive programs like OPIT’s Enterprise Security Master’s program.
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