Final answer:
The likelihood of fraud is indeed higher in transactions where the other party cannot be seen. Transactions with imperfect information can proceed with mitigating mechanisms, but the risks, including identity theft, remain a significant concern.
Step-by-step explanation:
The statement that fraud risks are higher when transacting with entities that cannot be seen is generally true. When involved in transactions where the other party's identity is uncertain, there is a lack of physical cues and verification processes that typically aid in building trust and authenticity. Economic transactions often happen under conditions of imperfect information, where it might not be possible to fully evaluate the quality of goods like gemstones, used cars, or services offered by individuals such as lawyers. In the realm of employment, employers and lenders cannot completely ascertain the potential of workers or borrowers on face value alone.
Nonetheless, certain mechanisms can be employed to mitigate these risks, allowing transactions to proceed despite some level of uncertainty. Identity theft, also known as True-name Fraud, is a major concern, as personal information can be used by thieves to engage in unauthorized financial activities, leading to significant financial and trust losses in institutions.