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Decision-making and vulnerability in a pyramid scheme fraud

Author

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  • Bosley, Stacie A.
  • Bellemare, Marc F.
  • Umwali, Linda
  • York, Joshua

Abstract

Consumer financial fraud is costly to individuals and communities. Yet academic research on the subject is scarce due to how difficult it is to find reliable data. Using a lab-in-the-field artefactual experiment, we study judgment and decision-making as well as the correlates of victimization in a prototypical pyramid scheme fraud. We record demographic, psychological, cognitive, and behavioral characteristics for 452 subjects, and we estimate the impact of an information treatment—specifically, a reminder to carefully consider the odds of winning or losing—on our subjects’ behavior in relation to pyramid scheme fraud. Our results indicate that this straightforward, simple treatment may reduce fraud uptake, but only for subjects with a post-secondary education or high cognitive ability. Subject reliance on probabilities in decision-making and the accuracy of subjective expectations are the most significant predictors of whether one invests in a fraudulent pyramid scheme. Our results can help inform the targeting of consumer protection interventions as well as the potential content of those interventions.

Suggested Citation

  • Bosley, Stacie A. & Bellemare, Marc F. & Umwali, Linda & York, Joshua, 2019. "Decision-making and vulnerability in a pyramid scheme fraud," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 80(C), pages 1-13.
    • Handle: RePEc:eee:soceco:v:80:y:2019:i:c:p:1-13
    DOI: 10.1016/j.socec.2019.02.011
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    Citations

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    Cited by:

    1. Austin M. Miller & Samantha Snyder & Stacie A. Bosley & Sarah Greenman, 2023. "Income disclosure and consumer judgment in a multilevel marketing experiment," Journal of Consumer Affairs, Wiley Blackwell, vol. 57(1), pages 92-120, January.
    2. Feng, Pihu & Lu, Xin & Gong, Zaiwu & Sun, Duoyong, 2021. "A case study of the pyramid scheme in China based on communication network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 565(C).
    3. Gönül Doğan & Kenan Kalayci & Priscilla Man, 2024. "Pyramid Schemes," Discussion Papers Series 667, School of Economics, University of Queensland, Australia.

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