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Pyramid Schemes

Author

Listed:
  • Gönül Doğan

    (Faculty of Management, Economics and Social Sciences, Chair of Corporate Development and Business Ethics, University of Cologne)

  • Kenan Kalayci

    (School of Economics, University of Queensland)

  • Priscilla Man

    (School of Economics, University of Queensland)

Abstract

We invite experiment participants to invest their endowment in a pyramid scheme with a negative expected return. More than half of the participants invest regardless of their age, gender, education, income, and trust and fairness beliefs. Four interventions probe instruction tools that may deter pyramid investments. Exposure to possible payoff distributions or making payoff calculations diminishes investment rates, whereas seeing example pyramid outcomes or being exposed to a smaller pyramid scheme has no effect. Higher risk tolerance, preference for positively-skewed risk, and lower cognitive skills positively correlate with investment but explain a relatively small portion of investments.

Suggested Citation

  • Gönül Doğan & Kenan Kalayci & Priscilla Man, 2024. "Pyramid Schemes," Discussion Papers Series 667, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uq2004:667
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    File URL: https://economics.uq.edu.au/files/49017/667.pdf
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    Keywords

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    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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