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.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1-13 |
| Number of pages | 13 |
| Journal | Journal of Behavioral and Experimental Economics |
| Volume | 80 |
| DOIs | |
| State | Published - Jun 2019 |
Bibliographical note
Funding Information:The authors gratefully acknowledge grant funding provided by the Hamline Center for Justice and Law. We also thank the University of Minnesota for support provided through the Driven to Discover Program and Hamline University students who supported the pilot experiment and participated as research assistants at the Minnesota State Fair.
Publisher Copyright:
© 2019 Elsevier Inc.
Keywords
- Consumer fraud
- Experiment
- Pyramid scheme