Threshold behaviors of social dynamics and financial outcomes of Ponzi scheme diffusion in complex networks

Peihua Fu, Anding Zhu, He Ni, Xin Zhao and Xiulin Li

Physica A: Statistical Mechanics and its Applications, 2018, vol. 490, issue C, 632-642

Abstract: Ponzi schemes always lead to mass disasters after collapse. It is important to study the critical behaviors of both social dynamics and financial outcomes for Ponzi scheme diffusion in complex networks. We develop the potential-investor–divestor–investor (PIDI) model by considering the individual behavior of direct reinvestment. We find that only the spreading rate relates to the epidemic outbreak while the reinvestment rate relates to the zero and non-zero final states for social dynamics of both homo- and inhomogeneous networks. Financially, we find that there is a critical spreading threshold, above which the scheme needs not to use its own initial capital for taking off, i.e. the starting cost is covered by the rapidly inflowing funds. However, the higher the cost per recruit, the larger the critical spreading threshold and the worse the financial outcomes. Theoretical and simulation results also reveal that schemes are easier to take off in inhomogeneous networks. The reinvestment rate does not affect the starting. However, it improves the financial outcome in the early stages and postpones the outbreak of financial collapse. Some policy suggestions for the regulator from the perspective of social physics are proposed in the end of the paper.

Keywords: Ponzi scheme diffusion; PIDI model; Complex network; Social network; Mean-field equation; SIR model (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:490:y:2018:i:c:p:632-642

DOI: 10.1016/j.physa.2017.08.148

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