Why are people trapped in Ponzi and pyramid schemes?

Taofik Hidajat, Ina Primiana, Sulaeman Rahman and Erie Febrian

Journal of Financial Crime, 2020, vol. 28, issue 1, 187-203

Abstract: Purpose - This paper aims to identify psychological factors that influence people to be involved in Ponzi and pyramid schemes. Design/methodology/approach - A psychological approach to finance or behavioural finance is applied in this research because of the assumption that human beings are not always rational. The sample consisted of 98 investors in 11 cities in Indonesia who were or had invested in an investment program with a Ponzi or pyramid scheme. The snowball sampling technique was applied. Findings - The conclusion is that optimism (emotional bias), confirmation bias, representativeness bias, framing bias and overconfidence (cognitive bias) positively influenced investment decisions related to Ponzi and pyramid schemes. Originality/value - The novelty aspect of this research is the implementation of a behavioural finance perspective to answer and express the fascinating phenomenon of Ponzi and pyramid investment schemes.

Keywords: Behavioural finance; Ponzi scheme; Cognitive bias; Emotional bias; Pyramid; scheme (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfcpps:jfc-05-2020-0093

DOI: 10.1108/JFC-05-2020-0093

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