The Construction of a Trustworthy Investment Opportunity: Insights from the Madoff Fraud

Hervé Stolowy (), Martin Messner (), Thomas Jeanjean and C. Richard Baker ()

No 971, HEC Research Papers Series from HEC Paris

Abstract: In this paper, we use the investment fraud of Bernard Madoff to inquire into the production of trust in the context of financial markets. Drawing upon empirical data related to U.S. individual investors (interviews and letters) as well as documentary material, we investigate the mechanisms through which investing with Madoff came to be seen as a trustworthy investment opportunity. We show how different types of information contributed to construct Bernard Madoff as a trustworthy investment manager and how Madoff avoided meeting demands for accountability by manipulating investors in face-to-face encounters. We shed particular light on the role of institution-based forms of trust which play a critical role in facilitating economic exchanges. More specifically, we suggest that the Madoff case illuminates how the provision of information can lead to an “illusion of trustworthiness” that is difficult to escape for investors. An element of such illusion, we suggest, is inherent to the functioning of financial markets more generally.

Keywords: Madoff; trustworthiness; illusion; financial markets (search for similar items in EconPapers)
JEL-codes: G10 G30 M41 M42 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2013-03-09
New Economics Papers: this item is included in nep-soc
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2245700 (application/pdf)

Related works:
Journal Article: The Construction of a Trustworthy Investment Opportunity: Insights from the Madoff Fraud (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:0971

Access Statistics for this paper

More papers in HEC Research Papers Series from HEC Paris HEC Paris, 78351 Jouy-en-Josas cedex, France. Contact information at EDIRC.
Bibliographic data for series maintained by Antoine Haldemann ().