Pyramid Schemes

Gönül Doğan (), Kenan Kalayci and Priscilla Man ()
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Gönül Doğan: Faculty of Management, Economics and Social Sciences, Chair of Corporate Development and Business Ethics, University of Cologne
Priscilla Man: School of Economics, University of Queensland

No 667, Discussion Papers Series from University of Queensland, School of Economics

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.

Keywords: pyramid schemes; instruction methods; risk preferences; experiments (search for similar items in EconPapers)
JEL-codes: C90 D14 D81 D91 (search for similar items in EconPapers)
Date: 2024-02
New Economics Papers: this item is included in nep-exp, nep-gth and nep-neu
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Persistent link: https://EconPapers.repec.org/RePEc:qld:uq2004:667

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