Decision-making and vulnerability in a pyramid scheme fraud

•Lab-in-the-field experiment explores consumer fraud vulnerability at State Fair.•Information treatment reduces scheme uptake if college education or high CRT.•Predictable mistakes in judgment and low consideration of odds increase risk.•Religiosity, prior exposure, and risk preferences related to s...

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Bibliographic Details
Published inJournal of behavioral and experimental economics Vol. 80; pp. 1 - 13
Main Authors Bosley, Stacie A., Bellemare, Marc F., Umwali, Linda, York, Joshua
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier Inc 01.06.2019
Elsevier Science Ltd
Subjects
Cognitive functioning
Consumer fraud
Consumer protection
Decision making
Experiment
Fraud
Pyramid scheme
Secondary education
Sociodemographics
Victimization
Vulnerability
Pyramid scheme
Consumer fraud
Experiment
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Summary:•Lab-in-the-field experiment explores consumer fraud vulnerability at State Fair.•Information treatment reduces scheme uptake if college education or high CRT.•Predictable mistakes in judgment and low consideration of odds increase risk.•Religiosity, prior exposure, and risk preferences related to scheme uptake. 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.
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ISSN:2214-8043
2214-8051
DOI:10.1016/j.socec.2019.02.011