Why are people trapped in Ponzi and pyramid schemes?
Article publication date: 24 August 2020
Issue publication date: 24 August 2020
This paper aims to identify psychological factors that influence people to be involved in Ponzi and pyramid schemes.
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.
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.
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.
Special thanks to Tongam L. Tobing, Chair of the Investment Alert Task Force, and Dhani Gunawan Idat from Financial Services Authority (OJK), for valuable discussions and suggestions.
Hidajat, T., Primiana, I., Rahman, S. and Febrian, E. (2020), "Why are people trapped in Ponzi and pyramid schemes?", Journal of Financial Crime, Vol. 28 No. 1, pp. 187-203. https://doi.org/10.1108/JFC-05-2020-0093
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