(Update: Thanks to my colleague Jason Kerwin for writing, late in the day, that there was no link to the paper. The post now includes a link.)
That is the title of a new working paper I have with Stacie Bosley, from Hamline University here in St. Paul, and two undergraduate coauthors, who are also from Hamline.
Here is the abstract:
Consumer financial fraud is costly to individuals and communities yet academic research on the subject is scarce, in part 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 at the 2017 Minnesota State Fair, and we estimate the impact of an information treatment—specifically, a reminder to pay attention to the odds of winning or losing—on our subjects’ behavior in relation to pyramid scheme fraud. Our results indicate that this straightforward, simple treatment reduces fraud uptake, but only for subjects with a post-secondary education. Our findings show correlates of victimization beyond cognitive ability, including impulsivity, risk preferences, religiosity, and prior exposure to pyramid scheme fraud. Subject reliance on probabilities in decision-making and the accuracy of subjective expectations are the most statistically significant predictors of the decision to invest 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.
My interest in the topic comes from my interest in behavior in the face of risk and uncertainty as well as in lab-in-the-field experiments, which I have previously run in Peru to study the behavior of farmers in the face of output price risk. And given that we got access to the University of Minnesota’s Driven to Discover building at the Minnesota State Fair, it was nice to run experiments by recruiting from a pool of subjects that is more representative than that of the usual lab experiment, which typically consists of college students.