Understanding Ponzi Schemes

Understanding Ponzi Schemes

Can Better Financial Regulation Prevent Investors from Being Defrauded?

New Horizons in Money and Finance series

Mervyn K. Lewis

A Ponzi scheme is one of the simplest, albeit effective, financial frauds to engineer, and new schemes keep coming forward. Despite this, however, people continue to invest in them. How are we to account for the seemingly never-ending lure of such schemes? In providing answers to this central question, this concise and well-researched book examines how Ponzi schemes operate, how they differ from pyramid schemes, Ponzi finance and other financial arrangements.

Chapter 9: What would psychologists say?

Mervyn K. Lewis

Subjects: economics and finance, behavioural and experimental economics, economic crime and corruption, economic psychology, financial economics and regulation


Throughout the history of Ponzi schemes, multitudes have been victimized, in the words of Donald Connery, ‘by trusting the untrustworthy and believing the unbelievable’ (Connery, 2009, p. xii). What would psychologists make of this behaviour? What would they say of those who fall under the spell of those running Ponzi schemes? Interestingly, we have the answer of one psychologist. Based on his book Annals of Gullibility: Why we get duped and how to avoid it (Greenspan, 2009a), and chastened by his own experience of losing a large chunk of his retirement savings to Bernard Madoff (Greenspan, 2009b), psychologist Stephen Greenspan suggests four ‘induced-social’ factors in his explanation of gullibility: situation, cognition, personality and emotion. These explanatory factors are depicted in a simple additive relationship in Figure 9.1. Essentially, a gullible outcome occurs out of a mix of these four factors, which make variable degrees of contribution to the outcome depending on the situation and the person.

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information