Can Better Financial Regulation Prevent Investors from Being Defrauded?
- New Horizons in Money and Finance series
Chapter 9: What would psychologists say?
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.
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