Why do people risk exposure to Ponzi schemes? Econometric evidence from Jamaica

The global financial crisis has led to the unearthing of numerous Ponzi schemes around the world. This paper examines the factors determining individuals’ extent of exposure to Ponzi schemes. The theoretical literature on investor gullibility and risk tolerance was used to develop an economic model to explain such exposure. The model was empirically tested by analyzing the results of a survey of 402 investors in Jamaican Ponzi schemes. A profile of persons most likely to be highly exposed to Ponzi schemes was created, along with a delineation of the most critical factors accounting for the popularity of such schemes.