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Who gets duped? The impact of education on fraud detection in an investment task

Author

Listed:
  • Calvin Blackwell

    (Department of Economics, College of Charleston)

  • Norman Maynard

    (Department of Economics, College of Charleston)

  • James Malm

    (Department of Finance, College of Charleston)

  • Mark Pyles

    (Department of Finance, College of Charleston)

  • Marcia Snyder

    (Department of Finance, College of Charleston)

  • Mark Witte

    (Department of Economics, College of Charleston)

Abstract

Many financial scandals appear to depend on a lack of skepticism on the part of their victims. Sophisticated investors trusted Bernie Madoff, for example, despite early warning signs of implausible returns. Our study investigates how education explains fraud detection in financial decision-making. In a simple survey, economics and finance students are asked to make an investment recommendation from among four hypothetical funds, including one based on Madoff’s fund. We use Truth Default Theory to explain our results. We show that education increases the likelihood that students are suspicious of Madoff’s fund, and that for students whose suspicions are aroused, education makes them less likely to choose the Madoff fund.

Suggested Citation

  • Calvin Blackwell & Norman Maynard & James Malm & Mark Pyles & Marcia Snyder & Mark Witte, 2024. "Who gets duped? The impact of education on fraud detection in an investment task," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(3), pages 734-753, September.
    • Handle: RePEc:spr:jecfin:v:48:y:2024:i:3:d:10.1007_s12197-024-09672-z
    DOI: 10.1007/s12197-024-09672-z
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    References listed on IDEAS

    as
    1. Christian Engels & Kamlesh Kumar & Dennis Philip, 2020. "Financial literacy and fraud detection," The European Journal of Finance, Taylor & Francis Journals, vol. 26(4-5), pages 420-442, March.
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    5. Justine S. Hastings & Brigitte C. Madrian & William L. Skimmyhorn, 2013. "Financial Literacy, Financial Education, and Economic Outcomes," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 347-373, May.
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    7. J. François Outreville, 2015. "The Relationship Between Relative Risk Aversion And The Level Of Education: A Survey And Implications For The Demand For Life Insurance," Journal of Economic Surveys, Wiley Blackwell, vol. 29(1), pages 97-111, February.
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    More about this item

    Keywords

    Education; Fraud; Skepticism; Truth Default Theory;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education

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