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Sludges against Ponzi schemes

Author

Listed:
  • Marina V. Ryzhkova

    (National Research Tomsk State University, Tomsk, Russia)

  • Elmira R. Kashapova

    (National Research Tomsk State University, Tomsk, Russia)

Abstract

Pyramid schemes are adapting to the digitalisation era and mimicking various organisations. The organisers of these schemes quite often appeal to such human qualities as greed and the desire to get rich quickly. Thus, it is becoming increasingly relevant to develop new methods for countering pyramid schemes taking into account modern realities and behavioural characteristics of an individual decisionmaker. The focus of the research is on selecting sludge tools to fight against digital pyramid schemes. Methodologically, the study relies on the concepts of behavioural economics, in particular, of the nudge theory (nudges vs sludges). The methods include brainstorming, focus groups. The evidence comes from primary qualitative research, in-depth interviews with both non-professional investors and experts in the field of financial market held in 2022. The analysis allowed defining the concept of sludge and present the types of sludge tools. The paper provides an original list of sludge tools as well as a set of practical tools to counter pyramid schemes, which, in particular, consists of legal restrictions, monitoring of Ponzi schemes’ activities, financial enlightenment, a legal information system, self-coordination of investors, and an individual approach. The paper concludes that sludge tools differ in terms of the length of impact and the speed of obtaining a result. Short-term sludges generate a fast effect and prevent from investing in pyramid schemes without preliminary preparation of participants; they, for instance, include placing a poster with a warning against Ponzi schemes, ensuring a careful reading of the contract, mandatory familiarisation with the List of entities with detected signs of illegal activities in the financial market created by the Bank of Russia, taking a risk test for assessing the probability of a decreased price or lost asset, ensuring advice of a financial counsellor as an obligatory stage of investment. The findings contribute to the understanding of the need for proactive (preventive) measures’ development aimed at countering fraudulent schemes.

Suggested Citation

  • Marina V. Ryzhkova & Elmira R. Kashapova, 2024. "Sludges against Ponzi schemes," Journal of New Economy, Ural State University of Economics, vol. 25(1), pages 50-68, April.
    • Handle: RePEc:url:izvest:v:25:y:2024:i:1:p:50-68
    DOI: 10.29141/2658-5081-2024-25-1-3
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    References listed on IDEAS

    as
    1. Rohde, Kirsten I.M. & Verbeke, Willem, 2017. "We like to see you in the gym—A field experiment on financial incentives for short and long term gym attendance," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 388-407.
    2. Bosley, Stacie A. & Bellemare, Marc F. & Umwali, Linda & York, Joshua, 2019. "Decision-making and vulnerability in a pyramid scheme fraud," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 80(C), pages 1-13.
    3. Taylor Cranor & Jacob Goldin & Tatiana Homonoff & Lindsay Moore, 2020. "Communicating Tax Penalties to Delinquent Taxpayers: Evidence from a Field Experiment," National Tax Journal, National Tax Association;National Tax Journal, vol. 73(2), pages 331-360, June.
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    More about this item

    Keywords

    Ponzi schemes; digital pyramid schemes; countermeasures; sludges; nudges; financial behaviour;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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