What Makes Pyramid Schemes Work?

Last registered on June 13, 2018
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Pre-Trial

Trial Information

General Information

Title
What Makes Pyramid Schemes Work?
RCT ID
AEARCTR-0003057
Initial registration date
June 08, 2018

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
June 13, 2018, 7:20 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Country
United States of America
Region
MTurk

Primary Investigator

Name
Gonul Dogan
Affiliation
University of Cologne
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Other Primary Investigator(s)

PI Name
Priscilla Man
PI Affiliation
University of Queensland
Contact Investigator
PI Name
Kenan Kalayci
PI Affiliation
University of Queensland
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Additional Trial Information

Status
Completed
Start date
2018-06-08
End date
2018-06-09
Keywords
Other
Additional Keywords
Pyramid schemes, cognitive biases, behavioral economics, corruption
JEL code(s)
Secondary IDs
Abstract
Via an online experiment, we investigate whether and why people invest in pyramid schemes. We focus on cognitive biases that could explain entry decisions.
External Link(s)

Registration Citation

Citation
Dogan, Gonul, Kenan Kalayci and Priscilla Man. 2018. "What Makes Pyramid Schemes Work?." AEA RCT Registry. June 13. https://doi.org/10.1257/rct.3057-1.0
Former Citation
Dogan, Gonul, Kenan Kalayci and Priscilla Man. 2018. "What Makes Pyramid Schemes Work?." AEA RCT Registry. June 13. https://www.socialscienceregistry.org/trials/3057/history/30704
Sponsors & Partners
Experimental Details

Interventions

Intervention(s)
Our study consists of three treatments. In baseline treatment, we will determine the rate of investment to a pyramid scheme. Two further treatments will test whether the investment decisions are due to the complexity of the decision-making.
Intervention Start Date
2018-06-08
Intervention End Date
2018-06-09

Primary Outcomes

Primary Outcomes (end points)
Investment rate, a binary variable.
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Investment rate controlling for k-level reasoning, risk measure, and trust measure.
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
Subjects are endowed with $4 and have to decide whether to invest or keep their endowment. 200 participants will make this decision. Subjects' decisions are implemented in a randomly drawn network, and the payoffs realise.
Experimental Design Details
Subjects are endowed with $4 and have to decide whether to invest or keep their endowment. 200 participants will make this decision. Afterwards, a tree will be randomly drawn to determine the participant's position in the tree. At the top of the tree, there are two persons, and each person is matched with two further people (followers). If a person decides to invest, and is part of an active branch of the tree, her earnings would be 2 times the number of first degree followers, 1 time the number of second degree followers, 0.5 times the number of third degree followers and so on. Participants get detailed instructions about this earnings structure and have to answer comprehension questions that give example trees.
Randomization Method
Mturk randomization device.
Randomization Unit
Individual
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
600
Sample size: planned number of observations
600
Sample size (or number of clusters) by treatment arms
200
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
If 50 percent invest in baseline, and 40 percent in treatment 1, then at alpha=0.05, power is 0.97. The effect size is 0.193. With 80 percent power at 5 percent alpha, with 400 subjects, the detectable effect is 0.14. This would translate into a reduction from 50 percent to 42.86 percent investors.
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number
Analysis Plan

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials