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Social Desirability Bias of Participants of a Financial Pyramid and its Influence on an Individual’s Well-being

Scientific organization
National Research Tomsk Polytechnic University
Academic degree
PhD student
PhD student
Scientific discipline
Humanities & Social sciences
Social Desirability Bias of Participants of a Financial Pyramid and its Influence on an Individual’s Well-being
The paper considers characteristics of a man’s financial behavior resulting from demographic changes and transformation of the market of financial services, where hierarchical structures, resembling financial pyramids, emerge. Citizens of Tomsk and Tomsk region were polled to reveal essential characteristics of decision-making about joining financial pyramids. A hypothesis about social desirability of considering a financial pyramid as an element of the market of financial services was tested.
financial behavior, financial pyramid, social desirability, well-being, decision-making, senior citizens


Man’s well-being is considered in terms of four key domains: material wealth, social environment, education and employment, physical and psychological well-being (man’s health) [1]. Man’s financial situation is greatly conditioned by his financial behavior. People’s financial behavior is one of the most important indicators of social and economic well-being. It is directly linked to investment activities and redistribution of monetary resources and is exhibited in different types of financial activity: savings, insurance, consumption, credit financing, profit accumulation (including as it relates to pension formation) [2]. Man’s financial behavior, in its turn, is influenced, on the one hand, by parameter variations of the market of financial services: expanding the assortment of financial products, increased number of organizations offering them, complicated consumption of financial products due to implementation of informational technologies. It allowed keeping down the costs of financial products implementation,  though, complicated the process of their consumption for those who do not have technical expertise and consider information technologies to be too complex (e.g., retirees). Meanwhile, combative advertising of financial services boosts consumption of financial products which might be of no use to people.

On the other hand, man’s financial behavior is influenced by socioeconomic and demographic changes: ageing of population; increase of personal disposable income of population, which expands opportunities for consuming financial services; increase of dependency ratio. Tomsk region also experiences an increase in the dependency ratio measuring the burden of retirees on working-age population.

Cost planning is the basis of financial security at any age, especially at pension qualification age, because after retiring man’s income usually reduces. Though the average granted pension in Tomsk region has increased in recent years (in 2013 – 10982 rubles as compared to 2781, 6 rubles in 2005), it amounts to only 38, 1% of the average gross payroll [3]. Therefore, senior citizens have to save part of their income for a rainy day, practicing self-denial.

To maintain the same consumption level many retirees keep working after retiring. For instance, about 40% of retirees in Tomsk region keep working, as confirmed by the sociological polls data held in Tomsk region under the project plan. The poll found that the primary source of revenue for senior citizens in Tomsk region in the order of decreasing is: pension, salary and social securities. Retirees could get an extra revenue in the form of savings (bank deposits), rental income from renting out real properties, supplementary pension from non-state pension funds [4].

In an attempt to improve his material wealth a man can fall the victim of a financial pyramid. In our research a financial pyramid is an organization which attracts participants’ (investors’) payments promising high interest rate, and which pays dividends to participants from the money of new members [5].

Three major approaches can be distinguished to explain people’s participation in financial pyramids: economical, sociological and psychological [6].

The economical approach explains people’s participation in financial pyramids by information asymmetry, i.e., people are unaware of the progress of investment projects, because organizers do not provide exact information of their activity.

Sociological approach means influence of mass media on people, creation of a total infatuation effect, an effect of a crowd. Sociologists also view trust as a factor of a mass investment behavior [7].

Psychological approach is grounded on people’s inclination to make mistakes, which can result in people’s participation in a financial pyramid.

In this article we will consider the influence of psychological characteristics on making economic decisions concerning income distribution and investing in projects of the kind.

The aim is to identify interrelation between man’s behavioral mistakes, his decision to join a financial pyramid and its influence on people’s well-being. 

Next issues must be solved to achieve the object:

- to determine peculiarities of a man’s financial behavior and his well-being, including senior citizens;

- to hold an opinion poll among citizens of Tomsk and Tomsk region to determine social signals of participation in financial pyramids which negatively affect man’s and society well-being;

- to test a hypothesis on existence of social desirability among participants of a financial pyramid.

Methods and materials

Participants of financial pyramids often assume such schemes as real projects, e.g., promotion of business ideas, a social project or a benefit association. Psychologists and specialists in behavioral economics call this effect a social desirability – an inclination to exhibit socially-desirable characteristics and conceal undesirable ones [8]. People who lost money in a financial pyramid conceal the fact of their participation.

Thus, in the paper a hypothesis was made that participants attribute socially-desirable characteristics to financial pyramids. In other words, a financial pyramid allows its participants manifesting socially-desirable signals: when they consider a financial pyramid to be a charitable project, they are ready to invest, since they expect some help in return; in case of promoting a business-idea, they expect their business to be developed; in case of a social project they are part of a social group.

The hypothesis was tested through analysis of the polling data, held in Tomsk and Tomsk region. An electronic and face-to-face polling were held. People participating in financial pyramids were polled. To understand participants’ behavior people not participating in financial pyramids were polled too. The poll sampled 200 respondents and had 59, 8% of women and 40,2% of men. Different age groups (18-70+) were interviewed.

Next blocks of questions were on the check-list: questions aimed at revealing effects encouraging people to join financial pyramids, appetite for risk, gambling addiction, an ability to make behavioral strategies, financial literacy; social and demographic characteristics (gender, age, education, income level, etc.); respondents’ investment interests.

Description and results discussion

Every man can make mistakes when taking decisions, he cannot allow for all possibilities, weigh expenses and income in all situations. His psychological and psycho-physical characteristics do not always correspond to the level of complexity of the tasks and problems under study. Mistakes, considered to be a human element, are usually unintentional. A man does wrong actions regarding them as correct or the most suitable.

Considering psychological characteristics of a man’s behavior, it is difficult for a man to meet the requirements of homo economicus. In economic reality there are hardly any situations, when all participants on the market have exact information about the subject of transaction. Man’s cognitive abilities are limited, moreover, his reasoning is subject to systematic bias.

People often make decisions on the basis of a working rule, not always logical one. They can make mistakes or have biases of the same kind. It can explain why most people react to the same signal (e.g., analytic’s opinion) or have similar biases. Generally speaking, cognitive distortions, as a whole, can significantly influence a man’s behavior in case of “social contagion” with ideas and emotions (sparked euphoria or fear), resulting in herding mentality or group thinking. These mistakes can lead to making inefficient decisions, influence prices and profit on the market. On the market, in this case, there can emerge players trying to gain from inefficiency. An attempt to attribute your actions to desirable social context is an example of social desirability bias.

The hypothesis of social desirability was tested in the following way: the key questions were grouped according to three domains:

1) Participants join a financial pyramid because other people do it;

2) Participants of financial pyramids tend to trust people, celebrities, friends, acquaintances, success stories, etc.;

3) A financial pyramid allows participants manifesting socially desirable signals.

Every domain was tested. 1) Participants join a financial pyramid because other people do it: а) people joined a project because neighbors, relatives, friends advised it or b) they were attracted by repeated advertising in mass media, street advertising, commercials on the internet (social networks); c) they told everybody about joining a financial project; d) they believed that if a friend and other participants of a financial project gained some profit, they also have a big chance to win (earn income). This condition is proved with the given algorithm (over 20% of results rating). Therefore, participants are subject to the effect of total infatuation (it is also proved in research made by Radaev V.V.), the given characteristics is an important factor.

2) Participants of financial pyramids are likely to trust other people, celebrities, friends, acquaintances, success stories, etc.): а) they joined a financial project because specialists, actors, celebrities advised it or because office environment inspired confidence; b) reliable documents were provided to participants; c) people believe that if a friend or other people gained from participation in a financial project (earned income), they also have a strong chance to win (earn income); d) they consider participants of financial pyramids to be lucky, successful, clever and calculating people. Few participants joined a financial pyramid because celebrities recommended it. However, it must be noted that financial pyramids of the 1990s became popular due to advertising and celebrities inspiring trust.

3) A financial pyramid allows participants manifesting socially-desirable signals (a charity project; promoting a business idea; a social project: а) they joined one or some projects which can be exemplified as financial pyramids; b) they considered the project to be a charitable act (a benefit association, i.e. participants expect that if they helped anybody their money would return), promoting a business idea, a social project. These characteristics, typical for participants, suggest the effect of social desirability.

Consequently, the analysis results show that participants of financial pyramids tend to attribute socially desirable characteristics to financial pyramids. This behavioral mistake encourages making a decision on joining such schemes which, thus, decreases people’s well-being and shakes faith in real financial projects.


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2. Surkov V. V. (2009). Financial behavior of households and its impact on the financial market of Russia. 157 p.

3. The older generation of the Tomsk region: Statistical Yearbook / Tomskstat. 2014. – 66 p.

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8. Chung J. ,  Monroe G. S. (2003) Exploring Social Desirability Bias. Journal of Business Ethics. V. 44, Issue 4, pp. 291-302.