Psychological and social determinants of repeated investment in pyramid schemes among gen z and millennials in southern province of Sri Lanka

Abstract

Pyramid schemes have been an emerging issue among Sri Lankan youth, particularly Generation Z and Millennials, who are most frequently lured by the high financial returns. Despite being illegal, pyramid schemes continue to thrive, and they lead to considerable financial losses and worsen the financial situations of the participants. This study aims to discover the psychological, social, and economic factors that influence Gen Z and Millennials to continue to invest in these extremely high-risk schemes and why some participants continue to fall victim to them repeatedly despite having lost money in the past. The study follows an interpretivism philosophy and qualitative study design with a specific focus on semi-structured in-depth interviews of Millennials and Generation Z who have fallen victim to pyramid schemes more than once. The sampling was achieved through snowball sampling, and the sample size includes 10 individuals who have fallen victim of pyramid schemes in Southern Province. Data is analyzed through a thematic analysis, with close attention to developing patterns and themes of investment behavior, emotional and social processes, and financial decision-making. This paper finds that both Gen Z and Millennial investors in Sri Lanka are motivated by a thirst for fast wealth, social factors, and cognitive biases, including overconfidence and the sunk cost fallacy, which result in repeated investment in pyramid schemes even after they incurred losses. Social networks, both offline and online, are important in supporting these behaviors. It is proven that the use of conventional regulatory warnings is now ineffective, with the focus on the use of behavioral science-supported strategies, including digital friction and loss-framed messages, that reverse the effect of the lure of these schemes.