Would you knowingly invest in a ponzi scheme?

[A Dub]

According to this article, many people recently did so, despite full disclosure that the investment was a ponzi. There's a new fund being launched if anyone wants in......

http://www.bloomberg.com/news/2012-0...an-expert.html

Interesting insight into investor psychology.

[c1ue]

Re: Would you knowingly invest in a ponzi scheme?

Well, if you're in early, it will be highly profitable.

[jk]

Re: Would you knowingly invest in a ponzi scheme?

We have written before about the bubble echo feature of markets, and the fact that experimental markets exhibit very similar patterns. But it bears repeating in the current context. Vernon Smith is
the major authority within this sphere. His work has shown that inexperienced traders take time to
learn the errors of their ways – helping to explain the echo bubble pattern observed in so many
data series. In his recent summary, Smith writes “once a group experiences a bubble and crash
over two experiments, and then returns for a third experiment, trading departs little from
fundamental value.”
That is to say, having created a bubble and crash in the first experiment, they managed to do so
again the second time they played! It was only on the third go that participants finally realised the
error of their ways and moved the market towards a rational pricing structure.
Intriguingly, Smith finds that the bubbles created in the first and second round of trading are very
different in nature. The first is a bubble in beliefs or a fad. But the second time traders played the game, the bubble were the result of overconfidence (a classic near rational bubble). Traders knew
that the bubble was a long way from fundamental value, but were sure they could get out before it
burst! The parallels with the current market are uncanny.

http://www.contrahour.com/Different ...Of Bubbles.pdf