Social Finance: Cultural Evolution, Transmission Bias and Market Dynamics
The thoughts and behaviors of financial market participants depend upon adopted cultural traits, including information signals, beliefs, strategies, and folk economic models. Financial traits compete to survive in the human population, and are modified in the process of being transmitted from one agent to another. These cultural evolutionary processes shape market outcomes, which in turn feed back into the success of competing traits. This evolutionary system is studied in an emerging paradigm, social finance. In this paradigm, social transmission biases determine the evolution of financial traits in the investor population. It considers an enriched set of cultural traits, both selection on traits and mutation pressure, and market equilibrium at different frequencies. Other key ingredients of the paradigm include psychological bias, social network structure, information asymmetries, and institutional environment.
We thank participants at the Conference on Evolutionary Models of Financial Markets, MIT Laboratory for Financial Engineering (virtual, June 2020), Siew Hong Teoh, Sheridan Titman, Jeffrey Zwiebel, and especially the discussant, Simon Levin and an anonymous referee for insightful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Erol Akçay & David Hirshleifer, 2021. "Social finance as cultural evolution, transmission bias, and market dynamics," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 118(26), pages 2015568118-, June. citation courtesy of