Behavior of Investors on a Multi-Asset Market

This paper analyzes the field of investors’ decision-making on a multi-asset market. It does it through a simulation games on a social network framework. It has been demonstrated that more stocks there are in the game and more changing alternatives investors have available to choose from, tougher it is for them to make decisions. Despite in most simulations the safest alternative was dominant, many investors opt for portfolio of the safest and the riskiest stock, by which they back the risk they take with some safe stocks. Non-omniscient investors behave chaotically. In all the cases, liquidity agents proved to be decisive elements of the games, though not always able to deliver the information of all the alternatives when too many alternatives are available.social networks, behavioral finance, portfolio analysis, multi-asset game, chaos

Conflicted Minds: Recalibrational Emotions Following Trust-based Interaction.

Consistent with a modular view of the mind, both short-sighted and long-sighted programs may be simultaneously active in the mind and in conflict with one another when individuals face choice dilemmas in trust-based economic interactions. Recalibrational theory helps us identify the adaptive design features shared among subsets of superordinate emotion programs. According to this design logic and the computation of adaptive problem features produced by Trust games, we predict the activation of emotions after Trust games. While this study successfully predicts reports of twenty distinct emotional states, further studies are needed to demonstrate ultimate recalibrational functions of emotions.emotions, recalibrational theory, modularity, Trust game, experiments

The Fetters of the Sib: Weber Meets Darwin

We analyze the effects of family ties on the incentives for productive effort. A family is modelled as a pair of altruistic siblings. Each sibling exerts effort to produce output under uncertainty and siblings may transfer output to each other. We show that altruism has a non-monotonic effect on effort. We study how this effect depends on "climate," the magnitude and volatility of returns to effort. We also analyze the evolutionary robustness of family ties and how this robustness depends on climate. We find that family ties will be stronger in milder climates than in harsher climates.altruism; family ties; moral hazard; evolutionary robustness

Resistance to learning and the evolution of cooperation

In many evolutionary algorithms, crossover is the main operator used in generating new individuals from old ones. However, the usual mechanism for generating offsprings in spatially structured evolutionary games has to date been clonation. Here we study the effect of incorporating crossover on these models. Our framework is the spatial Continuous Prisoner's Dilemma. For this evolutionary game, it has been reported that occasional errors (mutations) in the clonal process can explain the emergence of cooperation from a non-cooperative initial state. First, we show that this only occurs for particular regimes of low costs of cooperation. Then, we display how crossover gets greater the range of scenarios where cooperative mutants can invade selfish populations. In a social context, where crossover involves a general rule of gradual learning, our results show that the less that is learnt in a single step, the larger the degree of global cooperation finally attained. In general, the effect of step-by-step learning can be more efficient for the evolution of cooperation than a full blast one

Trust, Reciprocity and Rules

In the absence of enforceable contracts, many economic and personal interactions rely on trust and reciprocity. Research shows that although this reliance often works well, sometimes it breaks down. Simple rules mandating minimum standards on reciprocation prevent the most egregious trust violations, but may also undermine behavior that would have otherwise produced higher overall economic welfare. We test the efficacy of exogenously imposed minimum return rules using experimental trust games. We find that rules fail to increase trust and trustworthiness. Thus low minimum standards significantly decrease economic welfare. Although sufficiently restrictive rules restore welfare, trust and trustworthy behavior never returns.trust games, experiments, reputation, information, reciprocity

Evolutionary or revolutionary business model innovation through coopetition? The role of dominance in network markets

This paper examines how the level of dominance in firms affects when they engage in coopetition in order to innovate their business model. We present a longitudinal and in-depth single case study of the business model innovation decisions of investment banks in the US corporate bond trading market. We find that, in network markets, when firms choose to engage in coopetition in light of competitive threat it is done so in order to adopt a defensive or offensive strategy. The study shows that in network markets the less dominant firms tend to engage in coopetition to innovate their business model in an evolutionary manner before the dominant firms, as a defensive strategy to protect their existing business model. In contrast, the dominant firms tend to engage in coopetition to innovate their business model in a revolutionary manner after the less dominant firms, as an offensive strategy to alter radically their existing business model. We draw implications of coopetition in network markets for both theory and practice.This study was supported by funding from the Economic and Social Research Council.This is the author accepted manuscript. The final version is available from Elsevier via http://dx.doi.org/10.1016/j.indmarman.2015.11.00

The naturalistic turn in economics: implications for the theory of finance

Economics is increasingly adopting the methodological standards and procedures of the natural sciences. The paper analyzes this 'naturalistic turn' from the philosophical perspective on naturalism, and I discuss the implications for the field of finance. The theory of finance is an interesting case in point for the methodological issues, as it manifests a paradigmatic tension between the pure theory of finance and Behavioral Finance. I distinguish between three kinds of naturalism: mark I, the reduction of behavior on psychoneural phenomena, mark II, the transfer of patterns of causal explanations from the natural sciences to the social sciences, mark III, the enrichment of the ontology from observer-independent to observer-relative facts. Building an integrated naturalistic paradigm from these three ingredients, I show that naturalism in economics will only be completed by a simultaneous linguistic turn, with language being analyzed from the naturalistic viewpoint. I relate this proposition with recent results of research into finance, especially connecting Behavioral Finance with the sociology of finance. --Naturalism,causation in economics,neuroeconomics,behavioral finance,social ontology,sociology of finance

Evolution of trust in structured populations

The trust game, derived from a notable economics experiment, has recently attracted interest in the field of evolutionary dynamics. In a prevalent version of the evolutionary trust game, players adopt one of three strategies: investor, trustworthy trustee, or untrustworthy trustee. Trustworthy trustees enhance and share the investment with the investor, whereas untrustworthy trustees retain the full amount, betraying the investor. Following this setup, we propose a two-player version of the trust game, which is analytically feasible. Based on weak selection and pair approximation, we explore the evolution of trust in structured populations, factoring in four strategy updating rules: pairwise comparison (PC), birth-death (BD), imitation (IM), and death-birth (DB). Comparing structured populations with well-mixed populations, we arrive at two main conclusions. First, in the absence of untrustworthy trustees, there is a saddle point between investors and trustworthy trustees, with collaboration thriving best in well-mixed populations. The collaboration diminishes sequentially from DB to IM to PC/BD updating rules in structured populations. Second, an invasion of untrustworthy trustees makes this saddle point unstable and leads to the extinction of investors. The 3-strategy system stabilizes at an equilibrium line where the trustworthy and untrustworthy trustees coexist. The stability span of trustworthy trustees is maximally extended under the PC and BD updating rules in structured populations, while it decreases in a sequence from IM to DB updating rules, with the well-mixed population being the least favorable. This research adds an analytical lens to understanding the evolution of trust in structured populations.Comment: 15 pages, 5 figure

Resistance to learning and the evolution of cooperation

In many evolutionary algorithms, crossover is the main operator used in generating new individuals from old ones. However, the usual mechanism for generating offsprings in spatially structured evolutionary games has to date been clonation. Here we study the effect of incorporating crossover on these models. Our framework is the spatial Continuous Prisoner's Dilemma. For this evolutionary game, it has been reported that occasional errors (mutations) in the clonal process can explain the emergence of cooperation from a non-cooperative initial state. First, we show that this only occurs for particular regimes of low costs of cooperation. Then, we display how crossover gets greater the range of scenarios where cooperative mutants can invade selfish populations. In a social context, where crossover involves a general rule of gradual learning, our results show that the less that is learnt in a single step, the larger the degree of global cooperation finally attained. In general, the effect of step-by-step learning can be more efficient for the evolution of cooperation than a full blast one.Evolutionary games, Continuous prisoner's dilemma, Spatially structured, Crossover, Learning