IDEAS home Printed from https://ideas.repec.org/a/nas/journl/v118y2021pe2016514118.html
   My bibliography  Save this article

Evolution in pecunia

Author

Listed:
  • Rabah Amir

    (Department of Economics, University of Iowa, Iowa City, IA 52242; Institute for Advanced Study (IMéRa), Aix-Marseille University, Marseille 13004, France; Aix-Marseille School of Economics, Aix-Marseille University, Marseille 13001, France)

  • Igor V. Evstigneev

    (Department of Economics, University of Manchester, Manchester M13 9PL, United Kingdom; Institute for Information Transmission Problems, Russian Academy of Sciences, Moscow 127051, Russian Federation, Russia)

  • Thorsten Hens

    (Department of Banking and Finance, University of Zurich, CH-8032 Zurich, Switzerland; Department of Finance, Norwegian School of Economics, N-5045 Bergen, Norway; Department of Economics, University of Lucerne, CH-6002 Lucerne, Switzerland)

  • Valeriya Potapova

    (Department of Economics, University of Manchester, Manchester M13 9PL, United Kingdom)

  • Klaus R. Schenk-Hoppé

    (Department of Economics, University of Manchester, Manchester M13 9PL, United Kingdom; Department of Finance, Norwegian School of Economics, N-5045 Bergen, Norway)

Abstract

The paper models evolution in pecunia—in the realm of finance. Financial markets are explored as evolving biological systems. Diverse investment strategies compete for the market capital invested in long-lived dividend-paying assets. Some strategies survive and some become extinct. The basis of our paper is that dividends are not exogenous but increase with the wealth invested in an asset, as is the case in a production economy. This might create a positive feedback loop in which more investment in some asset leads to higher dividends which in turn lead to higher investments. Nevertheless, we are able to identify a unique evolutionary stable investment strategy. The problem is studied in a framework combining stochastic dynamics and evolutionary game theory. The model proposed employs only objectively observable market data, in contrast with traditional settings relying upon unobservable investors’ characteristics (utilities and beliefs). Our method is analytical and based on mathematical reasoning. A numerical illustration of the main result is provided.

Suggested Citation

  • Rabah Amir & Igor V. Evstigneev & Thorsten Hens & Valeriya Potapova & Klaus R. Schenk-Hoppé, 2021. "Evolution in pecunia," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 118(26), pages 2016514118-, June.
  • Handle: RePEc:nas:journl:v:118:y:2021:p:e2016514118
    as

    Download full text from publisher

    File URL: http://www.pnas.org/content/118/26/e2016514118.full
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hirshleifer, David & Lo, Andrew W. & Zhang, Ruixun, 2023. "Social contagion and the survival of diverse investment styles," Journal of Economic Dynamics and Control, Elsevier, vol. 154(C).
    2. Igor V. Evstigneev & Mohammad Javad Vanaei, 2022. "Evolutionary Behavioural Finance: A Model with Endogenous Asset Payoffs," Economics Discussion Paper Series 2202, Economics, The University of Manchester.
    3. Mikhail Zhitlukhin, 2021. "Capital growth and survival strategies in a market with endogenous prices," Papers 2101.09777, arXiv.org.

    More about this item

    Keywords

    evolutionary finance; evolutionarily stable investment strategies; survival; stochastic dynamics; local stability;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nas:journl:v:118:y:2021:p:e2016514118. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Eric Cain (email available below). General contact details of provider: http://www.pnas.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.