Insider Trading and Evolutionary Psychology: Strong Reciprocity, Cheater Detection, and the Expanding Boundaries of the Law
Steven R. McNamara
American University of Beirut
March 1, 2015
Virginia Journal of Social Policy and the Law, Vol. 22, No. 2, 2015
Insider trading law has expanded in recent years to cover instances of trading on non-public information that fall outside of the fiduciary duty framework set forth by the U.S. Supreme Court in the landmark cases of Chiarella and Dirks. The trend towards a broader insider trading law moves the law closer towards what evolutionary psychology insists humans desire when engaging in collective action: that individuals benefit in proportion to the effort or investment they make in a common enterprise. Insider trading law can therefore be understood as a societal response to cheating in group activities, and the recent expansion of the law can be regarded as reflecting a proclivity for fairness as proportionality. An evolutionary psychology-based account of insider trading law also provides a basis for understanding the observed correlation between insider trading enforcement and various measures of the health of the financial markets, as well as a unified jurisprudence of insider trading law encompassing both consequentialist and deontological aspects.
Number of Pages in PDF File: 66
Keywords: Insider trading, evolutionary psychology, law and economics
JEL Classification: C71, D64, G18, K22, K42
Date posted: April 3, 2014 ; Last revised: May 4, 2015
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
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