Insider Trading and Evolutionary Psychology: Strong Reciprocity, Cheater Detection, and the Expanding Boundaries of the Law

66 Pages Posted: 3 Apr 2014 Last revised: 4 May 2015

Steven R. McNamara

American University of Beirut

Date Written: March 1, 2015

Abstract

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.

Keywords: Insider trading, evolutionary psychology, law and economics

JEL Classification: C71, D64, G18, K22, K42

Suggested Citation

McNamara, Steven R., Insider Trading and Evolutionary Psychology: Strong Reciprocity, Cheater Detection, and the Expanding Boundaries of the Law (March 1, 2015). Virginia Journal of Social Policy and the Law, Vol. 22, No. 2, 2015. Available at SSRN: https://ssrn.com/abstract=2419635 or http://dx.doi.org/10.2139/ssrn.2419635

Steven McNamara (Contact Author)

American University of Beirut ( email )

Beirut
Lebanon

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