Evolution, Finance, and the Population Genetics of Relative Wealth

42 Pages Posted: 19 Jan 2017 Last revised: 28 Jul 2017

See all articles by Allen Orr

Allen Orr

University of Rochester - Department of Biology

Date Written: January 16, 2017

Abstract

Attempts to use evolutionary ideas in finance have often neglected mathematical population genetics. Population genetics provides a natural approach to certain problems in finance that involve the relative wealth that accrues to competing investment strategies. In our model, competing investment strategies differ only in their allocation to a risky asset versus a riskless asset. Here we use results from the population genetics of natural selection to find the investment strategy that maximizes the expected increase in relative wealth. Though we focus on single-period analysis, some of our key findings are reminiscent of those from the growth optimal portfolio literature, e.g., the Kelly criterion.

Keywords: Kelly Criterion, Portfolio Optimization, Adaptive Markets Hypothesis, Evolutionary Game Theory

JEL Classification: G11, G12, D03, D11

Suggested Citation

Orr, Allen, Evolution, Finance, and the Population Genetics of Relative Wealth (January 16, 2017). Available at SSRN: https://ssrn.com/abstract=2900529 or http://dx.doi.org/10.2139/ssrn.2900529

Allen Orr (Contact Author)

University of Rochester - Department of Biology ( email )

Rochester, NY
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
181
Abstract Views
1,047
rank
167,674
PlumX Metrics