Financial Market Ethics

Review of Financial Studies

51 Pages Posted: 9 Jul 2019 Last revised: 4 Apr 2022

See all articles by David Easley

David Easley

Cornell University - Department of Economics; Cornell University - Department of Information Science

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: August 26, 2019

Abstract

We develop a model of psychological-games-played-on-a-network to demonstrate a role for endogenously -determined, rationally chosen ethics. Our analysis produces sharp results about contagion of non-ethical or ethical behavior and the possible equilibrium configurations of each type of behavior. We find, and quantify, critical densities for clusters of each type of behavior that determine everything about contagion. We introduce society as a third player to investigate ethical failures as externalities. We use these results to show how regulations and network structure can affect whether clusters of ethical behavior can survive and how large they can be in a financial market setting.

Keywords: ethics, contagion, regulation, market structure

Suggested Citation

Easley, David and O'Hara, Maureen, Financial Market Ethics (August 26, 2019). Review of Financial Studies, Available at SSRN: https://ssrn.com/abstract=3415626 or http://dx.doi.org/10.2139/ssrn.3415626

David Easley (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6283 (Phone)
607-255-2818 (Fax)

Cornell University - Department of Information Science ( email )

402 Bill & Melinda Gates Hall
Ithaca, NY 14853
United States

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

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