Evolution in Pecunia
Posted: 5 Jun 2020 Last revised: 13 Jan 2021
Date Written: May 29, 2020
The paper models evolution in pecunia—in the realm of finance. Financial markets are explored as evolving biological systems. Investors pursuing diverse investment strategies compete for the market capital. Some `survive' and some `become extinct.' A central goal is to identify evolutionary stable, i.e. guaranteeing survival, investment strategies. 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). The main result is a construction of an evolutionary stable strategy in the model at hand.
Keywords: Evolutionary finance, financial markets, evolutionarily stable investment strategies, survival, stochastic dynamics, local stability
JEL Classification: C73, G11
Suggested Citation: Suggested Citation