Moonshots, Investment Booms, and Selection Bias in the Transmission of Cultural Traits

28 Pages Posted: 6 Oct 2020 Last revised: 8 Jan 2021

See all articles by David A. Hirshleifer

David A. Hirshleifer

Marshall School of Business, USC; National Bureau of Economic Research (NBER)

Joshua Plotkin

University of Pennsylvania

Multiple version iconThere are 2 versions of this paper

Date Written: August 18, 2020


Biased information about the payoffs received by others can drive innovation, risk-taking, and investment booms. We study this cultural phenomenon using a model based on two premises. The first is a tendency for large successes, and the actions that lead to them, to be more salient to onlookers than small successes or failures. The second premise is selection neglect -- the failure of observers to adjust for biased observation. In our model, each firm in sequence chooses to adopt or to reject a project that has two possible payoffs, one positive and one negative. The probability of success is higher in the high state of the world than in the low state. Each firm observes the payoffs received by past adopters before making its decision, but there is a chance that an adopter's outcome will be censored, especially if the payoff was negative. Failure to account for biased censorship causes firms to become overly optimistic, leading to irrational booms in adoption. Booms may eventually collapse, or may last forever. We describe these effects as a form of cultural evolution with adoption or rejection viewed as traits transmitted between firms. Evolution here is driven not only by differential copying of successful traits, but also by cognitive reasoning about which traits are more likely to succeed -- quantified using the Price Equation to decompose the effects of mutation pressure and evolutionary selection. This account provides a new explanation for investment booms, merger and IPO waves, and waves of technological innovation.

Keywords: Cultural Evolution, Evolutionary Finance, Biased Censorship, Irrational Behavior, Price Equation, Mutation Pressure

JEL Classification: D03, D21, D25, D83, D92, G02, G3, G4, G41, M21, O31, O35

Suggested Citation

Hirshleifer, David A. and Plotkin, Joshua, Moonshots, Investment Booms, and Selection Bias in the Transmission of Cultural Traits (August 18, 2020). Available at SSRN: or

David A. Hirshleifer (Contact Author)

Marshall School of Business, USC ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

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National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joshua Plotkin

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

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