From wheel of fortune to wheel of misfortune: Financial crises, cycles, and consumer predation

Olivier Mesly, David W. Shanafelt, Nicolas Huck and François-Éric Racicot ()

Journal of Consumer Affairs, 2020, vol. 54, issue 4, 1195-1212

Abstract: Predator–prey dynamics are widely used in ecology but seldom utilized in economics and marketing, despite their ability to express financial market agents' behaviors when considered in combination with economic cycles and financial crises. This multidisciplinary article presents a stylized framework of a market cycle that combines the notions of supply and demand and predator–prey interactions between buyers and sellers of housing mortgages. We illustrate our framework using data from the Global Financial Crisis and a Lotka‐Volterra predator–prey model. We find that with our framework we can capture the dynamics of the market, particularly the peak and decline in the number of sellers and sold subprime mortgages. Our framework sheds a new light on consumer behaviors, pinpointing how they can put themselves into vulnerable prey positions. This article is one of the first of its kind to propose market phases and predator–prey dynamics nested in economic cycles and consumer buying trends.

Date: 2020
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https://doi.org/10.1111/joca.12326

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Working Paper: From wheel of fortune to wheel of misfortune: Financial crises, cycles, and consumer predation (2020)
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