Evolution in pecunia

Rabah Amir (), Igor V. Evstigneev, Thorsten Hens (), Valeriya Potapova and Klaus Schenk-Hoppé
Additional contact information
Igor V. Evstigneev: Department of Economics, University of Manchester, Manchester M13 9PL, United Kingdom; Institute for Information Transmission Problems, Russian Academy of Sciences, Moscow 127051, Russian Federation, Russia
Thorsten Hens: Department of Banking and Finance, University of Zurich, CH-8032 Zurich, Switzerland; Department of Finance, Norwegian School of Economics, N-5045 Bergen, Norway; Department of Economics, University of Lucerne, CH-6002 Lucerne, Switzerland
Valeriya Potapova: Department of Economics, University of Manchester, Manchester M13 9PL, United Kingdom

Proceedings of the National Academy of Sciences, 2021, vol. 118, issue 26, e2016514118

Abstract: The paper models evolution in pecunia—in the realm of finance. Financial markets are explored as evolving biological systems. Diverse investment strategies compete for the market capital invested in long-lived dividend-paying assets. Some strategies survive and some become extinct. The basis of our paper is that dividends are not exogenous but increase with the wealth invested in an asset, as is the case in a production economy. This might create a positive feedback loop in which more investment in some asset leads to higher dividends which in turn lead to higher investments. Nevertheless, we are able to identify a unique evolutionary stable investment strategy. 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). Our method is analytical and based on mathematical reasoning. A numerical illustration of the main result is provided.

Keywords: evolutionary finance; evolutionarily stable investment strategies; survival; stochastic dynamics; local stability (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Evolution in pecunia (2021)
Working Paper: Evolution in Pecunia (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:nas:journl:v:118:y:2021:p:e2016514118

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