Financial Market Ethics

David Easley and Maureen O’Hara

The Review of Financial Studies, 2023, vol. 36, issue 2, 534-570

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 nonethical 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.

JEL-codes: A13 C70 G28 G41 (search for similar items in EconPapers)
Date: 2023
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