Evolution and market behavior in economics and finance: introduction to the special issue

Abstract

The articles contributing to this special issue were originally presented at a Workshop held in September 2009 at the Sant'Anna School of Advanced Studies in Pisa and titled "Evolution and Market Behavior in Economics and Finance". The aim of the workshop was to gather scholars working on the application of evolutionary theory concepts, such as selection, mutation and replication, to economics, in particular, to the understanding of the selection operated by markets, and to discuss ideas for future research in this area. The analysis of market selection and the characterization of the emerging market properties, such as allocative and informational efficiency, from an "evolutionary" perspective, have received an increasing attention in the last years. The typical evolutionary model studies the exchange of real or financial assets by heterogeneous boundedly rational agents, using the evolution of cumulated wealth or payoff to determine survival and dominance of specific strategies or behaviors and, consequently, the aggregate economic dynamics. The central question is indeed which types of expectations, information sets, preferences, learning models are rewarded in the long-run and their effect on market properties.More generally, by considering an a-priori large ecology of behaviors, evolutionary market models are good candidates to question the dominating neoclassical paradigm embodied by the use of households and firms characterized by "substantive rationality" (Simon 1976), that is, optimizing with respect to a well defined

Betting, Selection, and Luck: A Long-Run Analysis of Repeated Betting Markets

“…From ( 2 ), remembering that, by hypothesis, and cannot be both zero for the same p and are continuous, it is immediate to see that: where . Thus, the increments g are finite and bounded, and Theorems 2.2, 3.1, and 3.2 of [ 17 ] can be applied to the process . Notice that and .…”

Evolutionary finance: A model with endogenous asset payoffs

“…The above description of asset market dynamics requires clarification. Equations (10) and ( 8) make sense only if the equilibrium prices p t,k are strictly positive. Under what assumptions can we guarantee this?…”

“…Bottazzi and Dindo [10,11], Brock et al [15], Coury and Sciubba [16], Farmer [22], Farmer and Lo [23], Lo [32]- [35], Lo et al [36], Sciubba [45,46], and Zhang et al [53].…”

An evolutionary finance model with short selling and endogenous asset supply

“…Various approaches to EF distinct from that in the present work were developed in the studies by Blume and Easley [7], Farmer and Lo [26], Farmer [25], Brock et al [13], Lo [39][40][41][42], Lo et al [43], Zhang et al [59], Sciubba [53,54], Coury and Sciubba [15], Flåm [27], Bottazzi et al [10][11][12], Bottazzi and Dindo [8,9], and Tarnaud [58]. In those studies, for the most part different models were considered and different goals pursued.…”