Re: Two financial thought contagion papers now online

From: Grant Callaghan (
Date: Fri Feb 22 2002 - 15:05:53 GMT

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    From: "Grant Callaghan" <>
    Subject: Re: Two financial thought contagion papers now online
    Date: Fri, 22 Feb 2002 07:05:53 -0800
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    It might be interesting to compare stock market bubbles with the behavior of
    buying lottery tickets in a progressive lottery. The chances of winning in
    Calif. are 14 million to one, no matter what the payoff of a winning ticket.
      Newspapers often print the odds and comapre the chances of winning with
    getting struck by lightning or the planet being struck by a meteor. When
    the lottery payout approached 200 million last week, people in some places
    were line up around the block to buy a ticket. Automatic ticket dispensers
    ran out of tickets. The hysteria produced three winners who won 64 million

    I believe the forces that produce stock market bubbles operate in a similar
    way. No matter how many warnings they get of the danger of buying into a
    bubble, even supposedly rational stock brokers are overtaken with euphoria
    and computer programmers who work in the field of logic buy into the idea of
    getting rich by taking stock options instead of money.

    So why do normally rational people make irrational decisions in the face of
    advice to the contrary and end up losing most or all of their accumulated
    wealth? Is it similar to the idea of a guaranteed place in heaven? Or is
    it something like a herd instinct that causes people to stampede for the
    exits at the shout of fire?

    >From: <>
    >Subject: Two financial thought contagion papers now online
    >Date: Fri, 22 Feb 2002 04:37:52 EST
    >Yesterday, I placed two financial thought contagion papers
    >online. They are:
    >"Thought Contagions In the Stock Market" was published in
    >the Journal of Psychology and Financial Markets Volume 1,
    >number 1, on March 24, 2000. (Also presented in a 1999
    >conference.) Its URL is
    >Thought Contagions in the Stock Market
    >Aaron Lynch
    >The evolutionary epidemiology of ideas, or thought contagion
    >theory, is introduced and applied to possible examples in the
    >stock market. It is suggested that differences in transmissivity,
    >receptivity, and longevity of belief may contribute numerous
    >irrational influences on the stock market, generating sources of
    >inefficiency. These include a wide variety of mechanisms that
    >may generate both positive and negative market overreactions.
    >The soaring prices of Internet stocks during 1998-1999 are used
    >as an example of how investment ideas correlating with new
    >communication behaviors may affect share prices, and how
    >contagion effects in general can affect the broader market. New
    >avenues of empirical investigation are proposed to test the types
    >of hypotheses presented.
    >A separate academic article that expands on the first and discusses
    >some applications in general terms is published as "Thought contagion
    >in the stock markets: A general framework and focus on the Internet
    >bubble," in Derivatives Use, Trading and Regulation 6:4, p. 338-362
    >The online version is available at
    >Thought Contagion in the Stock Markets: A General Framework
    >and Focus on the Internet Bubble
    >Aaron Lynch
    >The possibility that ideas have self-spreading aspects contributing to
    >market movements is introduced, and set within a broader framework
    >of the evolutionary epidemiology of ideas. A broad range of contagion
    >factors are discussed, and explained in terms of transmissivity,
    > receptivity, and longevity of beliefs. These factors are hypothesised
    >as contributing to the prevalence of a great diversity of mass beliefs
    >that can affect share prices. Distinctions are drawn between
    >truth-contingent and non-truth-contingent transmission mechanisms,
    >and the emergence of multi-refutation-resistant strains of belief is
    >considered as a challenge to effective decision-making. All of
    >these principles are applied to the 1998 to early 2000 Internet stocks
    >bubble as an extended case study.
    >--Aaron Lynch
    >This was distributed via the memetics list associated with the
    >Journal of Memetics - Evolutionary Models of Information Transmission
    >For information about the journal and the list (e.g. unsubscribing)


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    This was distributed via the memetics list associated with the
    Journal of Memetics - Evolutionary Models of Information Transmission
    For information about the journal and the list (e.g. unsubscribing)

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