Estimates of agents' risk aversion dier between market studies and experimental studies. We demonstrate that the estimates can be reconciled through consistent treatment of agents' tendency for narrow framing, regarding integration of background wealth as well as across risky outcomes: Risk...

This chapter gives an overview of current research in evolutionary fi- nance. We mainly focus on the survival and stability properties of investment strategies associated with the Kelly rule. Our approach to the study of the wealth dynamics of investment strategies is inspired by Darwinian ideas...

The paper shows that financial market equilibria need not exist if agents possess cumulative prospect theory preferences with piecewise-power value functions. The reason is an infinite short-selling problem. But even when a short-sell constraint is added, non-existence can occur due to...

This paper introduces and analyzes an evolutionary model of a financial market with a risk-free asset. We focus on the local stability of the wealth dynamics, applying recent results on the linearization and stability of random dynamical systems (Evstigneev, Pirogov and Schenk-Hoppé...

The pricing kernel puzzle is the observation that the pricing kernel might be increasing in some range of the market returns. This paper analyzes the pricing kernel in a financial market equilibrium. If mar- kets are complete and investors are risk-averse and have common and true beliefs, the...

We study a number of large international military con flicts since World War II where we establish a news analysis as a proxy for the estimated likelihood that the con ict will result in a war. We find that in cases when there is a pre-war phase, an increase in the war likelihood tends to...

Evolutionary finance studies the dynamic interaction of investment strategies in financial markets. This market interaction generates a stochastic wealth dynamics on a heterogenous population of traders through the fluctuation of asset prices and their random payoffs. Asset prices are...