Saturday, November 25, 2017

Modular-Finance...™ ~ It's The Environment Stupid!

    Financial markets don't follow economic laws. Financial markets are a product of human evolution and follow biological laws instead. The same principles of mutation, competition, and natural selection that determine the life history of a herd of antelope also apply to the banking industry, albeit with somewhat different population dynamics.

     The key to these laws is adaptive behavior in shifting environments. Economic behavior is but one aspect of human behavior, and human behavior is the product of biological evolution across eons of different environments.Competition, mutation, evolution, and especially natural selection are the basic building blocks of evolution. All individuals are always vying for survival - even if the laws of the jungle are less vicious on the African Savannah than on Wall Street. It's no surprise, then, that economic behavior is often best viewed through the lens of biology.

   Our behavior adapts to new environments - it has to because of evolution - but it adapts in the short term as well as across evolutionary time, and it doesn't always adapt in financially beneficial ways. Financial behavior that may seem irrational now is really behavior that hasn't had sufficient time to adapt to modern contexts.

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