’Selecting Information in Financial Markets : Metamimetic Dynamics and Collective Choice Efficiency"

Abstract :
As expectations are driven by information, its selection is central in explaining common knowledge building and unraveling in financial markets, and trader performance. This paper addresses this information selection problem by proposing imitation as a key mechanism to explain opinion dynamics in a stochastic evolutionary game of information adoption. The selection of the most reliable source of information can emerge from a collective intelligence process in a metamimetic framework, in which selection decision rules interact reflexively, generating an endogenous distribution within the population that is quite efficient in identifying and selecting the most precise information signal. This result is obtained without supposing additional assumptions such as advanced expectation mechanisms, perfect rationality or complete information. The collective choice resulting from metamimetic distributions is compared with those emerging from pure maximizers and pure conformists environments in a diversity of combinations of market competition environments, imitation noise and information precision parameters.