Roll of Social Transmission Bias in Investing

Is the concept of emergent social behaviors useful in investing and trading? In his January 2020 address to the American Finance Association entitled “Social Transmission Bias in Economics and Finance”, David Hirshleifer discusses social economics and finance, a new field that examines how social processes shape economic and financial behaviors. This field is distinct from: (1) information economics (some people know more than others); and, (2) behavioral finance (people make systematic mistakes). He focuses on social transmission bias, systematic modification of signals or ideas between sender and receiver, as the key element of the new field. He employs five “fables” (models) to illustrate the novelty and importance of such bias. Based on his long experience in behavioral finance and recent/current studies, he concludes that:

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