Copy trading allows traders in social networks to receive information on the success of other agents in financial markets and to directly copy their trades. Internet platforms like eToro, , and Tradeo have attracted millions of users in recent years. The present paper studies the implications of copy trading for the risk taking of investors. Implementing a novel experimental financial asset market, we show that providing information on the success of others leads to a significant increase in risk taking of subjects. This increase in risk taking is even larger when subjects are provided with the option to directly copy others. We conclude that copy trading leads to excessive risk taking. [2]
We study a simple model for social-learning agents in a restless multiarmed bandit (rMAB). The bandit has one good arm that changes to a bad one with a certain probability. Each agent stochastically selects one of the two methods, random search (individual learning) or copying information from other agents (social learning), using which he/she seeks the good arm. Fitness of an agent is the probability to know the good arm in the steady state of the agent system. In this model, we explicitly construct the unique Nash equilibrium state and show that the corresponding strategy for each agent is an evolutionarily stable strategy (ESS) in the sense of Thomas. It is shown that the fitness of an agent with ESS is superior to that of an asocial learner when the success probability of social learning is greater than a threshold determined from the probability of success of individual learning, the probability of change of state of the rMAB, and the number of agents. The ESS Nash equilibrium is a solution to Rogers’ paradox.[1]